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IR Update: Special purpose employees ineligible for redundancy pay

January 18, 2016

In a recent case before the Fair Work Commission, it was decided that employees working under “special purpose contracts” were not eligible for redundancy pay on termination of their employment. Special purpose contracts include agreements whereby the employee has been contracted to perform a particular task or for a specified period of time.
The facts of this case were such that the employees were only engaged for as long as their client’s contracts. Their agreements with Compass Group included an exemption from redundancy pay where termination was due to the ordinary and customary turnover of labour.
When a client’s contract would come to an end, Compass Group would provide their employees with a termination letter and written notice, unless it was possible for them to be redeployed in another role. According to their evidence, they would provide as much notice as possible and would do their best to identify any redeployment opportunities.
As such, the employer argued that it had no obligation to provide redundancy payments as the “ordinary and customary turnover of labour” exception applied. In reaching its decision, the full bench was required to consider whether this was in fact true and ultimately agreed with Compass Group and its submissions.
“Compass had a long standing practice not to make redundancy payments at the conclusion of contracts pursuant to this exception. If this position was sought to be altered, one would have thought that a variation to the terms of the standard redundancy clauses in Compass enterprise agreements would have been made. No such variations were made.”
In their view, the terminations arose from the loss of the client contracts, which in turn was due to the ordinary and customary turnover of labour. In effect, the employees were not entitled to any redundancy pay.
The full text of this decision can be found here.
In light of this case, employers are reminded that a termination of employment will not always amount to a redundancy, if the employee has been engaged to perform a particular job. In order to avoid a potential claim, employers must ensure that the wording of their contracts is sufficiently clear and that they identify the exact point at which the contract will come to an end.

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