The Spotless Case: When Redundancy Pay is Required
When an employee is made redundant, they are often entitled to redundancy pay. The Fair Work Act 2009 contains various exceptions to this obligation including where the job loss was foreseeable, such that it was “inherent in the nature of the employment”.
Recently, the Federal Court ruled against a cleaning services company seeking to rely on this exception which has significant implications for redundancy pay and staff.
In June 2015, Spotless Services Australia Ltd terminated the employment of a number of long-term cleaners and security guards when it lost two major contracts without making redundancy payments.
When the United Workers Union brought legal action, Spotless attempted to rely on the aforementioned s 119(1)(a) exception to redundancy pay due to the “ordinary and customary turnover” of staff in services such as cleaning and security.
Justice Colvin of the Federal Court disagreed with this argument, finding Spotless failed to demonstrate each employee had or ought to have had an expectation that their jobs would come to an end when the customer contracts ended. This was due to the company’s redeployment practices and polices usually exercised when contracts came to an end, compliance with redundancy pay previously and lack of communication as to the fixed nature of the employment relationship.
Recently, the Full Federal Court upheld this decision on appeal ruling that Spotless’ perception of how things operated in the industry was not enough to override the employee’s expectation for continued work.
This ruling means Spotless will be required to pay around $650,000 in redundancy claims to over 100 workers.
The Significance of this Decision
This decision will broadly mean employers seeking to rely on the statutory exemption of the ordinary and customary turnover of labour will bear the evidentiary burden to prove their practices fall within this definition.
Justice Colvin initially clarified that it will not be sufficient for employers to simply outline an inherent risk that continued employment is contingent upon securing new contracts. In fact, Justice Colvin encouraged employers seeking to avoid paying redundancy pay to establish from the outset the nature of their customer contracts by engaging employees on fixed term contracts for clearly identified tasks.
This decision may also witness further shifts to less secure modes of employment such as fixed term contracts or casual work where redundancy pay is not required.