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The loss of client contracts can be devastating for businesses – it can also be par for the course.

Some employers operate exclusively on a continuous rotation of cycling client contracts won and lost regularly. Of course, this a perfectly reasonable way of conducting a business, but what does it mean for the employees engaged to perform work under those contracts?

What is the status of their employment if a client contract is lost? And what are their entitlements if their employment is terminated as the result of a lost contract?

These questions were examined in a recent decision of the Federal Court of Australia in the decision of United Voice v Berkeley Challenge Pty Limited [2018] FCA 224.

This matter concerned a group of employees who worked for Berkeley Challenge Pty Limited (Berkeley), part of the Spotless Group of Companies, to provide cleaning and security services at the Sunshine Coast Plaza Shopping Centre.

In August 2014, Spotless was required to re-tender for the cleaning and security services work at the shopping centre and was unsuccessful. As a result, Spotless, on behalf of Berkeley, issued the employees with a “Notification of Loss of Contract.”

The Notification letter informed the employees that Spotless (on behalf of Berkeley) had been unsuccessful in the re-tender process and was required to exit the shopping centre by the end of September 2014. The Notification letter advised that Spotless would attempt to redeploy employees where possible and that the new contractor was keen to receive applications for existing employees. However, in the event that no alternatives presented themselves, the employees’ employment would be terminated at the end of the current contract period as a result of the loss of the contract.

The end date of the contract was slightly delayed, but on 7 October 2014 Berkeley ceased its operations in the shopping centre and the employees it engaged to work there had their employment terminated.

Berkeley had held the contract to provide cleaning and security services to the shopping centre for more than 20 years prior to the end of this contract. The length of service of the employees ranged from four years to 21 years.

On termination, none of the employees were paid redundancy pay.

United Voice acted on behalf of the employees in this case and argued that Berkeley had contravened the Fair Work Act 2009 (Cth) (FW Act) in that it had failed to give the employees proper notice of the termination of their employment or pay them the redundancy pay to which they were entitled.

Berkeley claimed that the Notification letter was proper notice of termination of employment and that it was not required to pay redundancy pay because the termination of the employees’ employment was “due to the ordinary and customary turnover of labour” – an exception to the obligation to pay redundancy pay found in s119(1) of the FW Act.

Notice of termination of employment

The Federal Court examined the Notification letter against the relevant provisions of the FW Act and found that it was not proper written notice of termination of employment. The Court found that it was primarily notice of the loss of the contract for the work at the shopping centre and contained unclear statements about the future of the employees’ employment. Judge Reeves said, “I do not consider the Notice Letter made it unambiguously clear to the affected employees that their employment with Berkeley was being terminated.”

Redundancy pay entitlement

In regards to Berkeley’s reliance on the “ordinary and customary turnover of labour” exception to paying redundancy pay, the Court reviewed the relevant case law, the evidence put forward by the parties and considered the appropriate interpretation of the exception.

The Court found that in order for the exception to apply, an employer would need to demonstrate that the decision to terminate an employee’s employment with respect to its labour turnover was “both common, or usual, and a matter of long-continued practice” for their business specifically, regardless of what was common or usual for their industry or related companies.

In other words, the employer must be able to demonstrate that it is, and has been for a long time, in the nature of the employer’s own business to experience regular turnover of labour without the need to pay redundancy pay.

The Court found that Berkeley had failed to demonstrate this. Specifically, Berkeley’s contractual relationship with the shopping centre had lasted more than 20 years and the employees had been employed throughout that entire period. In contrast to the requirements of the exceptions, the Court found that “the termination and the connected job redundancies were, for Berkeley, as the employer, uncommon and extraordinary and not a matter of long-continued practice.”

Berkeley did not have a regular turnover of staff and it was not common practice for terminations to occur as the result of a lost contract.

Accordingly, the Court held that the employees were entitled to redundancy pay and Berkeley had contravened the FW Act by not paying them their entitlements.

The Court ordered that Berkeley pay compensation to the employees for both its failure to give proper notice of termination and for failing to pay the redundancy pay which it owed to the employees.

Lessons for employers

There are two main lessons to take away from this case:

• When providing employees with notice of termination, it should always be written and in unambiguous terms. The employee receiving the notice of termination should be able to understand that their employment is being terminated and when the termination will take effect.

• Employers should first seek legal advice before pressing ahead with reliance on the exception to pay redundancy pay “due to the ordinary and customary turnover of labour”.

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