Redundancy pay and the exception under the Fair Work Act

Under the Fair Work Act, there is an express exception for statutory redundancy pay to be payable where the termination of employment occurs due to the ordinary and customary turnover of labour. Here is an explanation of what that means from the Federal Circuit Court.

“The legislation and leading authorities

  1. Section 119 (1) (a) of the FW Act reads as follows:

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…

  1. The effect of the section is that there is a prima facie right held by an employee to redundancy pay unless the termination of employment comes within the exception. The onus is on the Respondent to prove that the termination of employment was due to the ordinary and customary turnover of labour.
  2. The leading authority on this exception is Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113. In understanding more fully the context of this decision, regard should be had to the first instance decision of Colvin J in Fair Work Ombudsman v Spotless Services Australia Ltd [2019] FCA 9.
  3. In Berkeley (Supra), the Full Court was dealing with two appeals simultaneously (including the Spotless decision (Supra) of Colvin J).  The plurality of Collier and Rangiah JJ very helpfully enumerated and determined the issues that were raised in these appeals.
  4. The Court reiterated the nexus between the termination and such termination is due to the ordinary and customary turnover of labour.  The Court said that what constituted the ordinary and customary turnover of labour was a question of fact to be resolved according to the particular circumstances of each case.  The Court said that all of the circumstances needed to be taken into consideration, and the question itself could not be resolved solely by looking at what practices a particular employer undertook.
  5. The Court said that, historically, the phrase “ordinary and customary turnover of labour” in the context of redundancy, incorporated issues of reasonable expectation on the part of employees.  This was because, historically, when employees were engaged unless there were reasons for them to expect otherwise, they expected to remain employed, in the absence of such factors as dismissal for misconduct or cessation of the employer (per paragraph [172]).
  6. At paragraphs 177 – 179 the Court said

177 The reality is that the reasonable expectations of employees are relevant to inform the Court as to whether the Exception applies in cases where employees are terminated for redundancy. Such expectations cannot be coloured by facts that the employees neither knew, nor could have known, because (for example) those facts were known (or could be known) only to the employer as a “hidden” practice of that employer. Reasonable expectations of employees could derive from material provided to them by the employer, or facts generally known about an industry.

178 As the primary Judge correctly observed in [2019] FCA 9 at [141], employees’ reasonable expectations of ongoing employment (or otherwise) may arise from the nature of the work they were employed to do, the circumstances in which they came to be employed, or the circumstances in which their employment continued. Ultimately this will be a question of fact in any particular case, based on the evidence before the Court.

179 In summary, reasonable expectations of employees are relevant to inform the Court’s consideration of the application of the Exception, for reasons including:

  • objective assessment of the employment relationship and whether the employee was entitled to be paid redundancy in accordance with s 119(1)(a) requires examination of the facts of the case;
  • the facts of the case invariably include reference to the basis on which employees are engaged, and whether the employees were engaged on the basis that their employment was finite and/or dependent on external factors;
  • the permanency or otherwise of employment, or the relationship between employment and contractual arrangements between the employer and third parties may not have been clarified at the time of engagement of the employee; and
  • whether employees were engaged on the basis that their employment was finite and/or dependent on external factors, could be informed by their reasonable expectations arising from communications by or with the employer at the commencement of the employment or throughout the employment.
  1. In the end, at paragraph 181, the Court said that “…the reasonable expectations of employees are a critical, but not the only, factor in determining whether the particular termination was due to the ordinary and customary turnover of labour”.
  2. At paragraph 214, the Court said that they agreed with what Colvin J had said in Spotless (Supra) as to the meaning of “ordinary and customary turnover of labour”.  The Court said that,

…‘ordinary and customary turnover of labour’ connotes a termination where the employer no longer requires the job to be performed because termination in the particular case is common or usual, both in the sense that it is commonly observed and in the sense that it is habitual or of long-standing practice.

Can the Respondent Discharge their Onus?

