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Frequently asked questions

Termination

Q. Can notice of termination be withdrawn?

If a party gives notice of termination of employment to the other party in terms that are clear and unambiguous, that notice cannot be withdrawn unless the other party consents to such a withdrawal.  However, if a party gives notice that is unlawful (i.e. insufficient amount of notice, or the conditions stipulated in the contract for giving notice are not satisfied) the party receiving the notice can elect to affirm the contract i.e. treat the notice as ineffective and the employment continuing.  In a practical sense, of course, this may be difficult.

Q. Do I have to give an employee a hearing before I dismiss an employee on performance or misconduct grounds?

There is no implied right of an employee under an employment contract to be heard in relation to grounds for intended dismissal.It is arguable however, that if an employer fails to observe its own disciplinary procedures and policies, which require procedural fairness to be given to employees, it will breach the implied term of trust and confidence.

There is also some support in cases for an argument that an employer must not exercise discretion available to it under the employment contract in manner that is capricious or in bad faith.  For example, if an employer deliberately sets performance standards at an unattainable level for an employee because the employer seeks grounds for termination, the exercise of its discretion might arguably breach the employer's implied contractual duty of good faith.

Obviously, the failure to give an employee a reasonable opportunity to understand and respond to grounds for dismissal before a decision to dismiss is made will increase the likelihood of the dismissal being found by the Fair Work Commission to be unfair, if a claim is made under the FW Act unfair dismissal scheme.

Q. Can I make a payment in lieu of notice?

The termination provision in an employment contract will usually provide for the right of the employer to make a payment in lieu of notice (i.e. in replace of the notice).  However, if there is no such provision, the employer will breach the employment contract if a payment is made in lieu of the employee serving the requisite notice period.

In a practical sense, the employer would not face any significant exposure to a breach of contract claim for making a payment in lieu of notice because the employee would not have suffered any compensable loss.

The FW Act provides that an employee may dispense with the statutory obligation to give notice by paying the employee an amount of salary in lieu of that notice.  FW Act notice payments must be at an employee's full rate of pay, including loadings, monetary allowances, penalty rates and other relevant amounts.

Q. Do I need a reason to dismiss on notice?

If a party is free to terminate an employment contract on notice, there is no common law requirement that the party have a reason or cause for doing so.  As the Victorian Court of Appeal noted in Intico (Vic) Pty Ltd & Ors v Walmsley in 2004

"The common law permits an employer to act "unreasonably or capriciously if he so chooses"…That reflects the origins of the common law concerning termination of employment , the case law being replete with discussions as to the respective positions of "masters" and "servants""

The express terms of the employment contract may impose this requirement.  Enterprise agreements and awards may restrict the grounds for termination.

If a dismissed employee challenges the dismissal under the FW Act unfair dismissal scheme, the Fair Work Commission will determine whether the dismissal is harsh, unjust or unreasonable.  An important factor that will be considered is whether the employer had a valid reason for dismissing an employee related to the employee's capacity or conduct.  A valid reason is one which is "sound, defensible or well founded" and not "capricious, fanciful, spiteful or prejudiced" (Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371).

If a dismissed employee alleges that the dismissal was motivated by reason of the employee's protected attribute or activity in contravention of a Part 3-1 FW Act general protection provision, the employer will have to prove the real reason (or reasons) for dismissal.

Q. Do I have to give the employee a reason for dismissal?

There is no common law obligation on an employer to give reasons for terminating an employment contract on notice.

However, if an employee is able to access the FW Act unfair dismissal scheme, a failure by the employer to give the employee notice of the grounds for dismissal before a final decision is made to dismiss, will count against the employer if the employee subsequently makes an unfair dismissal claim.

The FW Act also provides a general protections scheme which prohibits dismissal for certain reasons, including the fact the employee has a certain attribute or is engaging in a certain activity.  An employer will be better equipped to defend any general protections claim if it can prove the reasons for any adverse action and show that the decision-maker was not motivated by protected activity or attribute of the employee.

It may be easier for a claimant to prove that the claimed reason for taking adverse action is not the real reason if the claimed reason was not imparted as the reason for taking the action at the time it was taken. An employer may decide not to supply a reason for dismissing an employee if the employee cannot access unfair dismissal laws (i.e. because they have not served their minimum employment period, or are award/agreement-free and earning in excess of the threshold earnings).  This is not a good idea though, because of the potential exposure to general protections claims.

