Major contractor ordered to pay redundancies

A contractor who lost a major contract after 16.5 years was ordered to pay redundancy pay and entitlements to the employees whose employment it had to terminate. It could not rely on the provisions of the Fair Work Act 2009 that provide for exemptions in cases of “ordinary and customary turnover of labour” to avoid liability for those payments.

A full Federal Court overturned a previous decision of the South Australian Employment Tribunal.

Facts of case

The contract was for the provision of aged care services but ended when the client decided to use its own employees to do the work. The employer had multiple contracts with the client over 16.5 years, and had 31 employees who were not casuals and had at least 12 months’ continuous service. Some were former employees of the client who had transferred to contract work.

A full Federal Court said that the nature of the employees’ continuous service meant that their jobs were of a permanent or ongoing nature, as distinct from labour hire workers, whose work was for a fixed term or project. The aged care services were required by the client on an ongoing and indefinite basis.  

The issue in this case was whether the employer was required to pay employees redundancy pay under sec 119(1)(a) of the Fair Work Act 2009 when it terminated their employment after its contractual arrangements to supply services to a client came to an end or were not renewed.

Section 119(1)(a) provides for redundancy pay/entitlements where the employer no longer requires a job to be performed by anyone “except where this is due to the ordinary and customary turnover of labour”.

The employer argued that employees would have had an expectation that their employment would end if it lost the contract, and therefore their termination would be treated as “ordinary and customary turnover of labour”.

Decision

The court distinguished this case from previous ones involving sec 119(1)(a) by saying that the jobs performed for the aged care provider would have been required for as long as the provider continued to operate. In the other cases, the parties understood that at some stage the work would inevitably come to an end (eg completion of a project) and the work was therefore not ongoing or indefinite.

The court also took into account that the employer did not inform the employees of the possibility that their jobs would end if the contract was not renewed. The employer’s defence was that it had hoped the contract would be renewed.

The union that lodged this appeal also applied for penalties to be awarded against the employer for breaching sec 119(1)(a), but this issue is yet to be addressed.

What this means for employers

It appears from this decision that if a labour hire contract ends “unexpectedly”, resulting in redundancies, the employees will be entitled to redundancy pay and other redundancy entitlements. The key factor will be whether the work performed was expected to be of an ongoing and indefinite nature, as distinct from a fixed period of time or fixed project. In this case, the contract made no mention of “duration”.

Broad statements in employment contracts such as “your continuous employment cannot be guaranteed” or “is subject to operational requirements” will not be sufficient to override the above provisions. It can be argued that those risks apply to all types of employment.

Read the judgment

United Workers Union v Compass Group Healthcare Hospitality Services Pty Ltd [2023] FCAFC 92 (16 June 2023)