Home - When a retrenched worker is NOT entitled to a redundancy payout

UpdatesJun 21, 2017

When a retrenched worker is NOT entitled to a redundancy payout

Where your employment of a person is based on you retaining a particular contract, if you dismiss the employee because you lose the contract, you may be able to rely on an ‘ordinary and customary turnover of labour’ exception to avoid redundancy pay obligations.

The ‘ordinary and customary turnover of labour’ exception appears in the National Employment Standard (NES) redundancy pay provision in the Fair Work Act 2009 (Cth).

By Charles Power

Where your employment of a person is based on you retaining a particular contract, if you dismiss the employee because you lose the contract, you may be able to rely on an ‘ordinary and customary turnover of labour’ exception to avoid redundancy pay obligations.

The ‘ordinary and customary turnover of labour’ exception appears in the National Employment Standard (NES) redundancy pay provision in the Fair Work Act 2009 (Cth).

The effect of the provision is that when you no longer require an employee’s job to be performed by anyone, and dismiss the employee for that reason, you don’t have to make redundancy payments to the employee if the dismissal has the character of ordinary and customary turnover of labour. This means the NES redundancy pay entitlement does not arise.

In Spotless Group v Dennis Buckle (2017), the employer successfully established that this exception applied in the following circumstances:

Clause had no effect

The West Australian Industrial Relations Commission referred to the contractual provision for redundancy and observed that in the absence of a retrenchment policy, the clause was uncertain and of no effect.

However, the Commission ruled that the policy was to apply the NES.

Therefore, the employee’s entitlement to retrenchment benefits under the redundancy clause in the employment contract accorded with the NES for redundancy pay. The NES disentitled the employee to a redundancy payment where employment is terminated due to the ordinary and customary turnover of labour.

Given that was the case here, the employee was not entitled to redundancy pay.

While there was no dispute in this case that the employment was terminated due to ordinary and customary turnover of labour, care must be taken when treating redundancy situations arising from a downturn in trade or loss of custom as ordinary and customary turnover of labour.

The exception only applies where there is a close association with the particular employment and a contract between the employer and the client.

Copied