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The Fair Work Act 2009 (Cth) (FW Act) provides a minimum entitlement to redundancy pay in situations where an employee’s position is genuinely made redundant. There are exceptions, however, to when this entitlement will be paid, one of which is when the employer no longer requires the job to be done due to the “ordinary and customary turnover of labour”.

What this phrase actually means was recently considered by the Federal Court of Australia in the decision of Fair Work Ombudsman v Spotless Services Australia Ltd [2019] FCA 9.

In this matter, the Fair Work Ombudsman (FWO) alleged that Spotless contravened the FW Act because it failed to pay three employees their redundancy entitlement upon termination of their employment. The employees’ positions were made redundant after Spotless’ contract with Perth International Airport was not renewed.

Spotless relied on the “ordinary and customary turnover of labour” exception to paying redundancy pay and argued that:

• It is a feature of its business that it enters into fixed-term contracts with customers;
• It employs employees to perform work under those contracts; and
• Where a contract comes to an end or is not renewed, then the jobs performed by employees under the contract come to an end.

The FWO submitted that the exception required consideration of whether the termination of employment as a result of the loss of contracts was a long-standing practice. It submitted that the “practice” of terminating employees at the end of a contract was actually a new practice that Spotless started to use in order to rely on the exception as a normal feature of its business. The FWO argued that previously, Spotless redeployed employees where possible and paid redundancy entitlements if the employees were not required.

In considering whether Spotless was entitled to rely on the exemption in the FW Act, Justice Colvin considered industrial case law relating to “ordinary and customary turnover of labour”.

Colvin J held that “ordinary and customary turnover of labour”, when considered in the context of previous decisions, described a termination of employment “that is a common and usual outcome for anyone working in a job of that kind” and where “it is to be expected that for anyone in that type of job, the employment will not be ongoing”.

In his view, the exception to a redundancy pay entitlement would apply where it is usual practice for the type of job to be terminated rather than be ongoing. It would depend on the facts in each case whether the termination of employment is “inherent” to the type of job.

It was held that Spotless did not demonstrate that the employees’ employment was terminated because it was common for jobs of their nature to be terminated when a contract came to an end. In particular, it was not demonstrated that due to the circumstances of employment, the employees had, or should have, an expectation that the kind of job they performed would end when the contract ended. The employees were not advised that their employment was for a period of time, was dependent on a contract and would end if the contract ended or was lost.

Accordingly, the Court was satisfied that Spotless contravened the FW Act.

Lessons for employers

The exception to pay redundancy due to the “ordinary and customary turnover of labour” is now linked to the nature of the job performed rather than any practice of the employer. This is a narrower interpretation that will look at the facts of the employment rather than any business practice of the employer.

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