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Section 119(1)(a) of the Fair Work Act 2009 (Cth) provides that when an employer eliminates an employee’s position, the employee is entitled to be paid redundancy pay.
Unless a greater entitlement is provided in an employment contract, or an industry redundancy entitlement is provided under a workplace instrument, employees are entitled to receive the following redundancy pay:
| Employee’s period of continuous service with the employer at termination | Redundancy pay period |
| At least 1 year but less than 2 years | 4 weeks |
| At least 2 years but less than 3 years | 6 weeks |
| At least 3 years but less than 4 years | 7 weeks |
| At least 4 years but less than 5 years | 8 weeks |
| At least 5 years but less than 6 years | 10 weeks |
| At least 6 years but less than 7 years | 11 weeks |
| At least 7 years but less than 8 years | 13 weeks |
| At least 8 years but less than 9 years | 14 weeks |
| At least 9 years but less than 10 years | 16 weeks |
| At least 10 years | 12 weeks |
However, the act contains a number of exceptions to paying redundancy pay, including, but not limited to, if the employer is a small business (i.e., fewer than 15 employees), if the employee was employed for a specific period of time and/or task, if the employee was a casual employee, or if the employee was an apprentice.
Ordinary and Customary Turnover of Labor
In addition to the above exclusions, an employer is not required to pay redundancy pay where the employer does not require the employee’s job to be done by anyone “due to the ordinary and customary turnover of labor.”
Previously, this exception has generally been used by employers that have had to make employees redundant due to the loss of a contract, such as contract cleaners.
Berkeley Case
A recent Federal Court of Australia decision provided further assistance in determining when the ordinary and customary turnover of labor exception applies.
Berkeley Challenge Pty Limited, as part of a group of companies, provided cleaning services to a shopping center through consecutive contracts from 1994 to 2014. In 2014, Berkeley was unsuccessful in securing the contract, and several employees were made redundant.
Berkeley sought to rely upon the ordinary and customary turnover of labor exception to avoid paying redundancy pay.
The court concluded that the exception applies only when an employer’s decision to terminate an employee’s employment, by way of redundancy, was, in respect to that specific employer’s labor turnover, both common or usual, and a matter of long-continued practice.
During the hearing, the group provided evidence that its workforce fluctuated depending on the contracts it had won or lost, and that it was general practice for an employee to be connected to a specific contract.
However, the court found that Berkeley was the relevant employer, not the group, and while it was clear that Berkeley terminated the employees’ employment due to the loss of the shopping center contract, there was no evidence regarding Berkeley’s specific labor turnover practices or frequency.
Further, the court noted that as Berkeley had had a contractual relationship with the shopping center for more than 20 years, and the employees that had been employed to provide the contract services had done so for up to 21 years, Berkeley’s practices represented “the opposite of the circumstances in which the exception applies.”
Comment
After the Berkeley decision, employers will, when seeking to rely upon the exception, need to show that the frequent turnover of labor is both common and usual, and a matter of long-continued practice within their enterprise. A one-time event or loss of contract will not be sufficient to qualify for the exemption.
Written by James Sanders of MST Lawyers and Roger James of Ogletree Deakins