When you start a business or hire people, termination may be the last thing on your mind. However, letting people go is an inescapable truth of managing staff. You need to understand the basics of termination of employment in Australia.
Termination of employment is a delicate topic. In almost every situation, an employee does not welcome losing their job. Business owners and employers must understand employee entitlements and employer obligations set out in the Fair Work Act 2009 and other relevant legislation.
Reasons for termination of employment
Your employee can leave their job voluntarily for any reason if they give the notice stipulated in their employment agreement or contract. However, for involuntary termination you need to have valid and specific reasons. Broadly, reasons for terminating someone’s employment are one of the following:
Misconduct – when an employee partakes in behaviour that is out of line with company policy, goes against the terms of an employment agreement, or is unlawful. Australian employees can be immediately dismissed for serious misconduct, which is defined by the Fair Work Act as wilfully risky behaviour that negatively impacts the business or threatens someone’s safety. Serious breaches of conduct can result in summary dismissal meaning immediate termination without a notice period or pay instead of notice.
Poor performance - due to factors such as lack of skill, care, diligence, or quality. However, you can only dismiss someone for poor performance after you have issued warnings and made attempts to improve the performance. These attempts include training, Performance Improvement Plans, and Performance Management Plans.
Capacity – reflects on an employee’s ability to fulfil the inherent requirements of their role.
Redundancy – when an employer either decides they no longer need an employee’s job to be done by anyone, or the employer becomes insolvent or bankrupt.
Probation - You can terminate an employee during the first 6 months of their employment without the need for a performance plan. But you should be mindful that anti-discrimination laws are not breached if considering termination during probation period.
In most cases, it is accepted that an employer must follow a procedurally fair process before terminating the employee. This process will include reasons for the proposed dismissal as well as an opportunity for the employee to respond. This is because both the reason for the dismissal and the process adopted in deciding to dismiss will be considered in determining whether a dismissal was a fair one.
You should write a letter outlining the reason why termination of employment is being considered and provide evidence. You can meet with the employee in person to share the letter or before sending them the letter and give them the opportunity to ask any questions.
Terminating employment contracts
An employment contract is a written agreement between an employer and the employee. It sets out enforceable terms and conditions that govern the employment relationship.
The Fair Work Act provides minimum conditions and entitlements for employees in the National Employment Standards, and industrial instruments such as Modern Awards, or Registered Agreements. An Employment Contract must provide for at least these minimum conditions but can set out additional requirements regarding termination processes that should be considered.
However, any disputes concerning an employment contract are generally enforceable under contract law, rather than through the Fair Work Commission. This means if an employer breaches the termination clauses in the employment contract when terminating an employee, the employee could lodge a claim under contract law as well as in employment law for unfair dismissal under the Fair Work Act, depending on the circumstances.
Employment termination notice
As outlined in the National Employment Standards, an employer must provide an employee with written notice of the day of termination. Employees must be given (or paid in lieu) the minimum amounts of notice set out in the NES or relevant industrial instrument.
Below are outlined the minimum notice periods required to be given and their corresponding periods of employment.
| Period of continuous employment | Minimum notice period |
|---|---|
| Less than 1 year | 1 week |
| 1 - 3 years | 2 weeks |
| 3 - 5 years | 3 weeks |
| Over 5 years | 4 weeks |
Despite the above, there are two scenarios in which there are extenuating circumstances and different periods of notice may apply.
If an industrial instrument covering the employee or contract of employment specifies a longer notice period for termination, then it is the specified notice period that applies. The other is that if an employee is over the age of 45 and has worked for at least two years on the day that you give them notice, they are entitled to an extra week’s notice.
Termination and notice periods
While the National Employment Standards outline compulsory notice periods for employees being terminated, there are scenarios in which a notice period is not necessary. For instance, notice is not required to terminate casuals, employees employed for a fixed period (other than apprentices), employees doing seasonal work, or daily hire employees working in the building and construction or meat industries.
There is also no necessity for a termination notice period if the employee is dismissed due to serious misconduct. Some examples of serious misconduct may include theft, fraud, assault, or refusing to carry out a lawful and reasonable instruction that is part of the job. But even though you do not have to give notice of termination of employment or pay instead of the notice period, in these circumstances, you do have to make sure the process is fair and pay out all outstanding entitlements, for example, payment for time worked or annual leave, though not always long service leave, depending on the State or Territory and applicable circumstances.
As an employer, you should also know that if an employee thinks that they have been unfairly dismissed, or if they feel that their dismissal was not handled fairly, they can lodge an application for an unfair dismissal remedy.
Final pay
Final pay is what an employer owes an employee when their employment ends. An employer is obligated to ensure that the employee subject to the termination of employment receives their outstanding wages, including penalty rates and allowances (if applicable) and other paid entitlements, as well as any notice if the employee does work it. This is referred to as ‘final pay’.
If an employee has any outstanding annual leave or is entitled to redundancy pay or long service leave this should also be paid out in their final pay.
An award, employment contract, enterprise agreement, or other registered agreements can specify when final pay must be paid. If it does not, the best practice is for an employee to be paid within 7 days of their employment ending or on the next scheduled payday.
Managing termination of employment
Australian employment legislation and policies can be complex and are ever-changing. Without any assistance, employers can find it difficult to juggle staff, inventory, running the business, and navigate fair dismissal policies. Peninsula’s advisers can help you understand the tricky process of hiring, onboarding, and termination of employment. You can call our team for initial advice 24/7.
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