Termination of Employment - Process, Notice & Contracts
Terminating employment in Australia can be stressful. This guide helps employers understand contracts, notice periods, Fair Work regulations, and how to create compliant termination letters. Get the tools and knowledge you need for a smooth, legally sound termination process.
Table of contents
Introduction to termination of employment
Whether you're a business owner, HR manager, or an employee, understanding the ins and outs of termination laws in Australia is essential. Employment termination can be a stressful experience for everyone involved. Knowing the rules, procedures, and potential pitfalls helps ensure that the process is handled legally and fairly.
Unfortunately, employment law in Australia is complex, and there are situations where things can go wrong. Misunderstandings can lead to costly unfair dismissal claims, discrimination allegations, and damaged reputations. This guide aims to clarify the termination of employment process. We provide clear explanations and information relevant to both employers and employees.
In this guide, we'll cover:
The various reasons why employment might end, from resignations to redundancies.
The steps employers must follow to ensure a legal and fair termination process.
Your rights as an employee, including protections against unfair dismissals.
Where to seek additional support and resources when navigating this complex area.
Reasons for termination of employment
Not all employment endings are alike. Understanding the specific reason is important for ensuring both employers and employees follow the correct legal procedures. Here's a breakdown of the key reasons why employment may end in Australia.
Misconduct
Misconduct encompasses actions or behaviours by an employee that breach the employer's code of conduct, company policies, terms of the employment contract, or the law. It's important for employers to clearly communicate workplace expectations from the start, address issues promptly, and hold regular discussions with employees. This fosters an environment where misconduct is less likely to occur.
Depending on the severity, an employer may consider disciplinary action such as written warnings or, in more significant cases, termination of employment. It’s key to remember that not every instance of misconduct warrants a formal outcome – a verbal warning or even addressing the matter without consequence could be appropriate responses depending on the situation.
Serious misconduct
This is a more severe form of misconduct that may warrant immediate termination without notice. Examples include theft, fraud, assault, sexual harassment, or actions that cause a serious risk to safety or the company's reputation. Even with serious misconduct, employers still have an obligation to conduct a brief investigation and give the employee an opportunity to respond before taking action.
While employers are not required to provide notice when terminating an employee for serious misconduct, they must still fulfill their legal obligations by paying all outstanding wages, accrued annual leave, and any applicable long service leave entitlements.
Underperformance or poor performance
This occurs when an employee consistently fails to meet the required performance standards of their role. Before considering termination of employment, employers should explore the root causes of this underperformance. It could be issues like lack of skills or training, unclear expectations, or personal circumstances affecting work.
Employers have a responsibility to set clear goals, offer regular feedback and support, and document performance concerns thoroughly before resorting to termination.
Resignation
Resignation is when an employee voluntarily chooses to leave their job. Employees must provide notice as outlined in their contract, relevant Award, or the minimum standards under the Fair Work Act. Employers might choose to pay out the notice period (“payment in lieu”) instead of having the employee work it out.
Redundancy
A genuine redundancy occurs when an employer no longer needs the employee's position to exist. Business changes or company closure are common reasons. It's important to note that redundancy is about the removal of the position itself, not the individual’s performance. Employees may be entitled to redundancy pay (severance) depending on their length of service and other factors.
Dismissal
Dismissal is a broad term for when an employer terminates an employee's contract. It can occur for reasons other than redundancy, but becomes a complex area due to the potential for unfair dismissal claims. Seeking legal advice is often advisable in dismissal situations.
The Fair Work Commission determines whether a dismissal is "harsh, unjust, or unreasonable". In most cases, you must follow procedurally fair practices before termination. This means clearly outlining the reasons for proposed dismissal and giving the employee an opportunity to respond. Both the dismissal reason and the termination process itself influence the Fair Work Commission's determination.
