Redundancy – NES relied on to interpret employment contracts

Key takeaways

As highlighted by a recent Full Bench decision of the WA AIRC (Spotless Group v Dennis Buckle [2017] WAIRC 00024), tribunals are prepared to refer to the National Employment Standards to resolve ambiguity in contracts. This follows on from a judgment last year where the District Court of South Australia refused to imply a reasonable notice term into an employment contract because of the existence and operation of the notice provisions in the Fair Work Act 2009 (Cth) (FW Act) (Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65). This raises new issues for employers to consider when drafting and interpreting employment contracts.

So how did this issue arise in the Spotless case?

Imagine your business operates on the basis of tendering for contracts to provide services. One of these contracts to provide services ends which means you need to ‘let staff go’. This is generally known as a termination of employment “due to the ordinary and customary turnover of labour”. When employment ends in these circumstances, under section 119(1) of the FW Act an employer is not required to make redundancy payments to departing employees.

However, what happens if an employee has signed an employment contract which provides that:

“If your employment is terminated on the grounds of redundancy, retrenchment benefits payable to you will accord with the terms of the retrenchment policy applicable to Spotless staff at that time…”

The employment contract does not refer to any practice of not paying retrenchment benefits if employment ends due to the ordinary and customary turnover of labour. Further, no retrenchment policy exists, or has ever existed.

This is the situation the Full Bench of the Industrial Relations Commission of Western Australia recently dealt with in the Spotless case. 

One of the Spotless group companies had a contract to provide facilities management services to the State Government at the Fire and Emergency Services (FESA) in Perth. Mr Buckle was employed by the Spotless group company on 23 July 2009 as a facilities manager to provide building operations and facilities services at FESA headquarters under the FESA contract. Mr Buckle’s employment contract featured the above redundancy term. The FESA contract with Spotless ended on 30 June 2016. Consultation took place in April 2016 and an effort was made to secure alternative employment, whereby Mr Buckle was sent a weekly recruitment vacancy list. No position was offered to Mr Buckle and his employment ended on 30 June 2016. Mr Buckle made a claim for a contractual redundancy benefit of 11 weeks’ pay.

At first instance, Commissioner Matthews found in favour of Mr Buckle. The Commissioner used the table in s119 (2) of the Fair Work Act 2009 (Cth) as an accessible external standard for the quantum of redundancy pay. The Commissioner had no regard to the remainder of the National Employment Standards for redundancy pay. In particular, the Commissioner did not have regard to the disentitling provision where redundancy pay was not payable when the redundancy was due to the ordinary and customary turnover of labour.

On appeal to the Full Bench, Commissioner Matthews’ decision was quashed. The Full Bench found that while the NES was an appropriate external standard, it was not “divisible’ and reference must be had to the whole of the subdivision of the NES applying to redundancy pay. This meant that it was not just the NES quantum of redundancy pay that was relevant. Rather, regard should also be had to the precondition in s 119(1) of the Fair Work Act which provides that redundancy pay is not paid where the employment is terminated due to the ordinary and customary turnover of labour. According to the Full Bench, courts cannot be selective in the application of an external standard. This meant that because Mr Buckle’s employment was terminated due to the FESA contract ending, and that termination was part of the Spotless Group’s ordinary and customary turnover of labour, Mr Buckle was not entitled to redundancy pay.

Lessons for employers

• Redundancy pay exception: If a business hires and fires on the basis of tendered contracts for services it may be able to rely on the ordinary and customary turnover of labour exception so no redundancy benefits are payable – this should be clearly communicated and consistently applied to employees.
• Inform/consult/suitable alternative employment: Employers should ensure they satisfy their legal obligations when terminating employment by reason of redundancy under the NES or an industrial agreement by providing information, consulting with affected employees and making efforts to provide opportunities for suitable alternative employment. 
• NES fleshing out employment contracts: Courts and tribunals are increasingly relying on the NES to resolve uncertainty or ambiguity in employment contracts. In doing so, they are relying on all relevant parts of the NES, and are not being selective about the elements that are applied. This has the potential to apply to NES terms other than redundancy, including notice provisions and leave entitlements.