Avoiding redundancy payments

Yesterday I published a post about the circumstances in which an employer may avoid statutory redundancy obligations when it loses work due to the “ordinary and customary turnover of labour exception. Here is another passage from another recent case on the point.

“The critical issue argued in the appeals was the proper construction of the national employment standard in s 119(1)(a) and, in particular, the exception within it. Relevantly, s 44(1) provided that an employer must not contravene a national employment standard. The object of the Act is to provide a balanced framework for workplace relations including by ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through those standards, modern awards and minimum wage orders (s 3(b)). Part 2-2 (which included Div 11 and s 119) contained the standards that s 61(1) provided “cannot be displaced”. Relevantly, s 119(1) provided:

Division 11—Notice of termination and redundancy pay

Subdivision B—Redundancy pay

119 Redundancy pay

Entitlement to redundancy pay

(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b) because of the insolvency or bankruptcy of the employer.

(italic emphasis added)

  1. An employer’s liability to pay redundancy pay under s 119(1)(a) is triggered if it makes a decision that it no longer requires the job done by an employee to be done by anyone. However, that liability is not absolute. Apart from the exception in s 119(1)(a), Div 11 of Pt 2-2 of the Act also provides that the liability can be displaced or reduced if:
    • the employer obtains a determination to that effect from the Fair Work Commission, if the employer either obtains acceptable employment for the employee or it cannot pay the amount due (s 120);
    • the employee had worked continuously for the employer for less than 12 months (s 121(1));
    • the employer is a small business employer (s 121(1));
    • a modern award so provides (s 121(2));
    • the employee rejects a transfer of employment to a new employer on substantially similar, and overall no less favourable, terms that include the new employer’s recognition of the employee’s service with its predecessor (subject to the power of the Commission to grant the employee relief if it considers that the employee’s rejection of employment with the new employer was justified because those terms operated unfairly to the employee) (s 122); or
    • the employee was:
      • employed for a specified period of time, for a specified task, or for the duration of a specified season (s 123(1)(a)) unless a substantial reason for so employing him or her was to avoid the application of Div 11 of Pt 2-2 (s 123(2));
      • terminated because of serious misconduct (s 123(1)(b));
      • a casual (s 123(1)(c));
      • employed pursuant to a training arrangement (s 123(1)(d)); or
      • disentitled to redundancy pay pursuant to a regulation made under the Act (s 123(1)(e)).
  1. Berkeley and Services each contended at the trial and on appeal that, first, the Spotless group’s practices governed how the exception applied to it, as a member of the group, and, secondly, it was not necessary for that company, as the actual employer, to prove that it had such a practice or that the practice applied to, or was inherent in, the nature of the job of the affected employees.
  1. Although each primary judge construed s 119(1)(a) differently, each found that Berkeley and Services respectively had failed to prove that it fell within the exception in s 119(1)(a) that I have italicised above. Their Honours rejected, on the facts, each appellant’s claim that its terminations of the affected employees fell within the exception. They rejected each appellant’s reliance on its membership of the Spotless group and the group’s practices as establishing its own ordinary and customary turnover of labour.

The background to the exception

  1. Both primary judges considered the application of Fisher P’s statement of principle in Shop, Distributive & Allied Employees’ Association (NSW) v Countdown Stores (1983) 7 IR 273 at 277–278. He said:

Similarly employees have at the height of economic prosperity been dismissed because of seasonal shifts in markets, loss of contracts or changes in contracts not relating to recession, changes in model or product, shifts in marketing emphasis and many other day to day causes removed from the present recession and its mounting toll of unemployment. All these employees are dismissed, almost invariably upon notice. If redundancy or severance payments applied generally to them a significant charge would apply to the turnover of labour generally. This would involve a major shift in the principles normally applied by this and other industrial tribunals to retrenchment situations. These types of dismissals contrast with dismissals which do not arise in any way from the behaviour of the employee or from ordinary changes in the incidents of employment, but where the employee is dismissed on a collective basis along with others and where the reason for the dismissals lies in the force of adverse economic circumstances, restricting employment opportunities and resulting in collective redundancies. Dismissals arising out of technological change or out of major company restructuring have similar characteristics.

