Where an employee is terminated due to the ordinary and customary turnover of labour, an employer may not need to pay redundancy. The term ‘ordinary and customary turnover of labour’ has been the subject of judicial debate which remains ongoing following two recent full court decisions.
As you may recall from our previous Insight, in Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113 (Berkeley), the Full Federal Court found that an employer’s ability to rely on the exception depends on:
- the reasonable expectations of ongoing employment held by employees;
- whether the termination due to ordinary and customary turnover of labour is common or usual; and
- if it is usual practice for the particular kind of business to terminate the employment of its employees following the loss of a commercial contract.
Since Berkeley, the full court has handed down two key decisions that demonstrate how these principles are applied, with both cases resulting in different outcomes.
When can an employer rely on the exception?
In Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Delta FM Australia Pty Ltd [2021] FCAFC 107 (Delta FM), employees performed facilities maintenance services at a camp facility as part of the construction of an onshore LNG facility. At the completion of the project, the employer terminated the employees due to the ordinary and customary turnover of labour.
The full court found that the employer in Delta FM could rely on the exception because employees could not have held a reasonable expectation of continuing employment in circumstances where:
- the terms of their employment contracts clearly stated they were engaged for the project and their employment was subject to the ongoing contract between the employer and its client;
- the applicable enterprise agreement contained a clause that said termination of employment due to a change or end of contract between the employer and a client is a usual reason for a change to the employer’s workforce and part of the ordinary and customary turnover of labour; and
- both parties knew the employees’ jobs would be terminated when the construction of the facility was completed.
When can’t an employer rely on the exception?
In United Workers Union v Compass Group Healthcare Hospitality Services Pty Ltd [2023] FCAFC 92 (Compass Group), the full court came to a different conclusion.
Medirest (a Compass Group subsidiary) was contracted to supply aged care services to Eldercare’s facilities for over 18 years under successive commercial contracts. On 18 June 2018, the longstanding commercial contract came to an end and Medirest terminated the employment of the 31 employees it employed at the Eldercare facilities. Medirest relied on the ordinary and customary turnover of labour exception to avoid paying redundancy pay to the employees.
Medirest sought to rely on the decision in Delta FM, however, the Full Court found the circumstances were distinguishable and Medirest was not able to rely on the exemption because:
- the work performed by Medirest’s employees was of an ongoing nature and required indefinitely by Eldercare, whereas in Delta FM all parties knew that the particular work would end on completion of the construction of the onshore facility;
- many of the Medirest employees had a significant period of continuous service of up to 13 years, which demonstrated the ongoing nature of their employment despite the renewal of successive commercial contracts;
- Medirest did not inform the employees of the end date of its commercial contract with Eldercare or the possibility that the contract might not be renewed; and
- Medirest’s employment contracts suggested that Medirest might offer employees employment elsewhere if their employment at Eldercare’s facilities were to cease.
What can employers do to put themselves in the best position to rely on the ordinary and customary turnover of labour exception?
Where employees are engaged to work on a discrete project, an employer should make it clear to employees that their employment will end on completion of that project. Ordinarily, this would appear in the terms of an employment contract.
If on the other hand, an employer is engaged to perform work that their client requires with no obvious end date, the employer should ensure its employees are aware that their employment is subject to the ongoing contract between the employer and its client.
Kingston Reid can assist with providing specific advice about an employer’s ability to rely on this exception and reviewing employment contracts to ensure they are drafted appropriately.