Tuesday, 6 March 2018

Turnover of Custom: Significant Ruling on Redundancy Entitlements

Redundancy entitlements under the Fair Work Act are payable where employment ends because the employer no longer requires the role to be performed by anyone, unless this is due to the ordinary and customary turnover of labour.

This carve out from redundancy pay obligations has received recent scrutiny in a series of cases. Most recently this included a decision of the Federal Court of Australia.

Decision of the Western Australian Industrial Relations Commission

In mid-2017, Spotless Management Services lost a service contract with the state Fire and Emergency Services department, resulting in the retrenchment of a number of employees. At the time, the Western Australia Industrial Relations Commission (WAIRC) found that the termination of the Spotless contract fell squarely within the definition of ordinary and customary turnover of labour. As such redundancy pay did not apply.

This decision was reported as having widespread ramifications for companies operating in the services industry, where contracts are tendered for and may be terminated from year to year.

Redundancy Entitlements Exception Redefined

However, in a more recent case, a subsidiary of Spotless Management Services, Berkeley Challenge, made some employees redundant after a long-standing services contract was terminated. Berkeley chose not to pay those employees redundancy entitlements. Instead it relied on the ordinary and customary turnover of labour exception.

The Federal Court outright rejected Berkeley’s assertions and clarified that, for the exception to apply, the turnover of labour had to be “common, or usual, and a matter of long-continued practice”. In this case, because the contract with Berkley’s client had been in place for almost 20 years, this did not fall within the exception. Therefore, redundancy payments were applicable.

While certain questions remained unanswered, such as how long the practice of labour turnover must continue before the exception will arise, as a higher authority than the WAIRC, it is likely that this Federal Court decision will be followed in any future cases that consider the ordinary and customary turnover of labour.

Lessons for Employers

Employers operating in service industries who find themselves in similar circumstances must carefully consider the context of the particular employment. Do not make assumptions that the exception to redundancy pay will apply.


Case Study:  United Voice v Berkeley Challenge Pty Limited [2018] FCA 224


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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