In September, we reported on a decision of the Fair Work Commission (“FWC”) which considered when an employer will and will not be exempt from making a redundancy payment because the termination of employment in question is “due to the ordinary and customary turnover of labour”.

A Full Bench of the FWC (“Full Bench”) has upheld an appeal against that decision, quashing Commissioner Roe’s original order which required the employer to make redundancy payments to a number of employees whose employment was terminated following Compass’ election not to renew several of its government contracts.

Reasoning

The Full Bench held that while redundancies arising “because of economic circumstances, technological change or company restructure involve a common element of unexpected termination” (thereby justifying a redundancy payment), “termination of employment where an employee has been engaged for a job or contract is in a different category” (not justifying a redundancy payment). The Full Bench proposed a streamlined test to determine whether a termination of employment is due to the ordinary and customary turnover of labour:

• “…it is necessary to consider the normal features of the business and then determine whether the relevant terminations are properly described as falling within the ordinary and customary turnover of labour in that business…

The Full Bench accepted that:

• over a 12 month period, 54 per cent of the employees had been dismissed at the conclusion of one of the employer’s contracts;
• since 1999, 67 per cent of employees in the defence sector had been dismissed in such circumstances;
• the employees in question were employed for a particular contract which implied a link between their employment and that contract;
• dismissing employees at the conclusion of a contract was the employer’s standard practice; and
• The employer customarily did not make redundancy payments in such circumstances, with employees understanding this (as evidenced by the long-standing inclusion of a standard redundancy clause in its enterprise agreement).

On the basis of the above, the Full Bench concluded that “the terminations of employment arose from the loss of the Department of Defence contracts and in the context of [the employer’s] business, this was due to the ordinary and customary turnover of labour”.

Lessons

The Full Bench’s decision is a win for employers because it indicates the correct approach to determining whether a termination of employment is due to the ordinary and customary turnover of labour is a question that “necessarily focuses on the business circumstances of the employer”.

It also indicates that the “ordinary and customary turnover” exception is less narrow than was indicated in the FWC’s first decision – for example, the exception may apply if a link between an organisation’s business contracts and contracts of employment can be implied, despite those contracts not being “clearly tied”.

For advice on your obligations in relation to redundancy and other termination payments, contact one of the PCS team today.