Customary turnover and notice of termination

WHO SHOULD READ THIS

• Employers operating in service industries (such as cleaning and security) who engage workers upon securing service contracts.

THINGS YOU NEED TO KNOW

• Notice of termination of employment needs to be communicated in clear and unambiguous terms.
• An employee’s employment agreement should reflect the fact that their employment is dependant upon the continuance of a service contract of their employer.

WHAT YOU NEED TO DO

• When terminating an employee’s employment always make it clear that their employment is being terminated and clearly state a date at which their employment will end.
• To fall within the exception not to pay redundancy pay, a court will need to be satisfied that the turn-over of employees is a common, long continued practice.

The Federal Court (FC) has found that an employer, who incorrectly relied upon the redundancy pay exception for ordinary and customary turnover of labour, was liable to pay its employees redundancy entitlements after the exception was found not to apply.

Background

Berkley Challenge Pty Limited (Berkley), a member of the Spotless Group, provided security, cleaning and related services to shopping centres. In late 2014 it lost a tender to supply these services to a shopping centre on the Sunshine Coast.

As a result of the loss of the tender, Berkley’s employees who carried out the security, cleaning and related services at the shopping centre on the Sunshine Coast were notified that Berkley had lost the contract to provide these services (Notice).

Ultimately, the roles of Berkley’s employees were redundant. However, Berkley did not pay the employees redundancy pay because it claimed this situation was covered by an exception set out in the Fair Work Act 2009 (Act).

United Voice (union) claimed that the Notice was not a valid termination of the affected employee’s employment and that the affected employees were entitled to redundancy pay.

Notice of termination

Berkley contended that the Notice was a valid notice of termination of employment in accordance with the Act. It argued that when deciding whether the Notice was valid the FC should consider the context in which the Notice was given to the employees (i.e. the loss of contract with the shopping centre).

The FC rejected Berkley’s argument, holding that the termination provisions of the Act require an employer to provide employees with notice that is ‘unambiguously clear’ that their employment ‘is to be terminated with effect from a certain date in the future’.

Judge Reeves found the Notice fell short of this obligation as it did not clearly notify the employees that their employment was terminating and failed to say at what date their employment would end.

Redundancy pay

Section 119(1)(a) of the Act allows an employer not to pay redundancy pay where the termination of the employee’s employment is ‘due to the ordinary and customary turnover of labour’.

Berkley argued that the loss and gain of client contracts (similar to that of the shopping centre at the Sunshine Coast) was a normal feature of its business and therefore fell within the exception under section 119(1)(a). Judge Reeves clarified that the exception to the payment of redundancy pay only applies to an employer, whose labour turnover is both common, usual and a matter of long-continued practice.

Upon examining the evidence the FC found that Berkley had provided services to the shopping centre for 21 years prior to losing the tender in 2014. Further, the employees’ employment agreements did not contain a clause that their employment was dependant on the continuance of the contract between Berkley and the shopping centre. The FC ultimately held that the exception did not apply because the redundancies related to the loss of a contract which was uncommon and extraordinary and not a matter of long continued practice.

Berkley was found to have contravened the Act and ordered to pay compensation in relation to the failure to provide notice and the failure to pay redundancy pay.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.