Section 119(1)(a) of the Fair Work Act 2009 (Cth) states that an employee is entitled to be paid redundancy pay by the employer  if the employment is terminated at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour (the Exception).

The Exception was most recently considered by a Full Bench of the Fair Work Commission in December 2015 in Compass Group (Australia) Pty Ltd v National Union of Workers and another [2015] FWCFB8040 (Compass) in the context of employees whose employment was terminated as a result of the employer no longer holding a particular client contract, which those employees were specifically employed to service.  The employer, Compass,  provided  fire rescue services to the Department of Defence and in the circumstances of this case, had made a commercial decision not to tender for a replacement contract in respect of those services.  Compass relied on the Exception and withheld redundancy pay from the terminated employees.

The Full Bench said that in order to determine whether the Exception applies in a given case it is necessary to:

  1. Consider the normal features of the business; and
  1. Then determine whether the relevant terminations are properly described as falling within the ordinary and customary turnover of labour in that particular business.

In making that assessment in the particular case, there were a number of matters relating to consistency and transparency in Compass’ relationship with its workers, that were favourable to its position.  In particular and amongst other things,

  • Compass had consistently taken the position that termination of employment due to the end of a client contract was part of the ordinary and customary turnover of labour within its business;
  • Its workforce fluctuated greatly based on the commencement and termination of client contracts and that position was overwhelmingly accepted by its employees who understood that they were employed to service a particular client contract for as long as that contract was held;
  • Where Compass offered work on another client contract to employees, its consistent practice was to issue a new employment contract to the employee, which might be on completely different terms and conditions to their previous contract with Compass;; and
  • Those employment contracts expressly stated that the loss of the client contract could lead to termination of the employment.

The Full Bench held that, in this specific context, terminations of employment which arose from no longer holding a particular client contract, were due to the ordinary and customary turnover of labour in Compass’ business and redundancy did not have to be paid. The Court however, preferred the view that the outcome would be different where the employee had a “settled expectation of continuing employment and that expectation increased with the length of his employment and his engagement on other contract work held by the [employer]”, citing a comment from Transport Workers Union (NSW) v Veolia Environmental Services (Australia) Pty Ltd.

Employers should be aware of the Exception and consider whether it may be available in the context of their business. The essential takeout from this decision being that  in order to rely on the Exception,the employer will need to establish that employment arrangements of this type were clearly understood in advance by its workforce and consistently applied.

Legal advice should be obtained prior to implementing a restructure on this basis given the importance of assessing the features of the particular business.