I am not aware of any system which loads an ordinary and customary turnover of labour with a significant costs burden in relation to severance as such, or where the object of remedial legislation cannot be fairly described within the three classifications of retrenchment to which I have referred.

(emphasis added)

  1. Thus, in Countdown Stores 7 IR at 277, Fisher P distinguished an employment relationship in which an employer ordinarily and customarily was entitled to terminate an employee “almost invariably upon notice” as a consequence of, among other reasons, market forces, an economic recession, or the employer’s loss of a contract, from that in which both parties to the employment relationship expected that it was, as he explained (at 290), one of continued employment. His Honour’s characterisation of when redundancy pay would not be due, now encapsulated in the exception in s 119(1)(a), applied to the former, not the latter, class of employment relationships. Fisher P said of the latter (Countdown Stores 7 IR at 290):

the cases before me concern industrial employees in ordinary weekly wage employment. They most certainly often have a settled expectation of continued employment, an expectation which perhaps increases with the length of employment. This is lost to them on retrenchment and it is something for which they should be compensated.

(emphasis added, citation omitted)

  1. In other words, an employee in career or long-term employment, with a particular employer, in which there is a reasonable expectation of continued employment (i.e. reasonable because of the common circumstances known to both the employer and employee about the continuing or likely duration of the employment relationship) is not within the meaning of the exception in s 119(1)(a).
  1. In Re Application for Redundancy Awards (1994) 53 IR 419 at 444, Fisher P, Glynn J and Buckley CC said:

Taking a balanced view of the case as a whole, it is appropriate that this aspect of terminations, traditional as it is, be distinguished from redundancies arising from economic recession and financial stress, technological change and company reconstruction or restructuring. Terminations in the context of the general turnover of labour are the norm; they are expected: there is no basis for thinking that some “settled expectation” has been lost. The occurrence of the likely or expected event should not bring with it an unnecessary and unwarranted additional burden on the employer and a windfall gain for the employee.

(emphasis added)

  1. In addition, both primary judges considered how other tribunals and courts had applied or interpreted Fisher P’s phrase, “due to the ordinary and customer turnover of labour” in the Termination, Change & Redundancy Case [No1] [1984] CthArbRp 284; (1984) 8 IR 34 (per Moore P, Maddern J and Brown C in the Australian Conciliation and Arbitration Commission) (the First TCR case), the Termination, Change & Redundancy Case [No2] (1984) 9 IR 115 (by the same bench) (the Second TCR case), Transport Workers’ Union v Veolia Environmental Service (Australia) Pty Ltd [2013] NSWIR Comm 22 (Haylen J), Compass Group (Aust) Pty Ltd v National Union of Workers [2015] FWCFB 8040; (2015) 253 IR 32 (per Watson VP, Kovacic DP and Wilson C in the Fair Work Commission) and Amcor Ltd v Construction Forestry Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241. All of those decisions except Countdown Stores 7 IR 273 and Compass Group 253 IR 32 dealt with provisions of industrial agreements and awards.
  1. When the various reasons of the statutory tribunals and courts in the industrial or employment law field referred to “expectations”, they were identifying the expectations of a reasonable person in the position of both parties, with knowledge of the nature of the employment or job and the particular circumstances in which the parties were engaged. It is not merely the fact that a person is employed as, eg. a cleaner, a kitchenhand or an accountant, that suffices to identify the nature of the employment in the overall industrial context. It is also necessary to have regard to all of the circumstances, including the particular job, the context in which the employee entered into it with the employer and its “expected” duration.

What is the proper construction of s 119(1)(a), and in particular, the exception?

  1. In Amcor 222 CLR at 256 [43]–[44] Gummow, Hayne and Heydon JJ explained how the pre-existing industrial and judicial decisions had developed an approach to when an employer would be liable to pay redundancy pay. They said of the Second TCR case 9 IR 115:

The Commission said, in its supplementary decision (Termination, Change and Redundancy Case [No 2] (1984) 9 IR 115 at 128), that it had “some difficulty in finding a suitable expression” to make its intention clear about what constituted “redundancy”. In its earlier decision, it had referred (Termination, Change and Redundancy Case [No 1] [1984] CthArbRp 284; (1984) 8 IR 34 at 55–56) to a number of definitions of redundancy. Chief among those was the decision by Bray CJ in R v Industrial Commission (SA); Ex parte Adelaide Milk Supply Co-operative Ltd ((1977) 16 SASR 6 at 8) which was understood (8 IR at 56) as emphasising that redundancy refers “to a job becoming redundant and not to a worker becoming redundant”.

