Ordinary and Customary Turnover of Labour – Redundancy

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Ordinary and Customary Turnover of Labour – Redundancy

After a long struggle to overturn crucial court decisions on redundancy payouts, Spotless’s final opportunity ended on December 11, 2020 when the High Court rejected its bid for special leave to appeal.

The High Court’s decision makes it necessary that to establish ordinary turnover of labour, employers must prove that the affected employees understood that the contract may end and that they had no reasonable expectation of continuing work beyond the contract with the client. If not entitlements to redundancy pay would apply.

Section 119(1)(a) of the Fair Work Act 2009 provides an opportunity for employers to avoid redundancy payments where employment ends due to “Ordinary and customary turnover of labour”. The most important factor to be considered is if the employees knew, or could reasonably have known, that when the contract with the client ends their employment may also end.

Contracts end

The private security industry, in many instances, relies on fixed term contracts with clients and engage staff specifically to work on many of those contracts. Very often, nearing the completion of the contract period clients will not automatically renew, instead, putting the contract out to tender or going to the market seeking a better arrangement.

When the contract is lost and a new contractor has been procured by the client it may bring into play the exception available in Section 119(1)(a) but that is not automatic and will – if challenged – be considered by courts having regard to multiple factors.

In some cases the new contractor will provide employment to the ‘old’ contractor’s displaced employees. Unless the old contractor has “obtained” jobs with the new contractor redundancy may still apply. These situations are rarely simple.

Key message for employers

  • The exception is generally relied upon where an employee’s continued engagement is based on the employer retaining a particular contract. Loss of te contract may bring termination of employment. However, it depends on the facts and circumstances of each dismissal and the features of the employer’s business.
  • Ensuring the contract of employment clearly states that continued employment is dependent upon the employer retaining a particular contract and that the employee will not be entitled to redundancy pay if their employment is terminated due to the loss of that contract is imperative.

There are other matters that must be addressed when contracts cease and employees face the loss of their jobs.

Employers should:

  • Seek professional advice to ascertain if Section 119(1)(a) of the Fair Work Act 2009 provides an exemption in the particular circumstances;
  • Consult with employees, both collectively and individually, as soon as reasonably practical once it is kown that the contract may cease.
  • Give reasonable notice to employees and/or their representatives;
  • Explore genuine alternative options for redundancy, such as redeployment or relocation;
  • Ensure such options are fairly offered to the affected employees;
  • Provide at least the NES standard redundancy benefits;
  • Provide appropriate ancillary services, such as time off to seek alternative work (this is generally an award provision), retraining opportunities etc.
  • Ensure employees nominated for redundancy are fairly selected on an objective and unbiased basis.

The issues facing both employers and employees affected by the loss of a contract are complex. In such situations employers would be well advised to anticipate the likely outcome before the contract period is due to end and seek professional advice to ensure that they are ready to deal with any issues that may arise.

For more information contact the Workplace Relations Speicalists admin@workplacerelationsspecialists.com.au

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