Do You Or Don't You Pay An Employee Redundancy?

01 MAY 2018

 

The vexed question of whether to pay or not pay redundancy if not seriously considered prior to actioning can be a costly exercise both in monetary terms and also a significant distraction to your business.

In the case of United Voice (on behalf of employees) v Berkeley Challenge Pty Ltd (the employer) [2018] FCA 224, the Federal Court of Australia decided the employer should pay 20 employees redundancy.

What is a Redundancy?

Redundancy happens when an employer either:

  1. doesn't need an employee’s job to be done by anyone; or
  2. becomes insolvent or bankrupt.

Snapshot

The Court decided the employer, Berkeley Challenge, must pay redundancy payments to 21 of its employees in the total amount of $200,000. The steps leading up to termination as a result of a position no longer existing are crucial as can be seen in this case.

How did it start?

The employer had a cleaning contract with Sunshine Coast Plaza Shopping Centre in Queensland for a period of 20 years and employed a number of cleaners to work at the Plaza under this contract.

The employer tendered for a renewal of the cleaning contract with the Plaza, but it lost out, and the contract was awarded to another cleaning company.

As a result, the employer sent a notification to the cleaners it employed informing them that it had lost the contract at the Plaza and it will try to place the cleaners at other sites but if it cannot place them at another site, their employment will be terminated.

After some months, the employer verbally notified most of the affected cleaners that their employment was terminated.

The employee representative sued the employer in the Federal Court of Australia and argued that the employer breached the Fair Work Act 2009 (Cth) by not providing the affected cleaners with valid notices of termination and did not pay the applicable redundancy payment.

What does the law say?

The Fair Work Act says that an employer must not terminate an employee’s employment unless a written notice of termination is given to the employee.

Further, the employee is entitled to be paid redundancy pay if they are terminated because the employer no longer needs the job to be done by anyone.

What did the Court decide?

The Court said that the employer breached the Fair Work Act because the notification it sent to the cleaners was not a valid termination notice.

Rather, it was a notice that the employer had lost the cleaning contract and that the termination of the cleaners’ employment will take place only if Berkeley Challenge can’t place the cleaners at another site.

As to the issue of the redundancy pay, the employer argued that it was in the “ordinary and customary turnover of labour” that it ended the cleaners’ jobs and therefore it should not have to pay any redundancy.

The Court found that the employer must pay redundancy to the affected employees because it was rare for Berkeley Challenge to terminate the employment of its cleaners during the span of the 20 years it had held the cleaning contract with the Plaza and therefore no “ordinary and customary turnover of labour” had occurred.

Conclusion

This case demonstrates the importance of due diligence before considering terminating an employee. Research prior to terminating can save you money and time and minimise distraction to your business.

If this issue arises and you think an initial short discussion with Grant or Simon  might assist please call our Campbelltown Office on (02) 4626 5077. Prevention is better than finding and paying for a cure.

Note: The contents of this publication are for reference and observations purposes only as a guide. This publication does not constitute legal advice and should not be relied upon as legal advice. Every circumstance is different hence discrete and specific legal advice should always be sought separately before taking any action based on this publication.

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