For present purposes, what is important is that the Commission appears to have been seeking a form of words that would accommodate two features. First, as was said in the Commission’s supplementary decision (9 IR 115 at 128), it “did not intend the redundancy provisions to apply where an employee is dismissed for reasons relating to his/her performance, or where termination is due to a normal feature of a business”. Secondly, the Commission did not intend redundancy provisions to be engaged by the transmission of a business. In its earlier decision, the Commission had emphasised (8 IR 34 at 75) that it did “not envisage severance payments being made in cases of succession, assignment or transmission of a business”. That is, the Commission regarded termination of employment by a particular employer as not sufficient to engage the redundancy obligations, even if that employer was ceasing any participation in the particular business. The focus of the provision was upon the work undertaken by the employee (the “job”), not upon the identity of either the employee or the employer. The relevant inquiry was whether employment in a particular kind of work then being undertaken was to come to an end. If that employment was to come to an end, it was necessary to consider why that was to happen. Was it because the employer no longer wanted the job, then being done by the employee, done by anyone? Or was it “due to the ordinary and customary turnover of labour” (9 IR at 128)? And, as the Commission’s evident concerns about drafting show, these alternatives were not, and are not to be, understood as exhausting the cases that might have to be considered.

(emphasis added)

  1. Thus, the critical question is why the employment is to come to an end. Their Honours treated an employer’s decision that it does not want the job then being undertaken by the employee to be done by anyone (such as when the employer loses a contract for which the employee performed its job) as distinct from the employment coming to an end “due to the ordinary and customary turnover of labour”.
  1. The Act creates a prima facie right to redundancy pay as a national employment standard if the conditions in s 119(1)(a) are satisfied. That right is defeasible if the circumstances fall within the exception s 119(1)(a) itself or another exclusion in Div 11 of Pt 2-2.
  1. The consideration of the exception in s 119(1)(a) has to be approached from the perspective that it is a derogation from what s 61(1) prescribes as a legislated minimum standard for all contracts of employment and the object of the Act that it, as a national employment standard, would provide a guaranteed safety net. Fisher P introduced, in his reasons in Countdown Stores 7 IR at 278, the wording that is now expressed verbatim in the exception. He took a cautious approach as to whether the Employment Protection Act 1982 (NSW) created a broader obligation on an employer to pay redundancy pay than was ordinary or customary at that time. The substance of the approach adopted by the industrial tribunals and courts that have considered Fisher P’s formulation was to assess, objectively, the nature and circumstances of the employment relationship and to determine whether, in that particular relationship, the circumstances of the termination occurred due to the ordinary and customary turnover of labour. As Gleeson CJ, Gaudron and Gummow JJ said in Concut v Worrell (2000) 176 ALR 693 at 697–698 [17], employment relationships are not purely contractual and often are affected by industrial instruments, statutory provisions and equitable considerations.
  1. Here, s 123(1)(a) recognises that employers can include in their contracts of employment with employees a provision specifying the term or duration of the employment that excludes an entitlement to a redundancy payment, albeit that s 123(2) limits the ability to contract out of, or avoid, the substantive application of s 119(1)(a).
  1. It is important also to appreciate that the words before the exception in s 119(1)(a) recognise that an employer has a right, at its volition, to terminate a contract of employment when it no longer requires anyone to do the job then done by the employee. The Act provides that, ordinarily, when an employer exercises that right, it will assume an immediate liability, as part of the standards, to pay the employee redundancy pay, unless the termination is due to the cause described in the exception.
  1. The exception does not refer in terms to an employer’s particular business or circumstances. It is, instead, worded to convey, as Fisher P suggested originally, a concept that a contract of employment can be made in a context where a reasonable person in the position of the parties would understand that, if termination occurred due to the “ordinary and customary turnover of labour”, there would be no entitlement to redundancy pay.
  1. I am of opinion that the use of the words “ordinary” and “customary” in the exception was not accidental. Both words in the cognate phrase convey that, in the usual course of the employment relationship from its inception (or perhaps as it evolves into a long-term job), there had to be a practice akin to a custom, that the parties to that relationship would not expect that the employer would be liable to make a redundancy payment to the employee when the contract came to an end. The statutory phrase essentially refers to the nature of the employee’s job and requires consideration of whether, in the usual course, a person employed in it and the employer would have no reasonable basis to understand that the job was to last for an indefinite or substantial time. The word “turnover” connotes change, not long term stability. The word “ordinary” connotes what is usual or unexceptional. And, the word “customary” connotes what is inherent in the relationship of an employer and an employee for the particular job or a job of that kind.
  1. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40] Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:

