Commercial contracts entered into for fixed terms clearly bring with them the possibility of non-renewal and consequent job losses, and there’s nothing unusual about that according to a full bench of the Fair Work Commission. And that means an employer who loses a contract, or who chooses not to bid for a renewal or extension, may not be obliged to pay employees redundancy on termination.
The case the FWC examined involved a company providing a range of services to the Department of Defence under fixed term contracts. In 2014, Defence changed the specifications for some of its contracts. The employer did not bid for those newly crafted contracts. Employees involved in that work were dismissed at the end of the existing contract term, consistent with the employer’s long standing normal business practice.
The employees through their unions disputed the employer’s decision not to pay redundancy. At first instance, the FWC agreed with the unions. The initial decision effectively said that the increased incidence of contracting and labour hire usage since the redundancy test cases of 30 years ago meant that the game had changed. It followed that contracting companies and labour hire firms would be “at a competitive advantage” if their business model allowed them to avoid redundancy provisions. The Commissioner ordered the employer to pay up.
On appeal the full bench overturned the earlier decision on the grounds that it was based on an incorrect principle. The correct approach, the full bench said, is to focus on “the business circumstances of the employer”. This meant the words “ordinary and customary turnover of labour”, used in the legislation to provide an exception to redundancy obligations, had to be considered in the context of the particular business in question.
The employer had provided evidence of its business model and its long-standing practices. It demonstrated that it had clear statements in employment contracts identifying the term of the employment was tied directly to the term of the contract held by the employer with the client. And further, the employees were made aware they were employed for the specific contract on which they worked, not at large within the company. So it followed, the bench said, that the client contracts and the employment contract were linked, such that the loss of one would lead to termination of the other.
What is important about this case is that the term contracts between the employer and the employee were not contrivances to give the appearance of intermittent employment. Rather they reflected the reality that the employer did not, and could not, have security of tenure over the work so it followed, that loss of the contract would mean loss of employment. This, the FWC said, was nothing more than the ordinary and customary turnover of labour in that business.