The Fair Work Act provides workers with a right to severance pay when their employer no longer requires their job to be done except where this is due to the ordinary and customary turnover of labour. Businesses can apply to the Fair Work Commission for a reduction in severance pay owing to a redundant worker if the employer obtains other acceptable employment for them. But what do these phrases actually mean?
The ordinary and customary turnover of labour
Compass Group Pty Ltd (‘Compass’)* held contracts with the Department of Defence to supply a range of support services to troops in the Riverina Murray Valley region for many years. These contracts were renewed or extended multiple times but Compass decided not to re-tender for fire and rescue, stores and transport services. When some employees were consequently made redundant, Compass denied liability for severance payments on the basis that the redundancies were caused by the ordinary and customary turnover of labour.
In the Fair Work Commission, Commissioner Roe noted that this exclusion applies to the obligation to make severance payments because some businesses by their nature must offer workers intermittent employment in order to ‘follow the job’. Contractors in the building industry often offer loadings as compensation for the fact that work in the industry is not ongoing. To offer such workers severance pay would amount to double counting.
However, contracting has become an industry in itself in recent years. Such businesses may manage a large number of contracts at once, renewing some and losing others. Their staff may be moved from one contract to another and have a reasonable or settled expectation of continuous employment. Although each case of redundancy would be considered on its own merits, such businesses are not the type the Commission had in mind when establishing the exclusion for the ordinary and customary turnover of labour.
When considering whether the exclusion applies, the Commission will take into account:
- Whether the employer’s contract with the principal is short term and the worker is advised that their employment will terminate upon expiry of the contract;
- Whether the contract has been renewed and whether this causes the employee to develop a settled expectation of continuing employment;
- Failure to bid for a renewal of the contract on commercial grounds (rather than altered tender criteria that no longer reflect the business’ service offerings) is unlikely to meet the criteria;
- Employment contracts and communications with staff should reflect linkage to the contract and not indicate a likelihood of ongoing employment. (Of course, the terms of a contract won’t mean much if they don’t reflect the reality of the working relationship).
This makes sense when you consider that the purpose of severance pay is to compensate employees for the loss of non-transferable credits like sick leave and long service leave. Workers engaged by a contracting business over a long period would not likely be double dipping by gaining access to severance payments.
For Compass, this meant that its decision not to bid for a further stores and transport contract on a commercial basis meant that severance pay was owing to affected staff. But its failure to bid for a further fire services contract occurred due to a change in the Department’s requirements, making the termination of those employees’ jobs a normal feature of the business.
Lessons for employers
Some business models just don’t suit the ordinary and customary turnover of labour redundancy pay exemption. For these businesses with long term staff, severance pay is a cost of success in winning tenders.
However, each redundancy entitlement will be decided on its own facts, and where it is feasible to link employment contracts to the availability of external funding, the severance pay exemption may well be available. The longer the employee remains with the business, or upon renewal of the contract, the less likely that exemption will apply.
* National Union of Workers; United Firefighters’ Union of Australia v Compass Group Pty Ltd  FWC 6055
Other acceptable employment
WorkCo Limited (‘WorkCo’)* restructured its job placement and labour hire business in Horsham and as a result two employees were redeployed. They were dissatisfied with their alternative positions and claimed an entitlement to severance pay on the basis that the employer had not obtained acceptable employment for them.
Mr Gawith remained on the same pay and conditions but his role changed such that additional travel was required and he considered the job a ‘backward step’. Ms Lourensz’s new role would pay slightly less and require her to work more than double her previous hours, being in the office five days per week instead of two.
In deciding whether the new roles were acceptable employment, the Commission referred to the following principles:
- An objective assessment should be made; the employee’s personal preferences don’t decide the matter;
- The work should be of a like nature, the location not unreasonably distant;
- Regard should be had to pay levels, hours of work, seniority, fringe benefits, workload and speed, and job security;
- The new role can be less advantageous than the former role, but this is a matter of degree;
- The new employer ought to recognise the employee’s prior service with the former employer such that there is no loss of non-transferrable credits.
So Ms Lourensz got her severance pay and Mr Gawith did not.
Lessons for employers
Obtaining other acceptable employment for quality staff who are made redundant is a win for all parties. Note that more is required of an employer than recruitment assistance; it must be a strong moving force behind the creation of the new role.
