Termination of Employment

Termination of employment is always a serious step because of the likely impact on the employee’s livelihood and well-being, the potential disruption to the business and other employees, and the potential risk of an unfair dismissal claim. Overseeing a successful employment termination takes both an understanding of the relevant law and strategic risk management.

Unfair dismissal

The most common legal issue that arises following a termination is an unfair dismissal claim. Under the Fair Work Act 2009, employees have extensive entitlements, including the right to make a claim of unfair dismissal if they were terminated in a manner that they consider to be unjust, harsh, or unreasonable.

When an eligible employee believes that they have been unfairly terminated they can apply to the Fair Work Commission (FWC) within 21 days of the termination of employment (although the Commission may permit an extension under exceptional circumstances). 

To be eligible to make an unfair dismissal claim, the employee must:

• earn less than the high-income threshold;
• be covered by an enterprise agreement or award; and
• meet the minimum employment period (six months for larger businesses with 15 or more employees, and 12 months for smaller businesses with 14 or fewer employees).

Contract employees do not expect ongoing employment and cannot make an unfair dismissal claim at the termination of their employment. Likewise, casual employees who have no fixed advance commitment to continuing work cannot claim a qualifying period of employment.

As a result of a successful unfair dismissal claim, the FWC can order the employer to reinstate the employee. Alternatively, where reinstatement is not a suitable remedy, the FWC can compensate the unfairly dismissed employee with up to six months’ pay (or half of the high-income threshold, whichever is the smaller amount).

Adverse action/general protections claim

A dismissed employee can also lodge an adverse action or general protections claim. When the termination may have been discriminatory, the employee can also apply to the relevant state or federal anti-discrimination agency. For example, an employee can make a general protections claim if a dismissal was discriminatory against a protected attribute (such as race or sex), or because the employee exercised a workplace right (such as taking leave), or because they participated in industrial activities.  There is no qualifying period of employment with adverse action, general protection, or discrimination claims. In fact, a prospective employee with no period of service can lodge an adverse action claim against an employer.

Managing legal risk

In Australia, an employer must follow certain rules when terminating an employee. The employer must have a valid reason to dismiss the employee and carry out the termination with procedural fairness, including giving the employee adequate opportunity to respond to the employer’s concerns.

Termination for poor performance

Before terminating an employee for poor performance, the employer must explain the expected standard of work performance and provide reasonable time for improvement. The employer must inform the employee that further failure to improve may result in termination of employment. The employee must have sufficient opportunity to respond to the performance review, and the employer must then genuinely consider the employee’s response.

Termination for misconduct

When a termination is based on employee misconduct, the employer must follow certain procedures. Firstly, the employer must have a clear code of conduct that is adequately communicated to all employees. Secondly, the employer must undertake a proper investigation, giving the employee a chance to respond to the misconduct allegation. However, there are circumstances of serious misconduct when an employee may be terminated without notice, such as for serious breaches of health and safety, theft, fraud, violence or sexual harassment. It is vital that an employer treats all employees equally when it comes to dealing with misconduct. The employer cannot condone a behaviour from one employee and use the same behaviour from another employee to justify termination.  

Termination best practice

Terminations should always be carried out in a professional manner, and never with anger. Employers should keep complete records of any performance management, behavioural warnings and counselling provided to employees. This includes taking notes of these reviews, having another manager or HR representative attend significant meetings, and allowing employees to have a support person at the meeting. The employee should receive an appropriate number of warnings depending on the nature of the issue. When the matter proceeds to termination, the employer needs to give the notice of termination in writing.

Smaller businesses can follow a simpler process when terminating an employee, based on the Small Business Fair Dismissal Code.

Termination payments

When an employee is terminated, they receive a payout of their statutory entitlements, such as annual leave and long service leave. Additionally, the employee may be entitled to severance pay through their employment contract, redundancy policy, National Employment Standards, modern or state award, or obligation to give reasonable notice.

The employment law solicitors at Go To Court can help you manage your legal risks when terminating an employee. Please get in touch today on 1300 636 846.