The Federal Court has held the employees who had been terminated due to their employer using service contracts were entitled to redundancy pay in a recent case.
The Case: Berkeley Challenge Pty Ltd v United Voice  FCAFA 113
The Court: Federal Court of Australia Full Court
The Act: Fair Work Act (Cth) 2009
Under section 119(1)(a) of the Fair Work Act (Cth) 2009 (Act), it states that an employee is entitled to redundancy pay if his or her 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.
In 2014, Spotless Group Limited (Spotless) through its subsidiary Berkeley Challenge Pty Ltd (Berkeley) lost a service contract to provide security, cleaning and related services to the Sunshine Coast Plaza shopping centre. Spotless had been engaged to provide these services since 1994. As a result of this, Spotless terminated 21 employees.
In 2015, Spotlight through its subsidiary Spotless Services Australia Pty Ltd lost a catering and hospitality service contract at the Perth International Airport and subsequently terminated the employment of three employees.
Spotless had argued that the s199(1)(a) exception applied due to their business practices and that the nature of the job and the employee’s expectations about whether their employment would be on-going was not relevant.
The Full Federal Court decision
The Full Court held that the exception did not apply for Spotless because the employees had a reasonable expectation of continued employment.
In coming to their decision, the Court considered the following factors:
- Whether the turnover was ordinary and customary;
- The employee’s expectations; and
- The nature and length of the employment relationship.
The Court held that there was no expectation from the employees that their employment was tied to the service contract.
In consideration to whether the turnover was ordinary and customary, the Court considered whether it was well known to the parties that the employment would not be for an indefinite or substantial time based upon the business practices in the industry, the trade or employment market and Spotless’ business practices.
It also held that as the employees were long term permanent employees and there was no mutual understanding that the employment would come to an end in the ordinary course.
Employers will need to consider whether a reasonable person in the position of both parties to an employment contract would have understood or expected that the job was not permanent or of an ongoing nature. Whilst this case is limited to the factual scenario it does provide some guidance on how the s119(1)(a) exception would apply.
This case confirms that the exception would only apply to a narrow range of circumstances and would not apply due to an economic downturn or loss of contract.
For more information on how this may affect you or if you require any assistance in relation to redundancy pay, please do not hesitate to contact Morrissey Law + Advisory.
Morrissey Law + Advisory communications are only intended to provide commentary and general information as at the date of publication. They are for reference purposes only, do not constitute legal advice and should not be relied upon as such. Formal legal advice should always be obtained about particular transactions, contracts or matters of interest before taking any action based on this communication. Authors and contributors may not be admitted in all State and Territories.