Options for terminating an Employee


Terminating an employee can be a stressful and a confusing experience. If you have to terminate an employee, you need to ensure that you comply with the terms of the relevant employment contract, the Fair Work Act 2009 (Cth) (FWA) and any applicable Award.

Employees may be terminated for a number of different reasons. This article addresses the available options to terminate an employee and the main risks involved.

Option 1: Immediate Termination

Under the FWA you do not need to give notice to an employee whose employment is terminated because of serious misconduct.

The Fair Work Regulations 2009 consider that theft, fraud, assault, intoxication at work, endangering the health and safety of other persons and an employee’s refusal to carry out a lawful and reasonable instruction by the employer to be acts of serious misconduct. Unfortunately there are exceptions to every rule, so before you proceed with an immediate termination we recommend that you obtain advice to ensure that you have valid grounds and evidence for dismissal. Evidence can include notes from an interview with the employee, surveillance footage (in certain circumstances) and witness statements.

Under the FWA if an employee’s employment ends for any reason, the employee will be entitled to be paid for any outstanding wages and accrued entitlements such as annual leave.

Option 2: Notice or Payment in Lieu (Performance Management)

You may terminate an employee by providing them with the minimum notice period as stipulated by the FWA or the employment contract, or by paying them in lieu of notice. Payment in lieu requires payment of the employee’s full pay rate if they had worked the minimum notice period, and includes incentive-based payments and bonuses, loadings, monetary allowances, and overtime or penalty rates.

In reality, if the employee has worked with you for more than six months (or more than 12 months if you have less than 15 employees), then you need to have a valid ground for providing such notice otherwise you are at high risk of the employee successfully bringing an unfair dismissal claim against you. For example, you need to have undertaken a performance management process which has lead to confirmation that the employee is not suited for the role.

The performance management process must be conducted in a fair and reasonable manner, and in compliance with any applicable policies or Awards. At a minimum, the process usually requires several meetings and written warnings to be provided to the employee, as well as implementation of a performance improvement plan.

Option 3: Redundancy

You may terminate an employee if you no longer require the position to be performed by the employee or by anyone else due to operational requirements (not performance issues with the employee). Note however, if the employee is covered by an award or other agreement there may be consultation requirements which you must adhere to.

If there has been a genuine redundancy you will need to provide the minimum notice and pay a redundancy payment, which is calculated by reference to the number of years of employment).

Employees are precluded from succeeding in an unfair dismissal claim where their employment was terminated due to a genuine redundancy.

Risks: Claims an employee may make against you following termination

There are a number of grounds on which employees can dispute their termination and make a claim against their employer for compensation for invalid or unlawful termination. Not all grounds will be open to an employee, and there are ways that you can manage the risks of a successful claim prior to the termination.

  1. Unfair Dismissal Claim

Unfair dismissal claims are by far the most common claim that employees make following termination. If the employee has not served their minimum employment period (six months, or 12 months where you employee less than 15 employees) the employee will not be able to bring an application for unfair dismissal.

If the employee is entitled to bring an unfair dismissal claim, you can minimise the risks of them being successful by ensuring that you had a valid reason for dismissal and you have evidence that you followed a fair and legally compliant process in respect of that dismissal.

  1. General Protections/Unlawful Termination

Employees can bring a general protections application against their employer at any time, including prior to and following termination. These claims are brought where an employee believes they have been terminated due to a protected attribute, such as the employee’s race, gender or sexual preference. The employee may seek to be either reemployed or compensated.

To reduce the risks of an employee being successful with a general protections claim, you must ensure that you have sufficient evidence that the employee was terminated for fair and impartial reasons, and there was no discrimination against the employee.

  1. Breach of Contract

If you do not give the appropriate notice or follow any procedures as specified in the employment contract, then the employee may make a claim against you for breach.

Key Takeaway

Terminating an employee can be a minefield, and you need to ensure that you are aware of your rights, obligations and the potential risks (and how to manage them) prior to proceeding with a termination. There is a trend in employees bringing unfair dismissal claims against their employers, as the barriers to bringing a claim are low and there are limited risks of the employee being required to pay the employer’s legal costs. As such, we are seeing more and more employers being put to the test and having to prove that they complied with all legal requirements when terminating an employee.

If you are looking at terminating an employee, we recommend getting in touch with one of our employment lawyers to help guide you along the way and minimise your exposure.

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