Redundancy must still be paid when a business loses contracts
The Federal Court has recently ruled that low paid workers who lose their job when their employer loses contracts or clients, must still be paid redundancy entitlements. The landmark decision will have wide-ranging consequences for Australian businesses, especially during the difficult time of the Covid-19 pandemic.
Company argues it was not obliged to pay redundancies
The case involved Spotless Services, a company that had resisted making redundancy payments to long-serving employees who were fired in 2018 after the company lost two big contracts for its cleaning services.
Spotless argued in the Federal Court that because it lost the contracts, there was no work for their cleaners. Further to this, the company asserted that under section 119(1)(a) of the Fair Work Act 2009 there was no requirement to pay redundancy entitlements if the termination is “due to the ordinary and customary turnover of labour”.
The Federal Court judges weighed just what this wording meant; whether it applied to service industries such as cleaning, whether the exception applied when a company loses contracts and whether the company’s actions contravened a national employment standard.
Sacked workers win, Spotless appeals decision
The United Voice union and the Fair Work Ombudsman represented the sacked workers against Spotless, winning their case in the Federal Court in 2019. (See Fair Work Ombudsman v Spotless Services Australia Ltd  FCA 9.)
Spotless appealed the decision and the matter was then ruled on by three judges in the Appeal Court in July 2020. (See Berkeley Challenge Pty Ltd v United Voice  FCAFC 113.)
In its appeal, Spotless argued it was customary with roles in the building services industry, such as cleaning, maintenance and security, to let workers go when their indirect employers, such as hospitals and shopping centres, changed contractors. They also argued there was a high turnover of clients, as building managers constantly ssought cheaper providers.
Appeal Court finds Spotless required to pay redundancy entitlements
In their consideration, the three judges in the Appeal Court stated that the object of the Fair Work Act is “to provide a balanced framework for workplace relations including by ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through those standards, modern awards and minimum wage orders…”
The judges said an employee in career or long-term employment with a particular employer, in which there is a reasonable expectation of continued employment, would not fall within the exceptions in section 119.
From this judgement, the exception to paying redundancy would only apply if the employee had a “reasonable” understanding the job would end in the “ordinary course”, rather than if their employer loses contracts.
Ordinarily, workers get redundancy pay that starts at four weeks’ wages. It can reach 16 weeks under the default employment standards if their job is no longer required. One of the Spotless workers sacked without redundancy pay had been employed for 32 years.
The ruling could prove costly for employers. The union is seeking $110,000 for 14 members in the Spotless case, plus hundreds of thousands more sacked workers in similar cases around Australia.