Court ruling narrows exception to redundancy pay: what employers need to know

A recent ruling by the Full Court of the Federal Court of Australia has narrowed the exception to employers’ obligation to provide redundancy pay[1]. This development carries implications for employers, particularly those engaged in labour hire. Failing to keep up with these changes can expose employers to potential breaches of the National Employment Standards (NES).

When an employer terminates an employee’s contract due to ordinary and customary labour turnover, they are not required to offer redundancy pay under the NES.[2] ‘Ordinary and customary labour turnover’ refers to situations where employment concludes as a result of common and usual circumstances.[3] This indicates that terminating employment in such a manner is a customary and established practice, reflecting its commonality and regularity in a workplace. There is a further requirement for the employment relationship to have lasted for at least 12 months, not on a casual basis.

United Workers Union v Compass Group

A labour hire company, the Compass Group (Respondent), lost its aged care contract with Eldercare after almost 20 years. The Respondent subsequently dismissed 31 employees, who were largely represented by the United Workers Union (Appellant). Some of the Respondent’s employees worked at the aged care facility for up to 13 years. In a case heard before the South Australian Employment Tribunal, the Respondent relied on the customary turnover of labour exception under section 119(a) of the Fair Work Act 2009 (FW Act). The Tribunal adopted the view that the objective employment relationship, with reference to the construction of the contracts of employment, indicated that the jobs were not of a “permanent or ongoing nature”.[4]

On appeal, the Full Federal Court had to determine the issue of whether the dismissals were due to the ordinary and customary turnover of labour. The Appellant successfully demonstrated that the employees’ jobs were of a permanent or ongoing nature, with the Court placing greater emphasis on the objective employment relationship than the Tribunal. The jobs were not for a fixed term. Rather, they provided necessary and ongoing services on an apparently indefinite basis. The Court considered it detrimental to the Respondent’s case that it failed to inform employees that the contract with Eldercare might be terminated. It was not relevant that the employees worked for a labour hire company. The Respondent was ordered to provide redundancy pay to the dismissed employees.

Previous cases that examined the customary turnover of labour exception also involved instances of contracts to supply services which were not renewed or terminated.[5]The Courts have highlighted the importance of whether affected employees were aware and expected that their employment would come to an end due to the circumstances of the employment.[6] Moving forward, the objective permanency of the employment relationship will be critical for determining whether redundancy pay is owed.

Key points for employers

When employees are dismissed due to redundancy, employers are required to assess whether the nature of their employment was fundamentally ongoing or permanent. Indicators of such ongoing or permanent employment may include: length of service, absence of fixed term contracts, employees’ lack of awareness regarding the impending end of their jobs, employees’ perception of their roles as permanent, and the employer’s failure to provide prior notice of potential termination of employment.[7]

The nature of this topic is intricate and employers may find it challenging to navigate these developments. If you require advice on the above, Gadens is well positioned to provide you with tailored advice.

Gadens has extensive experience advising employers on large-scale restructures, the application of the FW Act to employment relationships and the provision of general workplace relations advice to ensure employers are prepared for any potential issue before it arises.

To enquire as to how Gadens may be able to assist, please contact Jonathon Hadley in Brisbane by email jonathon.hadley@gadens.com or phone +61 7 3231 1653.

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Authored by:

Jonathon Hadley, Partner
Liam Elliott, Paralegal

[1] United Workers Union v Compass Group Healthcare Hospitality Services Pty Ltd [2023] FCAFC 92.

[2] Fair Work Act 2009 (Cth) section 119(a).

[3] Fair Work Ombudsman v Spotless Services Australia Ltd [2019] FCA 9.

[4] United Workers’ Union v Compass Group Healthcare Hospitality Services Pty Ltd and Compass Group Australia [2022] SAET 151.

[5] Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Delta FM Australia Pty Ltd [2021] FCAFC 107; Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113 (Berkley).

[6] Berkley at paragraphs [11], [177], [206]; Fair Work Ombudsman v Spotless Services Australia Pty Ltd [2019] FCA 9 at paragraph [80].

[7] Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113.