Termination of Employment Guide

Termination of employment is an inevitable occurrence in every business. Whether the outcome is reached by resignation, redundancy or any other reason, there are certain guidelines to follow regarding the employee termination process in Australia.

It is important to know the rules around dismissal, notice and final pay, as well as your obligations as a business and the different rights of employees to ensure the termination of employment is not unlawful or unfair.

Here, we discuss everything you need to know about how to terminate an employee and things to consider in this process.

Reasons for Termination of Employment

There are a variety of reasons why employment can end. In each case, there must be a valid reason why the employment relationship has terminated and it must be justified given the facts of the matter.

Reasons for terminating an employees employment may include one of the following reasons:

Misconduct

Misconduct in the workplace refers to action or behaviour that is not aligned to your code of conduct or other company policies, or the terms and conditions of a contract of employment, that dictate how employees should behave. Misconduct also refers to action or behaviour that is unlawful.

Communication is key to ensure that misconduct does not occur in the workplace. Steps that you can take to ensure that misconduct does not occur in the workplace may include:

• Setting expectations of behaviour at the beginning of an employees employment
• Addressing any issues as soon as they arise
• Having regular reviews and discussions with employees
• Encouraging employees to speak to their manager about any concerns that they may have in the workplace.

Depending on the circumstances, you may consider taking disciplinary action against an employee for misconduct. This may include issuing a written warning or terminating an employee's employment.

Not all forms of misconduct will lead to a formal disciplinary outcome. An alternative to a formal disciplinary outcome may include issuing an employee a verbal warning or you may decide not to issue an outcome at all.

Serious misconduct

There is a difference between misconduct and serious misconduct.

Serious misconduct is when an employee:

• Causes a serious and imminent risk to the health and safety of another person or to the reputation or profits of their employer’s business
• Deliberately behaves in a way that is inconsistent with continuing their employment.

Examples of serious misconduct may include:

• Theft, fraud, assault or sexual harassment
• Any action or behaviour that causes a serious and imminent risk to the health and safety of another person or to the reputation or profits of their employer’s business
• Refusing to carry out a lawful and reasonable instruction.

When an employee is terminated for serious misconduct, an employer does not have to pay any notice of termination. However, an employer does have to pay any outstanding salary and leave entitlements such as annual leave and sometimes long service leave.

Underperformance or poor performance

An employee may be underperforming because they lack skill and quality of work or they may not be performing duties, or not performing them to the required standard.

Employers should be having regular discussions with their employees about their performance. Employers should be setting clear goals and expectations and provide feedback and support to help their employee perform to the best of their ability.

If you experience an employee who is not performing well, you should take steps to manage the situation appropriately, sensitively and within a timely manner.

Resignation

A resignation is an employee-initiated termination of employment. Employees can resign from their employment at any time. Employees who resign have to give notice in accordance with the applicable award, enterprise agreement, or employment contract.

When informed of an employee’s decision to resign, it is best practice to have them put their resignation in writing to the employer, outlining the date and notice period so it can be checked and acknowledged.

If you do not need or want the employee to work their notice period, it is possible to complete their termination of employment by paying out the notice period in lieu of them working.

Redundancy

A redundancy occurs when:

• An employer decides they no longer need an employee’s job to be performed by anyone, or
• An employer ceases operations, including as a result of insolvency and / or bankruptcy.

The job itself, rather than the employee, becomes redundant. Employees may be entitled to redundancy pay depending on their length of service and the award, enterprise agreement or employment contract they are employed under. Different rules can also apply to small businesses of fewer than 15 people.

A dismissal is a case of genuine redundancy when:

• The employer no longer requires the employee’s job to be performed by anyone because of changes to operational requirements, and
• There is no reasonable opportunity for the employee to be deployed elsewhere in the business, and
• The employer has complied with any obligation under an award or enterprise agreement to consult.

To avoid an unfair dismissal claim from an employee, all relevant requirements under the award, enterprise agreement or relevant industrial instrument must be met and handled with care, including the consultation process. Reach out to our workplace relations consultants today for help managing the entire redundancy process.

Dismissal

There are a range of factors to consider when terminating an employee's employment.

Why it is important to manage the termination of an employee carefully

However employment ends, it is imperative for employers to understand their obligations as set out in the Fair Work Act 2009 and other relevant legislation to mitigate the risk of an employee making a claim.

But in situations where relevant requirements are not met or handled poorly, terminated employees may submit a claim to the Fair Work Commission. If it is found that the termination of employment was “harsh, unjust or unreasonable”, a matter of discrimination, or as a result of exercising a protected right, the business could be liable and subject to litigation.

