What exactly is required of employers during an employee’s notice period? And how can organisations minimise the risk of wider disruption when an employee is serving notice? An employment law expert answers these questions and more.

Even experienced HR practitioners can find themselves on uncertain ground when managing employee notice periods. The relevant laws are nuanced, and the psychology of such situations – particularly when an employee is not leaving on good terms – can be challenging.

For HR, effectively managing an employee on notice can mean the difference between a smooth transition and a period of disruption that creates issues far beyond the departing employee’s team.

Below, Aaron Goonrey, Partner at Pinsent Masons, answers six common questions about managing notice periods, and highlights the difference between what is legally required and what constitutes best practice.

1. What actions are employers legally required to take during employee notice periods?

Goonrey notes that employment contracts don’t pause simply because someone has handed in their notice. “Everything carries on: pay, employer superannuation contributions and all other contractual entitlements must be honoured,” he says.

Nor does an employee giving notice cause their annual leave and carer’s leave to stop accruing. “The obligation to pay out annual leave on termination remains,” says Goonrey.

There are no other special legal requirements for managing notice periods, but Goonrey says good practice goes further. He suggests employers do the following at a minimum:

• Devise a robust handover plan;
• Be clear about what you expect the employee to do during their remaining time; and
• Communicate clearly to the rest of the team.

“These things sound obvious, but they rarely happen without someone actively driving them,” he says.

2. How is the length of notice determined?

“The starting position is that it is important to first distinguish between two different sources of notice obligations, as they operate differently depending on who initiates the termination,” says Goonrey.

Where an employer terminates employment, the minimum notice periods prescribed by the Fair Work Act 2009 (Cth) apply, he says. These range from one week (for employees with less than one year of service) up to four weeks (for employees with more than five years of service), with an additional week’s notice required where the employee is over 45 years of age and has completed at least two years of continuous service. 

“These are statutory minimums. A contract of employment, applicable modern award or enterprise agreement may provide for a longer notice period, and if so, the longer period will apply.”

Where an employee resigns, statutory minimum notice periods do not apply in the same way, he adds. Notice on resignation is a matter for the contract of employment. The employee is required to give whatever notice their contract specifies. If the contract is silent, a reasonable period of notice at common law would apply, which is fact-dependent.

“Managing a difficult or disengaged employee through a long notice period can consume significant management time, whereas paying them out ends things immediately. It’s more expensive upfront but often cheaper in practice.” – Aaron Goonrey, Partner, Pinsent Masons

3. When can an employer choose to pay out an employee in lieu of notice? And why might this be preferable?

Generally, says Goonrey, paying out an employee is permissible. “However, always check the applicable modern award, enterprise agreement or contract of employment, as some may contain specific provisions about how notice is to be given or paid out.”

Why might an employer choose this option? “Sometimes, a clean break is just better,” says Goonrey. “Managing a difficult or disengaged employee through a long notice period can consume significant management time, whereas paying them out ends things immediately. It’s more expensive upfront but often cheaper in practice.”

4. Can employees take annual leave or personal leave during their notice period – and can the employer refuse?

Employees are entitled to take annual leave during a notice period, Goonrey says – “and, in many cases, it’s in everyone’s interest for them to do so, as it reduces the accrued leave payable on termination.”

Directing an employee to take leave without their agreement is harder. “The Fair Work rules requiring excessive annual leave to be taken have specific preconditions, and the notice period alone does not automatically trigger them,” Goonrey says. 

Some modern awards and enterprise agreements also have specific provisions allowing employers to require leave to be taken.

“Unused annual leave must be paid out on termination,” Goonrey adds. “There is no getting around this.”

Employers cannot refuse a sick leave or carer’s leave request if the departing employee is genuinely ill or has a genuine carer’s responsibility. “The entitlement under the Fair Work Act applies regardless of the fact that notice has been given.”

If someone conveniently goes off sick immediately after giving notice, the instinct is often to challenge it, but Goonrey urges caution. 

“Without proper medical evidence to support a challenge, you create more risk than you resolve, and taking adverse action against someone for exercising a workplace right is a general protections issue under the Fair Work Act.” 

5. When can an employer place an employee on garden leave, and what are the conditions that make it appropriate?

Garden leave keeps the employee employed and on full pay, but away from the workplace and prevented from working elsewhere. 

“It’s a genuinely useful tool in the right circumstances, but the legal position in Australia is worth understanding clearly,” Goonrey says. 

“There is no specific statutory provision for garden leave. It sits in the common law. Australian courts have been reasonably willing to accept it where there’s a legitimate business reason, but the safest position, by some distance, is an express garden leave clause in the contract.”

Goonrey suggests three scenarios when garden leave makes sense:

• When the employee has access to sensitive information, client relationships or commercially valuable know-how;
• When there’s a genuine competitive threat and you need a buffer before the employee starts working somewhere new; and
• When the alternative is managing the employee through a fraught notice period in the workplace, which may create more disruption than it’s worth.

6. What can managers do if a departing employee becomes disruptive or negative?

Summary dismissal remains available for serious misconduct during the notice period, Goonrey says. “However, the bar is the same as at any other point in the employment: unfair-dismissal and general-protection provisions under the Fair Work Act apply right up until the last day.”

Instead, Goonrey suggests re-arranging the disruptive leaver’s role to minimise their interaction with other staff members, or placing them on garden leave, if available. 

“You could also negotiate an early exit,” Goonrey says. “If both sides would rather part ways sooner, a mutual agreement with appropriate compensation is often the most practical solution. A deed or release, properly drafted, provides certainty for both parties.”

What you should not do, says Goonrey, is let the situation drag on. “A disruptive leaver has a disproportionate effect on team morale and engagement, and a manager who fails to act is often seen as endorsing the behaviour with their silence.”

🧰 HR’s career resource toolkit

• Article: How to mitigate legal risk during employee departures.
• Learning: Take your employment law expertise to the next level with AHRI’s Advanced HR Law course, or ensure you’ve got your bases covered with this introduction course.
• Podcast: Stay across Australia’s evolving employment law landscape with AHRI’s ER/IR Unpacked podcast.