Termination of employment contracts
An employment contract is a legally binding agreement between you and your employee. It establishes the terms of their work, and crucially, it can include specific procedures for termination of employment. Understanding how your employment contracts function is vital for navigating terminations smoothly and legally.
Australian employment law, particularly the Fair Work Act, sets minimum standards for all contracts. Modern Awards or Agreements relevant to your industry might offer employees even better entitlements. Your contract can outline additional terms, but they must always meet or exceed these legal minimums.
It's important to follow the termination clauses outlined in your contract. If you don't, your business could be vulnerable to legal challenges like unfair dismissal claims or breach of contract accusations. In complex situations, seeking guidance from an employment lawyer or HR professional is always advisable to avoid costly complications.
The termination of employment process
As an employer, following the correct termination process is paramount. Not only is it the ethical and responsible way to handle a difficult situation, it significantly reduces the risk of expensive legal challenges from the employee.
Importance of procedural fairness
Procedural fairness is embedded in Australian employment law and ensures that termination decisions are made in a just and transparent manner. Neglecting it can have serious consequences. Here's what employers must do to ensure procedural fairness:
Clearly outline the specific reasons for termination, whether it's misconduct, performance, redundancy, etc. The employee must fully comprehend the reasons in order to give a proper response.
Avoid vague accusations or generalisations. If there are performance concerns, have documented records of meetings, warnings, or performance reviews. For misconduct, gather relevant evidence such as witness statements or security footage.
Give the employee a genuine and reasonable opportunity to explain their side of the story, address any allegations or evidence, and potentially provide mitigating circumstances. This right to respond is fundamental to fairness.
Employees have the right to have a support person present during any discussions about their potential termination. This could be a lawyer, union representative, colleague, or a trusted friend.
If an employer fails to follow procedural fairness, a terminated employee may have grounds for an unfair dismissal claim – even if the reason for termination was otherwise valid! This can lead to reinstatement, back pay, and other penalties for the employer.
Notice period for termination of employment
Notice periods are a key consideration in the termination of employment process. They provide both employers and employees with valuable time to prepare for the end of employment. The required notice period depends on several factors.
National Employment Standards notice of termination
These standards, set out by the Fair Work Act 2009, establish minimum notice periods based on an employee's continuous service with the employer. Here's a breakdown of the NES minimums.
Period of Continuous Service
Minimum Notice Period
1 year or less
1 week
More than 1 year - 3 years
2 weeks
More than 3 years - 5 years
3 weeks
More than 5 years
4 weeks
Employees over 45 years old with at least 2 years of service receive an additional week of notice.
The National Employment Standards provides minimum entitlements. Modern Awards or Enterprise Agreements specific to the industry may offer more generous notice periods. Employees and employers should refer to the relevant Award or Agreement for specific details.
Individual employment contracts can also stipulate notice periods. However, the notice period outlined in the contract cannot be less than the minimums set by the NES. Generally, casual employees in Australia are not entitled to notice periods unless it's explicitly stated in their relevant Award or Agreement.
When notice periods are not required
While the National Employment Standards generally require notice periods for employee termination, there are specific situations where these may not be necessary. This includes cases of casual employment, fixed-term contracts (excluding apprenticeships), seasonal work, or daily hire arrangements in the building and construction or meat industries.
If an employee is dismissed due to serious misconduct (such as theft, fraud, assault, or refusing lawful instructions), a notice period isn't required. It is still important to ensure the termination process remains fair and observes employer obligations. This includes paying all outstanding entitlements like unpaid wages and accrued annual leave (entitlement to long service leave can vary based on state or territory regulations).
Remember, even when notice periods aren't required, employees may still lodge an unfair dismissal claim if they believe the termination was unjust or unfair.
Payment on termination of employment
When terminating an employee's contract, employers have a legal obligation to correctly calculate and pay out all final wages and entitlements within specific timeframes. This is essential for ensuring the terminated employee receives their entitlements and helps avoid potential legal complications.