  1. The Applicant contends that the onus has not been discharged. The Applicant submits that the employment arrangements between the Respondent and the employees were for ongoing full-time work.
  2. The Applicant contends that this work was not conditional upon any contractual arrangement that the Respondent had with anyone else.  Even if it were, the Applicant points out that Mr Cooper and Mr Redmond did not have a contract with the Respondent.  There was no contract between the Respondent and Bechtel and no evidence of a contract between ESST and the Respondent.
  3. The Applicant contends that there is no causal link between the termination and the ordinary and customary turnover of labour. The Applicant contends that the Respondent can have no comfort from either cl.17.1 of the enterprise agreement or from cl. 9 of the employment contract. In a nutshell, this is because neither of those clauses can trump the legislative effect of the exception in s.119(1)(a) of the FW Act.
  4. The Applicant contends that the reasonable expectation of the employees is a significant factor in establishing whether there was an ordinary and customary turnover of labour.  In this case, the Applicant contends that the expectations of the employees were that they would have either ongoing employment or a redundancy payment.
  5. The Applicant contends that, on the facts of this case, the terminations have not come about due to the ordinary and customary turnover of labour.
  6. Even though the Applicant has, very helpfully, raised these contentions for consideration by the Court, the Applicant has no onus.  The onus remains on the Respondent to prove to the Court that the terminations have in fact occurred due to the ordinary and customary turnover of labour.

Nature of the Business

  1. In Berkeley (Supra), the employers both had contracts to clean large premises; one had a contract to clean a shopping centre, and the other had a contract to clean the Perth airport.  In both instances, the contracts between the owners of the premises and the employers had been long-standing and had been rolled over before.
  2. In both cases, the premises ended up contracting with another party when the contract between them and the employers lapsed.
  3. The circumstances, in this case, are markedly different.  It is trite to say that large premises such as a shopping centre and an airport will always need cleaning.  That will be so, no matter who does the cleaning.  In this case, however, there was a construction of a mining facility.  A construction project will, necessarily, have a beginning and will have an end.
  4. The nature of the work that is conducted by the Respondent is such that there will be a beginning and an end.  It may very well be that there will be quite an effluxion of time between the beginning and the end, but that does not derogate from the finite nature of the work.
  5. In this case, the work was expected to begin in mid-2012 and conclude in mid-2017.  That did not happen and the contract was extended.  It was obvious to all concerned from the early part of 2018 that the construction project was winding down, and the employees, by their own evidence, were well aware of this.  There was hope that there would be a new contract for the production phase of the project but this was never more than hope.
  6. It seems to me that the work undertaken by the Respondent is such that there will be a turnover of employees.  The Respondent operates in an environment where projects are begun and ended.  As a project ends, there will be no need for there to be anyone doing particular tasks because the need for the work will have ended.
  7. As the Respondent moves on to the next contract, there will be a need for employees to enable the Respondent to fulfil that contract.  However, this will not necessarily mean that the same employees, either in number or in skills, will be needed to enable the Respondent to fulfil the next contract as was needed in fulfilling the last contract.
  8. This is the inherent nature of the work that is undertaken by the Respondent.  It is the recognition of such a nature of the work of the Respondent that, in my view, has caused the Applicant to make submissions regarding the contracts between the Respondent and the employees, as well as the Respondent and the main contractor.
  9. For the reasons I have already given, I do not consider those issues to be relevant.  It is clear that the Compass Group umbrella of companies are indistinguishable from each other for these purposes.  It may be that Bechtel contracted with ESST but, realistically, Bechtel has contracted with the Compass Group of companies who have chosen to structure their entities in such a way that must be advantageous to the Compass Group as a whole.
  10. But, for the employees of the Compass Group of companies, there is no difference as to which of the Compass Group companies employs them.  They are subject to the same policies and overarching human resources structure.

