There are many fair reasons to terminate an employee's contract. It may be poor performance, misconduct, dangerous behaviour, refusing to follow instructions, or no further need for the position (retrenchment or redundancy). By following proper process and observing employer legal obligations around notice and reason should help minimise claims of unfair dismissal.
VECCI highlights the process to be followed in situations where an employee has prior warnings and trust breaks down between employee and employer. The editor, VECCI Blog, 30 August 2012.
Read more about an employee’s dismissal for failing to follow work instruction.
Fair warning to terminate an employee explained
Every employee should be given the chance to reach the standards you set and be given a fair hearing. Your HR policy should set fair and clear procedures for discipline and dismissal. Use the sections in Useful Tools HR Manual template on discipline and misconduct to guide you.
The often quoted 'three-strikes policy' is not a legal requirement, but employees should be given fair warnings to improve their performance and some help if required, e.g. extra training. You don’t need to give warnings or notice if the employee has committed gross or serious misconduct.
Termination and final payments for dismissed employees
Your employee is entitled to the termination payments under state and federal law, and their award, agreement and/or contract, e.g. unused holiday pay, wages owing, and pro-rata long service leave. Note that most businesses with less than 15 staff don't have to pay severance or redundancy pay (except for some pre-March 2004 awards).
Required notice period
This varies depending on how long they have worked for the business. You may also choose to pay 'payment in lieu of notice' (money equal to the wages for the notice period) if you would like the employee to stop working immediately or before the end of the notice period. Check the relevant award or workplace agreement on the Fair Work Commission website or call 13 13 94 to check the notice period or what to pay in lieu of notice, as these vary.
An employee can be instantly dismissed for gross or serious misconduct such as theft, fraud, assault, being intoxicated, or refusing to carry out a lawful and reasonable instruction, but first you should still give them a fair hearing about the circumstances surrounding the incident. Under some awards or agreements instant dismissal can affect their final payments, e.g. you may not have to pay their pro-rata long service leave, or notice.
Unfair dismissal explained
Unfair dismissal occurs when there's no valid reason for the dismissal, or you have not given the employee a warning or a fair chance to improve their performance. Another form of unfair dismissal is if the employer makes a position redundant, retrenches the employee and shortly after, hires a new employee to do the same duties.
The Small Business Fair Dismissal Code applies to businesses with fewer than 15 employees (excluding irregular casuals) from 1 July 2009 (under the Fair Work Act). Although not legally required, use the Small Business Fair Dismissal Code Checklist fact sheet at the Dept of Education, Employment and Workforce Relations as a guide to the right procedure. Keep completed copies as a record you’ve done the right thing.
An employee can claim unfair dismissal if the business employs:
- less than 15 staff (excluding irregular casuals), and the employee has worked there for 12 months or more
- 15 or more staff (excluding irregular casuals), and the employee has worked there for six months or more.
Note: Number of employees is based on a simple headcount (excluding irregular casuals), not per full-time equivalent.
Unfair dismissal claims
From January 1, 2013, employees have a maximum of 21 days from the date of dismissal to lodge an unfair dismissal claim.
Unlawful termination explained
Unlawful termination applies to all employers when an employee is dismissed or made redundant for a prohibited reason which is usually discriminatory, when an employer fails to give/pay proper notice, or when they dismiss 15 or more employees without first notifying Centrelink.
For further information about unlawful termination, and what a prohibited reason is, use the Fair Work facts sheets.
Breach of the National Employment Standards
You will be in breach of the NES if you fail to:
- give the correct amount of notice to an employee
- pay the correct final payments, e.g. severance pay.
An employee or the Fair Work Ombudsman can take you to Fair Work Australia to recover money and possibly seek the imposition of monetary penalties on you or your business.
Calculations of typical final payments include:
- unused annual leave
- 'payment in lieu' if the employee is not going to work through the normal notice period to their official last day (but remember to calculate the employee's superannuation to the end of the notice period)
- pro-rata long service leave, usually only after seven years' service (10 years in some awards containing their own long service leave provisions). The long service leave calculator can help you calculate this.
Special tax rules apply to some termination payments e.g. unused annual leave. Check with the Tax Office or your tax adviser for details.