This Court, in Pacific Carriers Ltd v BNP Paribas [(2004) [2004] HCA 35; 218 CLR 451], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.

(emphasis added)

  1. The principle of objectivity applies to the ascertainment, in any case, of what amounts to the “ordinary and customary turnover of labour” in the context of the particular job or category of employment relationship at hand.
  1. The appellants’ argument that the subjective purposes and circumstances of an employer will be determinative of whether or not the exception will apply would render meaningless the entitlement that the Parliament intended s 119(1) to confer as a national employment standard. The application of such a standard cannot be dependent on the idiosyncratic, subjective intentions of an individual employer, which will necessarily differ between employers in the same industry and need not be shared by the employees concerned or a reasonable person in the position of the parties. The national employment standard in s 119(1) must apply objectively to the circumstances of a particular job with an employer or to a class or category of job in an industry, trade, calling or employment market. The exception in s 119(1)(a) is equally objective.
  1. The common law concept of a contractual term implied by custom offers some insight as to what “customary” means in the exception. In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 236, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said:

There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract: Young v. Tockassie ((1905) [1905] HCA 17; 2 C.L.R. 470, at p. 478); Summers v. The Commonwealth ((1918) [1918] HCA 33; 25 C.L.R. 144, at p. 148); Majeau Carrying Co. Pty. Ltd. v. Coastal Rutile Ltd. ((1973) 129 C.L.R.48, at pp.60-61). In the words of Jessel M.R. in Nelson v. Dahl ((1879) [1879] UKLawRpCh 291; 12 Ch. D. 568, at p.575.), approved by Knox C.J. in Thornley v. Tilley ((1925) 36 C.L.R. I, at p. 8.):

“[The custom] must be so notorious that everybody in the trade enters into a contract with that usage as an implied term. It must be uniform as well as reasonable, and it must have quite as much certainty as the written contract itself.”

However, it is not necessary that the custom be universally accepted, for such a requirement would always be defeated by the denial by one litigant of the very matter that the other party seeks to prove in the proceedings.

(emphasis added)

  1. The appellants’ arguments sought to identify the particular commercial circumstances of the Spotless group as the governing criterion for ascertaining whether, in any employment situation in which a member of the group found itself when it decided to terminate an employee’s employment, the ordinary and customary turnover of labour exception relieved it from the statutory obligation to pay redundancy. They asserted that the Spotless group’s business was, as the appellants said, to win and lose contracts on a regular basis.
  1. However, the Spotless group’s overall perceptions of how it ran its business cannot control what reasonable persons in the position of any member company in the group and any particular employee of that company would expect to be the nature and duration of that employment relationship or job. As Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ said in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 483 [34]:

the “general test of objectivity [that] is of pervasive influence in the law of contract” (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549, per Gleeson CJ). The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions (Gissing v Gissing [1970] UKHL 3; [1971] AC 886 at 906, per Lord Diplock; Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502, per Lord Diplock).

(emphasis added)

  1. Something that is ordinary and customary and affects the incidents of a job must be known to the actual or prospective parties to the contract of employment. Hence, the distinction that Fisher P identified between terminations of employment due to the ordinary and customary turnover of labour, which almost invariably occurred on the employer giving the employee a reasonable period of notice, and those terminating a career or settled expectation of continued employment, which attracted the right to payment on redundancy.