Applications to the Fair Work Commission for a reduction in the severance amount owing to such employees will be worthwhile in circumstances where staff would be double dipping were they to receive a severance payment due to the similar terms of employment offered in their new role.
* WorkCo Limited T/A Workco Ltd  FWC 6014
Employee Fined For Breach of Fair Work Act
A recent case* is a reminder that not only the employer but also key employees can be personally fined if they breach an obligation under the Fair Work Act.
An employee, who was receiving workers compensation, had been terminated on a shorter notice period required under the State workers compensation legislation rather than the longer notice period required by the National Employment Standards (‘NES’).
The HR Manager of the company knew that the notice was insufficient (by two days) but was following the directions of Senior Management. Her involvement in the breach was described as “incidental and inadvertent”.
Nonetheless, the Court made it clear that because she had known that she was not complying with the Act and still went ahead, she should be penalised. The Court imposed a fine of $1,020.00 on the HR Manager personally. The Employer itself was fined $20,400.00 for the breach.
Lessons for Employers (and Employees)
If you know are unsure about what law applies or know that you might be breaching the Fair Work Act, don’t risk it. Err on the side of caution. Or call your lawyer.
*Cerin v ACI Operations Pty Ltd & Ors  FCCA 2762
Dismissals During Probation Can Still Cause Claims
Employers often think that if they dismiss employees during a probationary period and before the minimum employment period (“MEP”) has been served, they can do so without reason or penalty because the employee cannot bring a claim for compensation.
Employees can still seek compensation for what is called ‘adverse action’ and unlike the unfair dismissal scheme, there is no upper limit on the amount payable.
An employer recently found this out to their detriment.* A probationary employee had complained about treatment by his supervisor but the complaint was yet to be formalised. When he made a criticism about “workplace culture” the following week, the employer dismissed him citing poor performance. In reality, the decision had been made because the employee was seen as a ‘smart arse’ and because if the complaint had been formally looked into, the MEP would have been served and the employer wanted to avoid any unfair dismissal claim. The employee’s claim for adverse action was upheld.
Lessons For Employers
Fairness to employees is always best - even if the unfair dismissal scheme does not yet apply. Otherwise, you may pay a heavy price – for trying to be a ‘smart arse’!
*Anderson v BNP Paribas Sercurities Services  FCCA 2231
Modern Awards – Recent Changes
The Fair Work Commission has continued to review all of the current industrial Awards and the following changes have occurred:
1. Annual Leave
1.1 A model clauses has been developed allowing:
1.1.1. employers to direct that annual leave be taken if the employee has accruals exceeding 8 weeks has been developed; or
1.1.2. If no direction is given or agreed the excessive leave has been accrued for more than 6 months, the employee can give notice that they are taking up to 4 weeks of that excessive leave (per 12 month period).
1.2. All Awards will now have a clause allowing 2 weeks per annum annual leave to be cashed out, provided a minimum amount of 4 weeks’ entitlement is left.
1.3. 48 Awards will have a clause allowing for granting of leave in advance.
1.4. A scheme for buying annual leave entitlement has been dropped.
The Commission is now reviewing Award specific issues relating to the changes.
2. Model TOIL Clause
2.1. A model clause providing for paid time off in lieu of overtime penalty rate (“TOIL”) has been determined.
2.2. The Commission is now hearing submissions as to the insertion of the clause into specific Awards with the aim that all Awards should have such a clause or an industry specific variation of it.
3. Family and Domestic Violence Leave and Family Friendly Work Arrangements Clause
3.1. The Commission has decided to proceed with consideration about inserting in all Awards allowing up to 10 days paid leave per year to deal with Family and Domestic Violence Issues.
3.2. Similarly, the ACTU’s suggested clause allowing a full time employee to return to work on a part time basis after parental leave and for 15.2 hours of paid antenatal leave per year will also be considered.
4. Exposure Drafts
Drafts showing amendments to the first set of Awards reviewed in detail have been published for comment and can be found here.
This e-alert was prepared by Thea Birss, Senior Associate and Elizabeth Olsson, Senior Solicitor at Mellor Olsson.
For further information or assistance, please give us a call.