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Avoiding Redundancy Obligations due to the “ordinary and customary turnover of labour”

United Voice v Berkeley Challenge Pty Limited [2018] FCA 224

The National Employment Standards (“NES”) require employers of more than 15 employees to provide redundancy (aka severance) payments on the redundancy of their roles, when redeployment cannot be achieved.  In particular, s.119 of the Fair Work Act 2009 (Cth) (“FW Act”) notes:

(1)        An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a)        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; or

(b)        because of the insolvency or bankruptcy of the employer.

[emphasis added]

However, as can be seen for the bolded phrase, the section creates the exception of a termination of employment due to the ordinary and customary turnover of labour. This begs the question:  “When is there ordinary and customary turnover of labour?

The Facts

In October 2014, the Respondent, terminated the employment of most of the employees it employed at the Sunshine Coast Plaza Shopping Centre (Sunshine Plaza). It did so because the Spotless Group of Companies, of which it was a member, was unsuccessful in its tender to continue to provide security, cleaning and related services (“the contract services”) to the principal at the Sunshine Plaza, Lend Lease Property Management Pty Ltd.

Berkeley first began providing the contract services at the Sunshine Plaza in 1994 when the shopping centre first opened. From that time until 2014, the contract services were provided under a series of contracts with Lend Lease, usually of between two to four years in duration.

In 1999, Berkeley was acquired by the Spotless Group of Companies, the ultimate holding company of which is Spotless Group Holdings Ltd. From about that point forward, a company within that Group became the party that contracted with Lend Lease to provide the contract services.  Nonetheless, Berkeley continued to employ the staff necessary to provide those services.

In or about January 2014, Lend Lease invited tenders for a new contract to provide the contract services. Spotless submitted a tender.  However, it was unsuccessful.  Consequently, on or about 29 August 2014, Lend Lease gave notice to Spotless that it was required to exit the Sunshine Plaza by the close of business on 30 September 2014.  This date was later extended to close of business on 7 October 2014.

Because of these events, on or about 1 September 2014, Spotless (apparently acting on behalf of Berkeley) forwarded to the affected employees a letter entitled “Notification of Loss of Contract” (“the Notice Letter”).  At about the same time, members of Spotless’ management team held meetings with various of the affected employees to advise them that Spotless had been unsuccessful in its tender.

Further, in early September 2014, shortly after Spotless was notified of the abovementioned extension of the exit date of the contract to 7 October 2014, an Operations Manager employed by Spotless, arranged to post notices in the staff lunch room and in the security office at the Sunshine Plaza alerting the employees at the Plaza to that change.

On or about 7 October 2014, Spotless (again apparently acting on behalf of Berkeley) provided to most of the affected employees a document that was headed “Employment Termination Form”. The employment of the affected employees was terminated as at the close of business on 7 October 2014.

United Voice argued that the Notice Letter and the Employment Termination Form did not constitute proper notice and that severance payments should have been made. It also sought penalties for breaches of the NES.  It commenced proceedings in the Federal Court of Australia.

The Court noted that there were two key issues:

  1. whether the Notice Letter constituted a valid notice of termination under s 117(1) of the FW Act; and
  2. whether the exception provided in s 119(1)(a) of the FW Act: “where this is due to the ordinary and customary turnover of labour”, applied to Berkeley’s decision to terminate the employment of the affected employees.

In respect of (a), the Court decided that proper notice had not been given.

In respect of (b), United Voice submitted that the statutory entitlement to redundancy pay was a remedial provision and that it should therefore be construed beneficially. With respect to the words of the exception, it submitted that a turnover of labour was “ordinary” if it was a standard or commonplace occurrence, and it was “customary” if it was notorious, in the sense that it was a feature that was so well understood and anticipated by all persons concerned.  For the latter submission, it drew on an analogy with the implication of contractual terms based on “custom”.  Noting that Berkeley had been engaged in providing the contract services at Sunshine Plaza for more than 20 years, United Voice submitted that there was nothing ordinary or customary about the “turnover” of labour that occurred when the affected employees’ employment was terminated.

In respect of (b), the Court also ruled against the Respondent. It noted:

In this matter, the critical question therefore reduces to this: has Berkeley, as the employer of the affected employees, discharged its onus to show that its decision to terminate their employment and, at the same time, to render their jobs redundant was, for it, common or usual and a matter of long-continued practice?

The Court said that the evidence shows that, by the time Spotless lost its contract with Lend Lease, the contractual relationship with Lend Lease had existed continually for more than 20 years, that throughout that period Berkeley had employed all the employees necessary to provide the contract services and that the affected employees had been employed by Berkeley for that purpose for between four and 21 years. This evidence therefore appears to show the opposite of the circumstances in which the Exception applies.  That is, it appears to show that the terminations and the connected job redundancies were, for Berkeley, as the employer, uncommon and extraordinary and not a matter of long-continued practice.   It then noted:

I do not therefore consider Berkeley has discharged its onus to show that the Exception in s 119(1)(a) applied to the terminations of the employment of the affected employees. Since that exception did not apply, those affected employees were entitled to be paid the redundancy pay entitlements prescribed by that section.

Berkeley was also held to have contravened each of ss 44 (twice), 117 and 119 of the FW Act.