Final pay encompasses all outstanding wages, entitlements, and applicable notice payments an employer owes to an employee when their employment ends. This includes regular wages, penalty rates, allowances, accrued annual leave, and potentially redundancy or long service leave payments.
Component
Description
Outstanding Wages
The employee must be paid in full for all hours they worked up to their last day of employment.
Accrued Annual Leave
Any accrued but unused annual leave must be paid out upon termination.
Loading on Leave
Some Awards or Agreements require employers to pay an additional percentage, known as "leave loading", on top of the employee's accrued annual leave.
Redundancy Pay
Employees may be entitled to redundancy pay (severance) if they qualify based on their length of service and the circumstances of the termination of employment.
Long Service Leave
Some employees might be entitled to long service leave payout, depending on their length of service and the specific laws of their state or territory.
Timelines
To avoid potential disputes, it's important to understand and adhere to strict timelines regarding final pay. These timelines are often outlined in an Award, Enterprise Agreement, or relevant state laws.
Australian modern awards, employment contracts, enterprise agreements, or other registered agreements may have specific deadlines for final pay. Where no specifications exist, it's best practice to issue final pay within 7 days of employment termination or on the next scheduled pay cycle.
Termination of employment letter
When terminating an employee, a formal termination of employment letter is essential. This document ensures clarity for both you and the employee, and it helps minimise the potential for misunderstandings or legal challenges.
What must a termination letter include?
Component
Description
Date
The date the termination letter was issued.
Employee's details
The employee's full name and address.
Termination statement
A clear statement that their employment is ending.
Effective date
The specific date their employment officially terminates.
Reason
A short, factual explanation for the termination (e.g., redundancy, performance concerns).
Final pay and entitlements
Accurate details on their final paycheck, including:
Outstanding Wages
Accrued Annual Leave
Loading on Leave (if applicable)
Redundancy Pay (if applicable)
Long Service Leave (if applicable)
Timelines
Notice period
Clarify that the termination date adheres to the notice period outlined in their contract, relevant Award, or the Fair Work Act.
Support
Acknowledge the situation's difficulty and mention any support services offered (e.g., outplacement, counselling).
When drafting a termination letter, be concise and professional. Use clear, direct language and maintain a respectful tone, even if the situation leading to the termination is difficult. It's essential to consult your resources, including the employment contract, any relevant Awards or Agreements, and Fair Work requirements to ensure the letter is compliant.
While basic termination letter templates can be found online, remember to customise them to your specific circumstances. For complex terminations, seeking professional advice from an employment lawyer or HR consultant is always recommended.
If you need expert support and want to ensure compliance, contact our 24/7 Employer Assist line at 1300 144 002. Our advisors are here to guide you through the process.
Frequently asked questions
How can I ensure compliance with Fair Work termination of employment guidelines in Australia?
To protect your business and avoid unfair dismissal claims, it's essential to have a valid reason for termination, follow procedural fairness guidelines, accurately calculate final pay and entitlements, and refer to relevant Awards or Agreements along with Fair Work resources.
I need to draft a termination of employment letter. What are the key elements to include?
Be sure to include the date, employee's details, a direct termination statement, the effective termination date, a brief explanation of the reason, final pay details, and (optionally) mention any support resources.
When terminating a casual employee, do I need to provide a notice of termination of employment?
Casual employment often has simpler termination procedures. While notice periods typically aren't required (unless outlined in an Award or Agreement), you must ensure you've correctly classified them as casual, pay them in full for all hours worked up to their last day, and pay any accrued entitlements.
How should I approach termination of employment during a probationary period?
While notice periods might be shorter during probation, it's still important to have a valid reason for termination, adhere to any probation-related clauses in the contract or Award, and treat the employee with respect. If the employee requests feedback, offer it constructively to help them in their future career.
How do I determine the correct notice period for termination of employment?
The required notice period depends on the National Employment Standards (NES), any relevant Awards or Enterprise Agreements, and the individual employment contract.
