Termination of employment is a serious step because of the cost of business disruption and the potential cost of an unfair dismissal claim or other litigation. Managing employment termination involves understanding and strategic risk management.

What are the legal risks from termination of employment?

Unfair Dismissal Claim

This is the most common form of litigation arising from termination of employment.

Under the Fair Work Act 2009, employees have broad rights to allege unfair dismissal if they are covered by an award or enterprise agreement, have met the minimum employment period (6 months service if the employer has 15 or more employees, or 12 months service if the employer has 14 or less employees) and they earn less than the high income threshold (currently $167,500 as at 1 July 2023, indexed annually).

The Small Business Fair Dismissal Code allows a simpler process for small businesses (employers with less than 15 employees).

The Fair Work Commission can order reinstatement of an employee (the primary remedy in unfair dismissal cases) or compensation up to six months of the employee’s pay (or half of the high income threshold, whichever is the lesser amount). Usually, each party must pay its own costs, win or lose. An unfair dismissal application should be lodged within 21 days of the termination of employment, but this period may be extended by the Fair Work Commission if the employee proves exceptional circumstances for their delay.

Discrimination and Adverse Action/General

Protections Claims

Employees can also lodge a general protections claim under the Fair Work Act if they believe the employer has taken “adverse action” against them. Some examples include:

• if the dismissal was partly because of a discriminatory reason (sex, race, age, religion etc), because of union activity or because of temporary absence from work because of injury or illness;
• if the dismissal allegedly arises from the employee exercising a ‘workplace right’ (a very broad concept, including, for example, complaints about pay or safety issues or accessing leave entitlements)
• if the dismissal allegedly arises from industrial activities (for example taking protected industrial action, being a union member or exercising workplace delegate rights etc).

If there are circumstances suggesting that the termination may have been prompted by an unlawful or discriminatory reason (sex, pregnancy, race, age, disability etc), an employee may also lodge an application with the State or Federal discrimination bodies.

Are any employees excluded from making an unfair dismissal claim?

Qualifying period

There is a 6-month qualifying period (12 months for small business employers – ie, employers of 14 or less employees) which means employees with less service cannot lodge an unfair dismissal claim.

However, this exemption does not apply to adverse action/general protections claims or discrimination claims.

Prospective employees can also lodge an adverse action claim against a prospective employer.

Casual employees

Casual employment, where there is no firm advance commitment to continuing and indefinite work, does not count towards the qualifying period. Note the definition of a casual employee changes on 1 July 2024 as a result of Closing Loopholes amendments.

Employees on fixed term contracts or engaged to undertake a particular task or for a specified season

Employees whose employment ends at the end of a fixed-term contract or task or season for which they were engaged have not been “dismissed” and cannot make an unfair dismissal claim.

How can I manage these risks?

The law obliges employers to terminate employment fairly: that is, to have a valid reason for the termination and to carry out the termination in a fair manner including offering an employee an opportunity to comment on a proposed termination.

For termination for poor performance, this involves:

• telling the employee the standard of performance expected and the (reasonable) time in which improvement must occur, and that failure to improve may result in termination of employment; and
• giving the employee a reasonable opportunity to respond to performance feedback, and consider the response in good faith.
• If a termination is for misconduct, there must be:
• clear polices as to the conduct and expectations required which have been properly communicated to all employees of the business; and
• a proper investigation undertaken, with an opportunity given to the employee to respond to the alleged misconduct.
• There are instances where an employee may be terminated summarily and without notice for serious misconduct. Examples of serious misconduct include:

      – theft;

      – fraud;

      – verbal or physical violence or sexual harassment;

      – breaches of health and safety;

      – wilful or deliberate behaviour by the employee that is inconsistent with the continuation of the  employment contract.

It is important to consider how other employees have been dealt with for similar conduct. If you have condoned similar behaviour from other employees, or similar conduct by this employee in the past, it will be more difficult to justify termination even if the conduct breaches policy or performance requirements. A less serious penalty such as a final warning, a demotion or a pay cut may be a better option. Procedural fairness must be given to the employee.

Termination Best Practice

• Keep records of warnings and counselling.
• Take notes of meetings and performance reviews.
• Have a second person attend significant interviews, and give the employee the opportunity to have a support person at interviews.
• Don’t terminate in anger.
• Don’t respond in kind to any “game playing” by an employee:  maintain a professional attitude.
• Give warnings as necessary depending on the nature of the problem:  it is not necessary to give three warnings in all cases.
• Give notice of termination in writing.

For employees who have a long period of service, or who are in a senior position, you must consider the appropriate sanction for poor performance or misconduct even more carefully to ensure it is proportionate to the conduct alleged.

Payments on Termination

It is important to get the payment right.  Annual leave and long service leave are statutory entitlements and should be paid promptly and without deduction. Delay or underpayment always creates a bad impression.

Getting notice payments right, particularly payments on redundancy, involves considering a variety of sources of obligation to pay redundancy (also known as severance or retrenchment) or notice of termination, and making a judgment about what is required in your situation. An entitlement to severance pay may arise from a combination of the  National Employment Standards, a Modern Award, an old State award, precedents in the workplace, the employment contract, policies about redundancy or an obligation to give ‘reasonable notice’. 

When can an employee be terminated without payment of notice?

Termination without notice, or summary dismissal, is only allowed when an employee has engaged in serious misconduct. Serious misconduct may include theft, dishonesty, serious confidentiality breaches or other acts against the interests of the employer, violence in the workplace, sexual harassment or bullying.

If you are considering terminating an employee’s employment without notice, you need to ensure that you have conducted a proper investigation, resulting in a sufficiently strong case against the employee, who is given an appropriate level of procedural fairness (eg opportunity to respond, option for a support person at interviews). If a summary dismissal results in an unfair dismissal or unfair contract claim, you will bear the onus of justifying the termination without notice.

How can Coleman Greig help you?

Lawyers at Coleman Greig have many years of experience in representing employers and employees in proceedings in industrial tribunals and anti-discrimination bodies.

The lawyers at Coleman Greig can also help you to manage your risks by:

• Responding quickly to advise in person, by phone or by email, when employment issues arise;
• Highlighting risk areas for you, and suggesting ways of dealing with risks in particular circumstances;
• Advising generally on management of poor performance, misconduct or redundancies.

For more information, or if you have any questions in this area, please contact our Employment Law team.

Disclaimer: The information provided above is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.