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When ‘ordinary and customary turnover’ is reconsidered

This company thought it wasn’t required to pay redundancy entitlements when its catering contract ended, but the Federal Court of Australia ruled otherwise.

With the foundations of ‘casual employment’ being undermined by recent decisions (see previous article on the Workpac v Skene decision, and more recently Hall and Wilcox’s update on amendments to the Fair Work Regulations affecting casual employees), employers are more unsure about their obligations than ever before.

While the recent decision in Fair Work Ombudsman v Spotless Services (Spotless) has departed from the controversial decision in United Voice v Berkley Challenge (Berkley), the application of the ordinary and customary turnover of labour (OCTL) exemption to redundancy pay remains hazy and dependent on the questions of fact in each case.

History of OCTL exemption

Prior to the Fair Work Act 2009 (Cth), industrial tribunals have long required compensation be paid where an employee’s employment was terminated due to redundancy, while generally excluding terminations that occurred due to the ordinary and customary turnover of labour. The OCTL exemption is now embedded in section 119(1)(a) of the Fair Work Act.

Over time, the OCTL exemption was recognised to apply in circumstances where employees did not have a reasonable expectation of ongoing employment due to the intermittent nature inherent in their employment. This is often the case in short-term contract work such as cleaning or catering, and in the building and construction industry.

Whether the OCTL exemption applies is a question of fact, based on various factors including:

  • whether it was a normal feature of the employment that work is intermittent;
  • whether the parties understood the intermittent nature would result in a lack of continuity in work;
  • whether the employee has been paid a loading or allowance to compensate for the intermittent nature of work;
  • whether there could have been a settled expectation of ongoing employment based on the length of employment or otherwise; and
  • whether it was customary to dismiss employees once there was no more work, regardless of their service history with the employer.

However, in the Berkley case last year the court moved away from the well-founded understanding above and determined that the OCTL exemption would apply “in circumstances where the redundancy component of that decision is for that employer, with respect to its labour turnover, both common or usual and a matter of long-continued practice.”

Justice Reeves held that the question of whether it was ‘ordinary and customary’ was with respect to the employer’s practices, as opposed to the custom of all jobs of that type, and any expectations the affected employees held about those matters are irrelevant”.

While the Berkley decision may have expanded the scope of the OCTL exemption, the shift from the widely-understood application of the OCTL exemption created uncertainty for employers.

The Spotless decision

Spotless followed the termination of over 30 employees (including a manager who had been employed for over 34 years) after Spotless’ contract to provide catering and hospitality services at Perth Airport ended. Spotless sought to rely on the OCTL exemption. The employer contended it was not required to pay redundancy entitlements to the employees who were terminated as a result of the company losing its contract with the airport, claiming it was part of the company’s long-standing policy not to do so.

The Spotless decision has departed from the decision in Berkley in a finding that examines and critiques the history and evolution of the OTCL exemption.

While earlier decisions have focused on the requirement that the nature of the work be inherently intermittent, Justice Colvin concluded that termination will be part of the OCTL where ‘“termination is so inherent in the nature of the job for a particular employee that it cannot be described as ongoing or indefinite employment”.

In coming to his decision that termination was not inherent in the nature of the work and that the OCTL exemption did not apply in the circumstances, Justice Colvin noted:

  • the Spotless Group provided services in a number of different sectors, however the services provided in each sector often overlapped. So employees who worked under one contract may be expected to undertake similar work in the provision of services under another contract, including in a different sector;
  • Spotless did not produce any evidence that its policies were known to employees or that it was actually common or usual for their employees to be terminated when a contract came to an end;
  • it was established that Spotless had a practice of trying to redeploy its employees following the end of a client contract; and
  • the contracts between Spotless and its employees did not indicate when the contracts would come to an end.

Therefore, informed by the context of the earlier decisions, Justice Colvin’s decision has refined the interpretation of the OCTL exemption, with the inherent intermittency of work still being a relevant consideration in determining whether a settled expectation of ongoing employment might exist.

Lessons for employers

This case provides guidance for employers within the business of contracting their employees to complete work for clients on a project basis.

As the OCTL exemption will be applied on a case-by-case basis, and based on a range of factors, critical to its application is whether the termination is so inherent in the nature of the job that there could be no settled expectation that employment would be ongoing.  

To increase the prospects of successfully relying on the OCTL exemption, employers should consider including a carefully drafted clause in their agreements with employees to support the position that the employees could not have had a ‘settled’ expectation of ongoing employment beyond a specified contract or assignment, which should also be identified in the agreement. In addition, the employment contract should specifically state that any allowance or loading paid is in compensation for the intermittent nature of the work.

However, like almost all things in employment law, there is no guarantee such clauses will provide a complete protection. Employers must be wary that in circumstances where an employee’s employment continues without any new terms being agreed – when customer contracts are renewed or the employee is reallocated to another contract – an expectation of ongoing work may be reasonably founded and an employer will be hard pressed to argue that termination is inherent in the nature of the work.

As always, the specific set of facts in each case remains vital and well-drafted provisions and legal advice on a case-by-case basis should be sought at the time of termination.  

This content is general commentary and opinion of the writer provided for information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied upon as legal advice. Readers should obtain specific advice relating to their particular circumstances.

Fay Calderone is a partner at Hall & Willcox and Jessica Luker is a graduate lawyer.

Need to brush up on how to dismiss an employee fairly, respectfully and legally? AHRI’s ‘Recruitment and workplace relations’ short course takes you through important legislation at all stages of the employment cycle.

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Colin Dorber
Colin Dorber

Excellent presentation of the ordinary and customary turnover in labour and redundancy issues- thank you

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