Employers may have granted entitlements to redundancy pay through enterprise agreements in wider situations than provided by the National Employment Standards (NES). The Full Bench of the Fair Work Commission has ruled that the entitlement to redundancy pay in an enterprise agreement should not be ‘read down’ to exclude the ‘ordinary and customary turnover of labour’ concept, which can be found in the redundancy provisions of the NES.
The Full Bench was asked to consider the construction of redundancy provisions in an enterprise agreement following a dispute between an employer and several unions about whether a group of employees were entitled to redundancy pay.
The relevant enterprise agreement included terms that provided for redundancy pay based on continuous periods of service where employees were terminated “by reason of redundancy.”
The term “redundancy” was not defined in the enterprise agreement, and other than an employee’s period of service and commencement date, there were no other factors limiting an employee’s entitlement to redundancy pay.
Although, as the Full Bench points out, the NES does not define the term redundancy, it does limit the circumstances in which an employee will be entitled to redundancy pay. Relevantly, section 119 of the Fair Work Act 2009 (the Act) excludes terminations “due to the ordinary and customary turnover of labour.” This exclusion was not set out in the relevant enterprise agreement.
The employer in this case had tendered for, but had been unsuccessful in, obtaining a new contract for the work performed by a group of its employees. As a result, it terminated their employment and argued that it did not have an obligation to pay redundancy pay because the termination was as a result of the ordinary and customary turnover of labour.
The unions had argued, amongst other matters, that:
- the express terms of the enterprise agreement did not differentiate between redundancies on the basis that they were the result of the ‘ordinary and customary turnover of labour’;
- if the parties had intended to exclude terminations on that basis, it would have been simple to set out that exclusion;
- the ordinary meaning of ‘redundancy’ does not exclude terminations by reason of the ‘ordinary and customary turnover of labour’; and
- the enterprise agreement incorporated by reference the redundancy terms of two modern awards, neither of which excluded terminations by reason of the ‘ordinary and customary turnover of labour.’
In response, the employer argued that:
- due to the nature of the enterprise agreement, the manner of its expression, the incorporation of modern award terms, the legislative context and the industrial purpose it serves, the term ‘redundancy’ in the enterprise agreement took its meaning from section 119 of the Act, excluding terminations by reason of the ‘ordinary and customary turnover of labour’; and
- the term ‘redundancy’ arises in an industrial instrument and must take its colour from that industrial context.
The Full Bench rejected the employer’s arguments and held that the express terms of the enterprise agreement did not exclude terminations by reason of the ‘ordinary and customary turnover of labour.’
The Full Bench found that neither of the two modern awards whose redundancy provisions were incorporated by reference, defined ‘redundancy’ in a way that excluded terminations by reason of the ‘ordinary and customary turnover of labour.’ Although the terms of other modern awards were also incorporated into the enterprise agreement, those awards only referred to the NES redundancy provisions. They did not incorporate the NES terms and did not intend to “create any award obligation in relation to redundancy pay.”
The Full Bench noted that although the enterprise agreement is “underpinned” by the NES, the NES only sets a “minimum” standard and parties to an enterprise agreement are able to supplement the NES provisions as long as those minimum standards are maintained.
Further, the Full Bench held that in its industrial context, the term ‘redundancy’ includes “the abolition of a position which leads to that position being redundant” and that the cause of that abolition is a separate matter – if anything the exclusion in section 119 reinforces the fact that a termination by reason of the ‘ordinary and customary turnover of labour’ is a redundancy, “albeit one that does not give rise to an entitlement to redundancy pay.”
What does this mean for employers?
Employers should seek to ensure that redundancy provisions in enterprise agreements provide that employees will only be entitled to redundancy pay in the same circumstances set out in the NES. This means excluding (among others) the following from circumstances which enliven the obligation to pay redundancy pay:
- terminations by reason of the ‘ordinary and customary turnover of labour’;
- the termination of employees with less than 12 months’ continuous service;
- terminations by employers who are considered “small business employers”;
- certain terminations in the context of a transfer of employment;
- employees employed for a specified period of time, for a specified task, or for the duration of a specified season;
- employees terminated because of serious misconduct; and
- casual employees and apprentices.
Employers who have current enterprise agreements should take care when terminating employees because of redundancy – if the circumstances in which redundancy pay becomes payable are unclear, then advice should be sought before terminating an employee without redundancy pay.
More broadly, employers should also consider other terms of their enterprise agreements which seek to replicate NES or modern award entitlements. If the provisions are not expressed in the same terms as the NES or an applicable modern award, then the implication of this decision may be that those provisions are interpreted in a way that differs from what the parties intended. Careful drafting will be required in future.