Redundancy pay exclusion stands in FWC decision

A Full Bench of the FWC has handed down an important appeal decision regarding redundancy pay entitlements, with specific reference to the ‘ordinary and customary turnover of labour’ exclusion.

The redundancy pay entitlements in the National Employment Standards do not apply if employment is terminated ‘due to the ordinary and customary turnover of labour’ (s.119(1)(a) of the Fair Work Act). A similar exclusion applied under the standard redundancy provisions in pre-modern awards, and is included in many enterprise agreements.

The case just concluded related to contracts held by the Compass Group with the Department of Defence for the provision of Garrison Support Services in the Riverina Murray Valley region. The contracts had been held for many years, and the company successfully tendered for a replacement contract in respect to catering and hospitality work – but it did not tender for a replacement contract for fire rescue services and stores and transport services.

In overturning an earlier decision of Commissioner Roe, the Full Bench decided that the termination of the fire rescue, stores and transport employees “arose from the loss of the Department of Defence contracts and, in the context of Compass’s business, this was due to the ordinary and customary turnover of labour”. Accordingly, the employees were not entitled to redundancy pay.

Key to the decision was the Full Bench’s view that it had been “the common practice of Compass to terminate the employment of employees when a contract is lost, especially Department of Defence contracts”. The decision maintained that the link between the contract and the employment of the workers “carries with it the understanding that loss of the contract could well lead to termination of the employment. Indeed this was expressly stated in many of the relevant contracts.”

According to the Full Bench, any change to the company’s longstanding practice of not making redundancy payments at the conclusion of contracts would have required “a variation to the terms of the standard redundancy clauses in Compass enterprise agreements”. That no such variations were made suggests that “the mutual intention of the parties to the agreements was to apply Compass’s interpretation of the standard redundancy pay wording”.

Ai Group Members in contracting industries who wish to utilise the ‘ordinary and customary turnover of labour’ exclusion can contact Ai Group and/or Ai Group Workplace Lawyers for advice on appropriate wording for enterprise agreements and employment contracts, and the conditions that would need to be satisfied for the exclusion to apply.

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Ai Group's Head of National Workplace Relations Policy, Stephen Smith is responsible for workplace relations policy development and advocacy. He regularly represents industry’s views to governments and opposition parties, and in numerous inquiries and major cases. He is Special Counsel for, and Chairman of the Board of, Ai Group Workplace Lawyers, a national law firm operated by Ai Group.

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