When a retrenched worker is NOT entitled to a redundancy payout

By Charles Power on June 21st, 2017

Where your employment of a person is based on you retaining a particular contract, if you dismiss the employee because you lose the contract, you may be able to rely on an ‘ordinary and customary turnover of labour’ exception to avoid redundancy pay obligations.

The ‘ordinary and customary turnover of labour’ exception appears in the National Employment Standard (NES) redundancy pay provision in the Fair Work Act 2009 (Cth).

The effect of the provision is that when you no longer require an employee’s job to be performed by anyone, and dismiss the employee for that reason, you don’t have to make redundancy payments to the employee if the dismissal has the character of ordinary and customary turnover of labour. This means the NES redundancy pay entitlement does not arise.

In Spotless Group v Dennis Buckle (2017), the employer successfully established that this exception applied in the following circumstances:

  • the employer operated a contracting business providing a range of services to clients, including catering and hospitality, security, maintenance and cleaning;
  • the employer recruited the majority of its employees to work on and be ‘tied to’ specific client contracts;
  • an employee worked under a contract between the employer and a client for the provision of facility maintenance services;
  • following the loss of that contract to another contractor, the employer informed the employee that upon termination of the contract, if no acceptable alternative employment options could be found with either the current employer or the incoming contractor, his employment would be terminated as a consequence of ordinary and customary turnover of labour;
  • the employee was not offered a position by the employer, nor with the incoming contractor and was not paid a redundancy payment, despite almost seven years of service; and
  • the employee’s employment contract provided that upon termination of employment on grounds of redundancy, the retrenchment benefits payable to the employee will accord with the terms of the employer’s applicable retrenchment policy. As it was, the employer did not have a written retrenchment policy, but adopted the practice of generally following the NES or applicable award or enterprise agreement.

Clause had no effect

The West Australian Industrial Relations Commission referred to the contractual provision for redundancy and observed that in the absence of a retrenchment policy, the clause was uncertain and of no effect.

However, the Commission ruled that the policy was to apply the NES.

Therefore, the employee’s entitlement to retrenchment benefits under the redundancy clause in the employment contract accorded with the NES for redundancy pay. The NES disentitled the employee to a redundancy payment where employment is terminated due to the ordinary and customary turnover of labour.

Given that was the case here, the employee was not entitled to redundancy pay.

While there was no dispute in this case that the employment was terminated due to ordinary and customary turnover of labour, care must be taken when treating redundancy situations arising from a downturn in trade or loss of custom as ordinary and customary turnover of labour.

The exception only applies where there is a close association with the particular employment and a contract between the employer and the client.

Managing Redundancies

Redundancy can be a tricky area for a number of reasons and it’s important to be aware of your employee’s entitlements and the legal risks involved.
Managing Redundancies is written by Employment Law Practical Handbook Editor-in-Chief, Charles Power, and contains everything you need to know about implementing a redundancy effectively, fairly and with the least possible impact on your business and staff.

The eBook also contains 9 essential document templates that have been drafted by employment law experts to help you through the redundancy process, including:

  • Retrenchment Letter
  • Statement of Service
  • Redeployment Letter
  • Deed of Release
  • Redundancy checklist

Get your copy of Managing Redundancies today to be sure you won’t make any costly mistakes if the time comes to put your retrenchment plan into action.

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