Redundancy obligations where employer loses contract

It is a common misunderstanding by employers that if an employer loses a contract to supply services, it has the right to render the jobs of those employees redundant and that the obligation to pay statutory superannuation is avoided where this is an ordinary risk of business.

That is not the law in Australia.

Section 119(1)(a) of the Fair Work Act Act provides that:

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

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.

In this case Justice Reeves of the Federal Court undertook an analysis of the proper interpretation of the meaning of “ordinary and customary turnover of labour” to determine whether the statutory obligation of the employer to pay statutory redundancy pay was avoided due to the loss of the contract being argued to be “due to the ordinary and customary turnover of labour”.

Previous case law on the issue focussed on whether the loss of the contract arose from the “normal feature of business”, a phrase which was in turn used to give meaning to “ordinary and customary turnover of labour”.

The judge concluded after a lengthy review of the precise words used in the legislation and case law that the exception which permitted an employer to avoid the obligation to pay statutory redundancy pay was limited to a narrow set of circumstances namely where the employer decides to terminate an employee’s position and decides that the position is redundant AND the decision to render employees affected redundant due to its turnover of employees is both common and a longstanding practice.

In other words where isolated losses of contracts occur which are not common and expected, the employer is required to pay statutory redundancy to affected employees who find themselves without a job.

 

United Voice v Berkeley Challenge Pty Limited [2018] FCA 224 per Reaves J