Drastic implications for employers who lose commercial contracts

In the current climate, employers should not bank on avoiding redundancy pay because a contract has come to an end as a result of not being renewed. A reasonable expectation that it would have continued could require a different approach to restructuring your workforce.

The entitlement to redundancy pay under the National Employment Standards is excluded in several situations, including where the employee’s employment is terminated because the employer no longer requires the job to be done by anyone due to the “ordinary and customary turnover of labour”.

In Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113, the Full Federal Court held that:

  • the reasonable expectations of ongoing employment held by employees are critical, but not the only factor, in determining whether the particular termination was due to the ordinary and customary turnover of labour;
  • termination due to “ordinary and customary turnover of labour” refers to situations in which termination 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”; and
  • termination of employment due to loss of a commercial contract needs to be a feature inherent in the nature of the particular kind of business, and not a feature that was made normal for the particular business by the employer’s own practices in terminating employees.

The Court was satisfied that the employer’s practice of not paying redundancy to long-standing employees employed as security guards and cleaners to help service its commercial contracts, and whose employment ended when those contracts ended, did not constitute the “ordinary and customary turnover of labour”.

As a result, those former employees are entitled to redundancy pay.

What’s the upshot? 

It means that the scope for employers (and particularly contractors whose businesses rely on servicing major contracts using large workforces) to rely on the ordinary and customary turnover of labour exception will be much narrower where redundancies arise from the loss of commercial contracts.

Employers need to carefully review this decision, identify the contracts where they may be at risk of having to pay redundancy pay, and seriously consider accruing contingency funds to cover redundancy payments in case they need to be made at contract end.

You can listen to our podcast ‘Is it really over’ which discusses this issue in more detail by clicking here.

Duncan Fletcher
Partner
+61 8 6381 7050
duncan.fletcher@kingstonreid.com

Dominic Fleeton
Partner
+61 3 9958 9616
dominic.fleeton@kingstonreid.com