Managing people

Employee termination matters: 6 important factors

Employee termination can be tricky, especially with laws around pay, lawful dismissal and notice. Let’s take a closer look. 

Employee termination can happen for various reasons: a staff member could breach your organisation’s code of conduct, put another employee’s physical or mental health at risk, or their actions could put your company in legal or financial difficulty.

No matter which state or territory you’re in, it’s important to understand the rules and guidelines around the different types of employee termination, and the employee termination procedure. From the termination notice period and final pay after resignation or termination, here are six important matters to take into account. 

Employee termination: useful terms

  • Dismissal with notice: this is where an employee is terminated and given a set notice period, in line with award or enterprise agreements, legislation, or their employment contract.
  • Payment in lieu of notice: instead of giving an employee notice, employers can choose to pay an amount equal to the wages an employee would have received if they continued to work throughout the notice period. Payment in lieu of notice can only be issued if the industrial instrument, legislation or employment contract allows for it.
  • Summary dismissal: this is where an employee is being terminated for serious misconduct. A summary dismissal is an instant dismissal where an employer is not required to provide the employee with notice. Generally, only the most serious forms of misconduct will warrant summary dismissal. 
  • Unfair dismissal: employees who believe the conditions of their dismissal or termination were unfair, harsh or unreasonable can make an unfair dismissal application to the Fair Work Commission seeking either reinstatement or compensation.
  • General protections: employees who believe that adverse action has been taken against them in relation to the termination of their employment can make a general protections application to the Fair Work Commission seeking a number of different remedies.  

When terminating an employee, it’s important to bear in mind that the termination needs to be lawful and in compliance with relevant state and territory laws. Any employee who feels they were unfairly terminated can take legal action against you or your organisation, which can be costly for your company and tarnish your reputation.

As an employer, you need to:

  • have a valid reason for termination
  • make sure the termination is lawful and doesn’t breach an employee’s contract of employment
  • ensure the termination doesn’t breach any legislation, such as the general protections or unfair dismissal provisions of the Fair Work Act, any federal or state discrimination laws, or equal opportunity legislation
  • comply with any obligations or requirements contained in any awards or enterprise agreements that the employee is covered by.

One of the best ways to protect your business is to consider termination issues and include them in the employee’s employment contract. It’s also beneficial to have clear written policies and procedures that cover employee behaviour and a code of conduct for the workplace. Relevant policies and procedures could include workplace safety, dress codes, harassment, attendance, use of company resources and property, and your organisation’s employee termination procedure.

The Fair Work Act requires employers to provide written notice for termination of employment. This means employers need to inform employees of their termination in writing, and include a brief summary of reasons why the termination occurred. If the termination or dismissal is a result of events or actions, it’s best practice to keep records of these in case you need to prove the termination was lawful.

On top of this, whether an employee resigns or retires, it’s essential you have written confirmation of this either through an email or a physical resignation letter. In a case where an employee can’t or won’t confirm their resignation in writing, you should confirm their resignation or retirement in an employer-issued letter so you have proof to protect your organisation in case any issues arise down the line.

The Fair Work Act requires employers to provide a minimum amount of notice in the event of a termination. Minimum notice periods are calculated based on an employee’s period of service and their age. Minimum notice periods are between one and five weeks.

If there’s a case where your employee’s contract, award or enterprise agreement requires you to give more notice than the minimum amount required by the Fair Work Act, you need to adhere to the longer notice period. The reason for the dismissal and the employment type can also determine the notice period. For example, there’s generally no set notice period for casual employment unless an award or enterprise agreement states otherwise.

Lastly, if there’s no information in an employee’s contract around notice periods or termination, then ‘reasonable notice’ may need to be given. This can be vague and vary from case-to-case, so if you’re unsure, it’s best to seek legal advice so the employee termination is compliant.

As an employer, it’s likely you have a lot of questions around final pay such as:

  • When do I need to pay the termination pay?
  • Can I withhold pay after termination?
  • What needs to be calculated in the termination pay?

In line with the Fair Work Act, employers need to pay an employee for all work performed, as well as any entitlements they may be owed, such as annual leave, long service leave, or superannuation. Any accrued entitlements that are payable on termination (e.g. annual leave or long service leave) should also be paid.   

If, on the other hand, an employee resigns without giving the correct amount of notice, an employer has the right to withhold pay in line with the terms of an employee’s award or employment contract. In this case, it’s best to consult state and federal legislation and speak to a legal adviser, to determine exactly what pay you need to provide your employee after termination.

According to state and federal legislation, employers need to keep records of an employee’s employment, payroll, and termination for seven years after an employee’s termination. Employees should also be provided with a detailed statement of their termination entitlements, including calculations for each entitlement and any tax deductions. You will also need to provide a Statement of Service if the employee requests it.

In some cases of employee termination, you may also need to notify other external agencies such as Centrelink or Worker’s Compensation insurers.

Employers should prepare a checklist to ensure everything is returned after termination of employment. There are tools to assist organisations with this step such as HR Advance’s Property Return Checklist.

Free Workplace Advice line

Get free phone advice about leave entitlements or correct procedures for termination, redundancies and stand down. Our Workplace Advice Line team handles over 26,000 calls from Australian businesses every year and is here to help. 

To access your free Workplace Advice Line call, simply join Business Australia as a free member. 

Already a member? Get started
 

Found this useful?

Subscribe to our newsletter and receive the best business tips and articles straight to your inbox.

Thank you for signing up to our newsletter. You're one step closer to receiving more insightful information to help better your business.

We take your privacy seriously and by subscribing to our newsletter you agree to the terms of our Privacy Policy available below.