The High Court of Australia has recently dismissed a challenge from two employers who sought to apply the exception under the Fair Work Act 2009 (Cth) (the “Act”) to paying redundancy where termination is due to the ordinary and customary turnover of labour in the business.

The decision by the High Court of Australia to reject the appeal by Spotless Services and Berkeley Challenge means that when considering whether the exception applies, the Court will look at multiple factors to determine whether the termination was due to the ordinary and customary turnover of labour.

Appeal by the employers

The application made by Spotless Services and Berkeley Challenge was in relation to a decision by the Full Federal Court to dismiss two appeals made against decisions by the Federal Court relating to the payment of redundancy under the Act.

The appeal by Berkeley Challenge was in relation to an earlier ruling which found that it had failed to meet its obligations under the Act to provide notice and redundancy pay to employees who had been made redundancy when it lost a longstanding services contract. The appeal by Spotless Services was in relation to an earlier ruling which rejected its claims that it was not obliged to pay redundancy to workers at Perth International Airport due to the exception for ordinary and customary turnover of labour.

Factors to be considered

In their joint judgment in the Full Federal Court, Justices Rangiah and Collier held that the exception to the payment of redundancy due to the ordinary and customary turnover of labour applied 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 longstanding practice”.

While the Court stated that the question of whether a termination was due to the ordinary and customer turnover of labour depends on the facts of the case, it did point to the following as relevant factors to consider:

• the reasonable expectations of employees about whether their employment was ongoing;
• whether practices of termination are “long-standing” for that particular type of employment or business; and
• the nature of the work or the kind of business activity being conducted by the employer.

Decision by the High Court

Berkeley Challenge and Spotless Services sought to have their case heard by the High Court of Australia, arguing that the test set out in the decision by the Full Federal Court for the ordinary and customary turnover of labour required a “highly nuanced, indeterminate, multifactorial evaluation” which was impractical. They argued that the Full Federal Court had erred in its decision by making the expectations of employees a critical or fundamental element of the test.

Berkeley Challenge and Spotless Services contended that the test for whether the exception for ordinary and customary turnover of labour applied should be whether the turnover of labour was a normal feature of the employer’s business.

During the hearing Justice Steward noted that there was not a high level of turnover of labour in the entities, given that there were employees who had been employed for periods ranging from five years to more than twenty. The High Court ultimately dismissed the application for special leave, ruling that the matters were “inappropriate vehicles” for the questions that Berkeley Challenge and spotless Services were seeking to raise.

Key takeaways

• Employers may not be required to pay redundancy if the termination is due to the ordinary and customary turnover of labour.
• The Courts will look at multiple factors when deciding whether the exception to paying redundancy in these cirucumstances applies.
• The reasonable expectations of employees about whether their employment was ongoing is a relevant factor when considering whether the exception applies.

People + Culture Strategies