Employee termination process in Australia

In Australia, the Fair Work Ombudsman and the Fair Work Commission regulate Commonwealth workplace laws about terminating employment.

Some important rules to know regarding how to terminate an employee include:

• You must have a valid reason for the dismissal related to the employee’s capacity or conduct
• The reason must not be unlawful or discriminatory
• You must give notice to the employee and let them work their notice period or pay in lieu of notice
• Any outstanding wages, leave entitlements, overtime, or redundancy pay should be paid out to the employee in their final pay.

No matter the reason for dismissal, an employer must follow procedural fairness prior to termination. This includes giving reasons to the employee for dismissal and providing a fair opportunity for the employee to respond.

If you would like to receive further information about the employee termination process in Australia, HumanX HR offers outsourced HR services. Reach out to our experienced workplace relations consultants today.

What to consider before terminating an employee

Procedural fairness in the decision making process

Procedural fairness requires employers to give their employees a fair and proper procedure before making a decision to terminate their employment. If an employer fails to afford an employee procedural fairness before they are dismissed, the employer may be at risk of a claim. To ensure that employers follow a fair and proper procedure, the following steps should be considered:

• Whether the employee was provided with warning that if their conduct or performance did not improve, their employment may be at risk
• Whether the employee was given reasonable notice and opportunity to respond to matters or evidence the employer suggests justifies termination
• Whether the employee understands the issues, and the consequences, in detail
• Whether the employee was allowed a support person present at any meetings.

Notice periods

In the event of termination, employers must provide their employee with written notice of the day of termination. Employees are required to be given (or paid in lieu) a minimum amount of notice as stipulated in the National Employment Standards (NES), employment contract or other relevant industrial instrument. This is calculated based on an employee’s period of service and age.

The reason for the dismissal and the employment type can also determine the notice period. For example, an employer does not need to provide notice of termination if an employee is terminated for serious misconduct or if an employee is casual.

Final pay

When termination of employment occurs, all outstanding payments should be made to the employee in their final pay. The following may be included in an employee’s final pay:

• Any outstanding wages or other remuneration, including penalty rates, allowances and overtime
• Any payment in lieu of notice of termination
• Any accrued annual leave and long service leave entitlements
• Any redundancy pay or entitlements if the employee has been made redundant

An award, employment contract or other relevant industrial instrument may stipulate when final pay must be paid.

In general, personal or carer’s leave will not be paid out on termination of employment, unless otherwise stated in the applicable award, enterprise agreement or employment contract.

Termination of an employee as a small business

The purpose of the Small Business Fair Dismissal Code (The Code) is to provide small business owners some level of protection against unfair dismissal claims and to give them a framework to follow during the termination process to ensure the procedure is fair.

The Code can be used by ‘national system employers’ who meet the definition of ‘small business’ under the Fair Work Act 2009. This definition says that you are a small business owner if you employ fewer than 15 people in your business. ‘15 people’ includes:

• Casuals who work on a ‘regular and systematic basis’
• Permanent employees including part-time and full-time employees
• The person you dismissed.

If you are unsure whether you are a small business owner or would like further information on Small Business Fair Dismissal Code please reach out to our experienced workplace relations consultants today.

Informing an employee of termination

A termination of employment does not take effect unless and until it is communicated to the employee who is being dismissed.  It is important for employers to ensure the employee is properly informed of the termination of their employment.

Informing an employee of the termination of their employment may be first communicated in an in-person meeting or phone call before being followed up in writing.

When communicating a termination of employment, ensure that:

• Written notice is given to the employee, outlining the reasons for dismissal and a termination date based on their notice period
• Prior warning was given to the employee about their unsatisfactory performance or behaviour if cited as the valid reason
• The employee is given the right to respond and have a support person present at any dismissal discussions
• Details of the employee’s termination entitlements are supplied to the employee, preferably in writing

An employer can give a letter of notice to an employee by:

• Delivering it personally
• Leaving it at the employee’s last known address
• Sending it by pre-paid post to the employee’s last known address, or
• If the employee agrees, sending it electronically by email or text message.‍

Exit interviews

When an employee leaves a company voluntarily, an employer may have the chance to conduct an exit interview and gain valuable feedback from the departing employee in regards to the company and their experiences working for the company. This can be completed during an in-person discussion with an impartial HR representative or by having the employee fill out an exit survey or questionnaire.

If you don’t have an in-house HR department or person to manage this process, our workplace relations consultants can help you to ask the right questions and gain insights for your business.

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The information contained in this article is for general guidance only. It is not intended that the article or part of it should be relied upon as advice. Information provided may not apply in all circumstances or in particular situations. No person should act or refrain from acting on the basis of such information. 

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