Termination Entitlements

Termination is when a worker’s employment ends, through either resignation or dismissal. When an employer chooses to terminate an employee, they are likely to owe them certain entitlements. These entitlements are established by the worker’s employment contract, their modern award or enterprise agreement, and more generally by workplace law. Redundancy is a specific type of termination of the employee’s position that has unique entitlements not detailed here. This article focuses on entitlements for workers in Australia who are dismissed from their position.

Notice

When a worker’s employment is terminated, they are entitled to a notice period. Notice periods afford employees a small measure of security, as they have time to look for other employment while still employed and drawing a salary. The length of the notice period is usually established in the worker’s employment contract. However, if there is no provision or no written contract, the Fair Work Act 2009 establishes minimum notice periods depending on the circumstances. For instance:

• 1 week for 1 year or less of continuous service
• 2 weeks for more than 1 year and less than 3 years
• 3 weeks for more than 3 years and less than five years
• 4 weeks for more than 5 years

Employees are entitled to an additional week of notice if they are over the age of 45 and have completed 2 or more years of service. This is in recognition of the fact that older workers often experience greater difficulty in securing alternative employment after termination.

During the notice period, the employee is expected to continue to perform their job, though their duties may be reduced or slightly changed. During this period, the employee can finalise what they are working on and transition ongoing work to other employees, and complete offboarding procedures.

Some employees are offered payment in lieu of notice. In that case, the worker leaves immediately but is paid out the salary they would have received for working the notice period. It is important to know that payment in lieu of notice is at the nomination of the employer. The employee is not entitled to payment in lieu if they refuse to work during this period contrary to their employer’s wishes. Should the employee want to leave during the notice period, the notice period can be reduced with mutual agreement.

Termination entitlements

Employers must provide a final payment notice to the terminated employee detailing the outstanding pay and entitlements. The termination entitlements include:

• unpaid wages, including overtime and penalty rate pay
• payout of accrued annual leave (though not personal or carers leave)
• payout of accrued long service leave
• expenses due to be repaid to the employee
• allowances due to be paid to the employee
• payments in lieu of notice (where applicable)

Under the Fair Work Act, all amounts payable to employees must be paid promptly, within a month at the latest. However, some entitlements must be paid out much more quickly. For instance, annual leave entitlements must be paid on the employee’s final day and payment in lieu of notice must be made to the employee before the termination is effective. This reflects the fact that an employee who is terminated without notice will have no opportunity to arrange alternative employment during a notice period and will be immediately without income. In Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022], the Federal Court of Australia clarified that as payment in lieu of notice is a prerequisite of lawful termination, it must be paid out before the dismissal is in effect.

Case study

The Federal Court of Australia recently heard a case on termination entitlements. In Dorsch v HEAD Oceania Pty ltd (penalty) [2024], the court emphasised how crucial it is for employers to pay out termination entitlements promptly. In this case, the applicant was owed over $8,000 in accrued annual leave when he was terminated on 9 December 2021, but was not paid until 30 March 2022. The employer contended that the delay was caused by the mistaken belief that the annual leave records were incorrect, and that his leave entitlements were offset by times the employee allegedly failed to attend work.

The court found that the employer had breached the section of the Fair Work Act that requires an employer to pay accrued annual leave entitlements promptly upon termination. In arriving at this decision, Justice Raper noted that this was a case of delay and not a total failure to pay out the entitlement. However, the delay did materially affect the applicant as the amount represented approximately 10% of his yearly salary. With reference to the need for general and specific deterrence, and mitigating factors, Justice Raper ordered the employer to pay a penalty of $17,000, or around 25% of the maximum amount. Because the delay had materially effected the applicant, the court also awarded $10,000 in general damages to the applicant because the delay cause the applicant undue financial strain.

Employers must comply with their obligations under the Fair Work Act, and ignorance of the law is no excuse. Go To Court Lawyers can give advice to employers or employees about termination entitlements, or any other employment law matter. Phone 1300 636 846 today for legal assistance.