The Reasonable Expectations of the Employees

  1. The employees were engaged to work on the Wheatstone project.  Their contracts are clearly referable only to the Wheatstone project.  This is especially clear in the case of Mr Redmond who had previously been assigned to the Citec project.  When he was “down-manned” from that project, his employment contract came to an end because it was referable only to the Citec project.
  2. He was given a new contract as an Attendant-Utility on the Wheatstone project.  When his duties changed to that of a refrigeration technician, he was given a new contract.
  3. Whilst both the Applicant and the Respondent have talked about employees being “redeployed”, in reality, they are “re-employed”.  Their employment contract comes to an end because there is no more work to do and they then enter into a new contract of employment when they go to work at a new site.  Because they remain within the Compass umbrella, their entitlements and accruals remain with them.
  4. Mr Dickson noted in his affidavit that he knew that he was working in a mine and that meant that the work at that particular site would eventually end.
  5. The three employees realistically all knew that the work at the Wheatstone project would end.  They were told this at regular site meetings by management.  All of them accepted that they knew that the nature of the work was that they would work at a particular site, because of a contract between their employer and the main contractor; and when the work was completed, they would no longer be working at that site.
  6. They have all said that their expectation was that they would either be redeployed or they would be given a redundancy.  That concession, by the employees, speaks volumes.  The employees could not have had a reasonable expectation of ongoing employment if it were that they were expecting that there was a realistic possibility that they would be getting a redundancy.
  7. The effect of the evidence of the employees was that they expected one of two possibilities; either they would be redeployed or they would be given redundancy pay.  As was made clear in Berkeley (supra) and in all of the previous cases referred to by the Full Court, it is the expectation of ongoing employment that is important.  All things being equal, if an employee has an expectation of continued employment and that employment ceases, the employee should be compensated by way of redundancy.
  8. But that is not the case here.  The employees did not have an expectation of ongoing employment; they had an expectation that they would either be redeployed or compensated by way of redundancy payment.  But the expectation of being compensated by way of redundancy payment is not an aspect that a Court must look at in deciding whether the termination is due to the ordinary and customary turnover of labour.
  9. The reasonable expectation of the employees must also be looked at having regard to their employment contracts and the enterprise agreement.
  10. The Applicant has submitted that the contracts, in the case of Mr Cooper and Mr Redmond, cannot be relied upon because they were not contracts between those two employees and the Respondent.  I have already rejected that notion.
  11. The Applicant has submitted that the enterprise agreement cannot be used by the Respondent to try and subvert their responsibilities under the FW Act and the National Employment Standards. The Applicant is quite right in this respect.
  12. But that is not what is occurring in this instance.  The fact that cl.9 is in all of the employees’ contracts and that cl.17.1 is in the enterprise agreement, is part of the whole circumstances that a Court must look at in deciding whether it is reasonable for the employees to have an expectation of ongoing employment.
  13. The employees may have said that they did not read the contract; the employees may have said that they did not understand what the contract or the enterprise agreement meant; and, the employees may have said that no one explained the effect of these two clauses to them.  None of that is particularly relevant.  The employees signed their agreements and the employees were given notice that their employment was pursuant to an enterprise agreement.
  14. As the High Court said in TOLL (FGCT) v Alphapharm and Ors [2004] HCA 52, at paragraph 45

It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document.  The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they may be.  That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it.

  1. It is when one combines the effect of those clauses with the other circumstances that pertain to the nature of the work that the employees were undertaking, that the Court is informed as to the reasonableness of any expectation that the employees had of ongoing employment.
  2. On the evidence before me, I am satisfied that the employees could not have had a reasonable expectation of ongoing employment.

Were the Terminations made due to the Exception?

  1. Using the definition of “ordinary and customary turnover of labour” approved by the Full Court, it seems to me that the terminations, in this case, were commonplace in that such terminations occur when contracts have been fulfilled.  It also seems to me that the terminations, in this case, were usual, in that terminations such as these were habitual and of long-standing practice.
  2. In other words, the terminations came about because, in the business in which the Respondent operated, work is undertaken by the Respondent in accordance with contracts that are limited and finite.  When those contracts have been fulfilled, there was no longer any requirement by the Respondent for the job, to be done by the employee, to be done by anyone.  Because of this, the employment of the employees was terminated which is what occurs when these circumstances arise.

Conclusion

  1. I am satisfied that the Respondent has discharged the onus.  The nexus between termination and the exception is clear.  I am satisfied that the termination of the employment of the employees was due to the ordinary and customary turnover of labour.”

 

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Delta FM Australia Pty Ltd [2020] FCCA 2939 delivered 30 October 2020 per Vasta J