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Redundancy payments: what is the “Ordinary and Customary Turnover of Labour”?
The redundancy provisions of the Fair Work Act 2009 (Cth) (“FW Act”) create an exception to an employer’s obligation to make a redundancy payment to an employee in circumstances where that redundancy is “due to the ordinary and customary turnover of labour”. Few decisions have considered what this term actually means, making last week’s decision of the Fair Work Commission (“FWC”) in National Union of Workers; United Firefighters’ Union of Australia v Compass Group Pty Ltd  FWC 6055 highly significant.
Compass Group Pty Ltd (“Compass”) provides contracting services to the Department of Defence (“Department”). In late 2014, for a combination of reasons, Compass elected not to seek to renew its contract to provide fire rescue, store and transport services to the Department and, as a result, made a number of employees redundant. Compass argued that the applicable enterprise agreement did not require it to make redundancy payments to the employees because the terminations of their employment were “due to the ordinary and customary turnover of labour”.
The FWC held that the terminations of employment were not “due to the ordinary and customary turnover of labour” and that the employees were entitled to redundancy payments.
- The “general nature of the business” was not such that employment usually ended at the conclusion of a contract between Compass and a customer of Compass.
- Here, the redundant employees had been employed for more than six years and their roles had continued across a number of contracts between Compass and the Department. This gave them a “reasonably settled expectation of continuing employment”.
- The relevant employment contracts did not “clearly tie the duration of employment” to the duration of a contract between Compass and its customers.
- Although Compass’ decision not to renew a number of the relevant contracts with the Department was “primarily… commercial”, there “should not be any fundamental distinction in principles based on causes of redundancy”.
Conversely, the FWC provided some guidance on when a termination may be said to be “due to the ordinary and customary turnover of labour”.
- The exception will be relevant where an “employee is dismissed for reasons relating to… performance, or where termination is due to a normal feature of the business”.
- This may include situations where employment in a business is intermittent due to the nature of that business. For example, where employment is “seasonal, casual, or linked to the duration of a particular contract or task”.
Lessons for employers
- Redundancy is redundancy: if a position is redundant for the purposes of the FW Act, the reason for the redundancy does not alter an employer’s obligation to make redundancy payments (subject to legislated exceptions).
- Attracting the “ordinary and customary turnover of labour” exception:particularly in light of the Compass decision, this exception is quite is limited. However, there are ways in which employment contracts can be geared toward it. For example, with a properly drafted fixed-term contract which links an employee’s employment to a particular commercial agreement.
- Otherwise limiting redundancy obligations: if an employer is genuinely concerned about its capacity to make redundancy payments, the FW Act contains mechanisms whereby employers can apply to the FWC to limit their obligation to make such payments in certain circumstances.
Other relevant resources
12 May 2015