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Termination of employment should be a last resort to address an employee’s performance issues.

Terminating an employee without first engaging in a performance management process and following best practice procedures exposes the employer to a risk of a claim for unfair dismissal and/or adverse action.

If an employer terminates an employee without first engaging in a formal performance management process, the employer must ensure the:

• termination is not unfair (ie. harsh, unjust or unreasonable);
• employee is given the correct notice period;
• employee is paid their final pay including any accrued employee entitlements payable on termination of employment.

Employers are strongly encouraged to seek legal advice before terminating an employee, particularly of the employer has not engaged in a formal performance manage process.

Notice periods

Except if instantly dismissed, an employee must be given notice of termination. The required notice period depends on the employee’s period of continuous service and age.  The required notice period will vary between employees.

The employee’s employment contract may provide for a longer period of service than what is required by law. If so, the notice period must be the notice period set out in the employee’s employment contract.

When the notice of termination is provided to the employee, the employer can choose to either have the employee work out the notice period, pay the employee in lieu of the notice period or a combination of both.

Deed of Release

It is not uncommon for employers to ask employees to enter into a deed of release on termination of employment. A deed of release is a legal document which formalises an agreement between two parties.

A well drafted deed of release will provide the employer and employee with certainty regarding the terms of the termination of employment as well as the obligations of each party. In some cases, the deed may also act as a bar against the employee commencing a claim for unfair dismissal or adverse action.

An employee cannot be forced to enter into a deed. Signing must be voluntary. If signing is not voluntary, the validity of the deed can be challenged.

Risks

Unfair dismissal

Unfair dismissal occurs when an employee is dismissed from their job in a harsh, unjust or unreasonable manner. 

An employee has 21 days from the date the dismissal took effect to lodge a claim for unfair dismissal in the Fair Work Commission. The Commission may consider an employee has been unfairly dismissed if the:

• employee was actually dismissed;
• dismissal was harsh, unjust or unreasonable;
• dismissal was not a genuine redundancy.

The factors which the Commission will consider in determining whether the dismissal was harsh, unjust or unreasonable are:

• if there was a valid reason for the dismissal related to the employee’s capacity or conduct;
• if the employee was notified of that reason;
• if the employee was given an opportunity to respond to the allegations;
• any unreasonable refusal by the employer to allow the employee to have a support person present at any discussions relating to the employee’s performance;
• if the employee has been warned about the unsatisfactory performance before the dismissal;
• the degree to which the size of the employer’s business would impact on the procedures followed in effecting the dismissal; and
• any other matters the Commission considers relevant.

If an employee is successful in a claim for unfair dismissal, the primary remedy is reinstatement. If that is not suitable (as is often the case), the Commission can award the employee compensation of up to a maximum of 6 months’ pay based on their usual salary immediately prior to the termination.

Adverse action

Adverse action, or unlawful termination, is when an employer takes action against an employee by dismissing them. Adverse action can also be taken by treating an employee differently to others including because of a protected attribute. The employee does not need to be dismissed from employment to bring a claim for adverse action.

A successful claim for adverse action provides much broader remedies than unfair dismissal. Damages are uncapped and there is a reverse onus of proof meaning that the employer is effectively guilty until proven otherwise.

If you have any queries regarding terminating an employee or any other employment issue, please contact Sarah Stoddart on on (07) 2140 0522 or sarah@vitalitylawaustralia.com