The critical facts in each of the appeals

  1. The primary judge in the Services case found that the Spotless group was managed as a single entity and that its workforce included, first, a large group of casual employees whom it deployed to undertake work for particular contracts and, secondly, permanent employees who undertook work in relation to a particular contract. He preferred the contemporaneous business records of the Spotless group, including a memorandum issued on 7 October 2014 by the group’s general manager – human resources (there is a typographical error dating this as 4 October 2014 in [172] of his Honour’s reasons which is of no moment) to the evidence of Matthew Potter, the Spotless group’s national human resources manager as to its employment practices (see Fair Work Ombudsman v Spotless Services Australia Ltd [2019] FCA 9 at [146], [162], [172]–[173]). His Honour accepted that the Spotless group’s practice was accurately reflected in the following passage from the 7 October 2014 memorandum (see [2019] FCA 9 at [162]):

This memo is to advise you of upcoming changes to the way in which Spotless employs many of its staff in Australia.

Effective 5 November 2014, Spotless will be implementing a policy of employees in Australia, where their employment is directly related to provision of services to a Spotless client, being employed on a maximum term contract which is reflective of the contract term with the client.

Currently, the employment structure of staff is not aligned with the nature of our business in that most employees are employed on a permanent ongoing contract of employment when the work they are performing is for delivery of services to our customer; which is subject to a fixed term service contract with that customer.

Subsequently, when a service contract comes to an end, the Company is required to find suitable alternative employment or be subject to payment of redundancy pay. This obligation is relaxed through the use of maximum term contracts.

(emphasis added)

  1. The memorandum pointed out that the Spotless group’s practice as to its employment contracts did not conform with its manner of doing business with the companies with whom it dealt externally, and that the group wished to realign matters. The memorandum showed that the terminations of the three Services employees were not due to the ordinary and customary turnover of labour. Rather, those terminations were of contracts of permanent employment in which the members of the Spotless group were free to, and did, reassign such employees to other work sites albeit that, at some point, as in every employment relationship, the employment would come to an end, either by termination or retirement of the employee.
  1. That finding of fact demonstrated that, even if Services’ construction of the exception in s 119(1)(a) were correct (which it was not), the appeal was hopeless because, as French CJ, Bell, Keane, Nettle and Gordon JJ said in Robinson Helicopter Company Inc v McDermott [2016] HCA 22; (2016) 331 ALR 550 at 558–559 [43]:

a court of appeal should not interfere with a judge’s findings of fact unless they are demonstrated to be wrong by “incontrovertible facts or uncontested testimony”, [Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 128 [28] per Gleeson CJ, Gummow and Kirby JJ] or they are “glaringly improbable” or “contrary to compelling inferences” [Fox [2003] HCA 22; 214 CLR 118 at 128 [29]. See also Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357 at 381 [76]]

  1. The primary judge’s credibility based findings in Services [2019] FCA 9 at [162], [172]–[173] were supported by the documentary evidence in the Spotless group’s contemporaneous business records.
  1. Berkeley did not challenge the other primary judge’s factual finding, that for Berkeley as an employer, the terminations of the affected employees were “uncommon and extraordinary and not a matter of long-continued practice”. His Honour based that finding on his construction of s 119(1)(a): United Voice v Berkeley Challenge Pty Ltd [2018] FCA 224; (2018) 274 IR 93 at 121 [80]. Whilst his Honour’s construction of the exception was erroneous, that unchallenged factual finding entailed that the terminations could not be characterised as “ordinary” or “customary” even on Berkeley’s own argument since, as he found as a fact, there was no uniform practice in the Spotless group of the kind Berkeley alleged.

Conclusion

  1. The purpose of the exception in s 119(1)(a) is to protect an employer from having to make redundancy payments in circumstances where a reasonable person in the position of both parties to the contract of employment would have understood or expected, from its inception or nature or as the length of the employee’s service grew, that the job was not of a permanent or an ongoing nature, but would come to an end within a reasonably foreseeable timeframe. In other words, in order to fall within the exception in s 119(1)(a), the employment, or job, must be of such a nature that a reasonable person in the position of both those offering or seeking the particular job (or who were aware of all of the circumstances in which the employee had remained in the employer’s workforce for sufficiently long) would be aware and expect that it would come to an end in the ordinary course. That expectation arises objectively because, in the regular or usual order of things, and the accepted custom of the industry, trade, or employment market, when the employer terminates the employee’s job and he or she is not replaced, the employee will have no right to payment of redundancy pay.”

Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113.)