Labour hire and redundancy – what are your obligations?

Compass Group is a labour hire company who provided labour to the Department of Defence under various contracts for stores and transport services, as well as fire and rescue services, between 2005 and 2014. Compass Group’s contracts were reviewed or extended a number of times during that period.

In 2014, the Department changed its tender process and Compass Group decided not to re-tender for some of these contracts. This left Compass Group with more employees than contract work and resulted in a number of redundancies. The affected employees had been engaged with the company between 3 to 9 years.

Compass Group refused to pay severance entitlements, relying on its enterprise agreement which provides employees are not entitled to redundancy benefits where the dismissal is due to “ordinary and customary turnover of labour”. Compass Group argued that the termination of the affected workers was a regular occurrence when contracts were lost and therefore fell into this exemption. The NUW and the UFU challenged that decision, making an application to the Fair Work Commission (FWC) to deal with the dispute under the enterprise agreement.

The FWC dismissed Compass Group’s arguments and stated that the employment of these workers extended through more than one extension of the defence contract. This suggested that there was an expectation of continuing employment and the termination was not due to the ordinary and customary turnover of labour. The FWC did not accept Compass Group’s argument that the employment of these employees was intermittent or limited to the fixed term of a particular contract.

On this basis, Compass Group was ordered to pay the redundancy entitlements to the dismissed employees.

Implications of the decision

This decision can impact both:

Labour Hire companies who should consider building in the cost of redundancy when entering into contracts with clients, particularly if there are not likely to be any redeployment opportunities for affected employees at the end of such contract; and
Customers of Labour Hire companies who may, depending on their terms of the labour hire agreement, become liable to pay redundancy where the agreement states, for example, they will be obliged to pay “statutory entitlements of employees” if the contract is not renewed at the end of the term.
Companies need to be mindful of these potential issues in the contracting and labour hire industries, and should consider:

Ensuring adequate provision is made in the terms of engagement between companies;
Addressing the issue in enterprise agreements; or
Considering alternative employment models such as casual labour where appropriate (given that casuals are not entitled to redundancy pay under the NES).
HR Legal can assist in relation to labour hire arrangements including drafting agreements and providing strategic advice on these arrangements.

This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

HR Legal

This article was produced by HR Legal It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.