It may be easier for a claimant to prove that the claimed reason for taking adverse action is not the real reason if the action is not consistent with usual processes and procedures in the organisation.  If your organisation has established a process for dealing with unsatisfactory work performance or misconduct (such as a series of steps escalating to dismissal, with various rights of employees and employers during that process clearly specified) and this process is followed consistently, the employee will find it difficult to prove that the actions were for a reason associated with the employee's protected activity or protected attribute.  This requires adequate training of managers so that they can implement those procedures properly.

When there is potential for one or more employees to be dismissed on grounds of redundancy due to the employer's decision to implement a major workplace change, modern awards and enterprise agreements may oblige the employer to consult with the affected employees before a dismissal decision is taken.

Q. Can I lawfully terminate an employee for absenteeism?

You can discipline, and potentially dismiss an employee for not following rules about taking sick leave e.g. notifying the employer as soon as practicable of sick leave absences. You can lawfully terminate the employment of an employee who has exhausted their paid sick leave entitlement and taken more than 3 months of sick leave days in a year. However, if the sick leave absences are because of an impairment or disability, anti-discrimination laws may require a degree of flexibility in responding to sick leave absences if it reasonably accommodates the employee's condition.

Q. I've found someone who I think will do a better job than my current employee, can I terminate them?

This will, in effect, amount to a performance-based dismissal of the person whose employment you are seeking to terminate. You will need to either implement a performance improvement process (if the employee can access unfair dismissal laws) or negotiate an agreed separation with the employee, if you want to replace them.

Q. My employee doesn't fit into our organisation's culture – can I terminate them lawfully? What can I do? 

Lack of cultural fit is a valid reason for dismissal for the purposes of unfair dismissal laws (remembering that not all employees can access these), provided that this is not because the employee has a protected attribute (e.g. race, sexual preference, etc.) However, you will need to give the employee a reasonable opportunity to change, and support to do so, before terminating for that reason.

Q. Someone has stolen money from petty cash – can I terminate?

If you have evidence that sustains a reasonable belief that an employee has stolen this money, you should ask the employee to attend a meeting to discuss a serious matter about their employment. Invite the employee to bring a support person. Explain to the employee that you believe you have grounds to summarily dismiss the employee for theft and show evidence. Give the employee an opportunity to respond. Consider their response and dismiss if the response is unsatisfactory.

For more information on investigating alleged serious misconduct, please see our Managing Underperformance and Discipline section for useful resources.

Q. an Employee on a performance improvement plan (PIP) has not improved, what can I do?

If you have given the employee reasonable support to improve, and the standards set in the PIP are defensible, you should ask the employee to attend a meeting about their employment. Invite the employee to bring a support person. Explain that you believe you have grounds to dismiss because of unsatisfactory improvement. You must give the employee an opportunity to respond, consider their response and determine whether to dismiss or give the employee further time and support to improve.

Q. How can I terminate when an employee is on probation?

If the employee is still within the qualifying period to access unfair dismissal laws (6 months or 12 months if employer employs less than 15 employees) then the employee does not need to be warned. You simply issue notice of termination (not less than the statutory notice entitlement – 1 week for permanents). The reason cannot be discriminatory or related to a matter protected by Part 3-1 of the FW Act which deals with general protections (e.g. querying pay or joining a union).

Q. My employee breached a company policy, can we terminate on this ground?

Breach of a reasonable and defensible policy can provide a valid reason for dismissal for the purposes of unfair dismissal laws. However, you still need to give the employee an opportunity to respond to the assertion that this breach provides grounds for dismissal. The breach may not justify the sanction of dismissal, particularly where the breach has not caused significant harm to the employer, and the employee is long serving. 

Q. I have an employee who has resigned without giving any notice.  What can I do?

You can insist that the employee serve his or her notice. However, if the employee refuses there is little you can do to enforce the notice period in a legal sense. In rare cases, you could get a court order requiring the employee to serve the notice, if the failure to do so would cause significant harm to the employer. In some cases the failure to give notice may contravene an applicable award or enterprise agreement, exposing the employee to the imposition of a penalty under the FW Act. In some cases, it may be possible to sue the employee for damages for breach of contract (if the absence of notice causes loss in excess of the wages not paid).

Q. Following discussions about a grievance, the employee walked out claiming that I forced them to resign.  Should I be concerned?

The employee may claim that the termination of employment was the result of serious breach or repudiation of the employment contract by the employer. This might affect the enforceability of any post-employment restraint. It might also be a precursor to claim for damages by the employee for constructive dismissal. You might invite the employee to reconsider the resignation and to enter into negotiations with you to resolve their grievance.

For more information, please refer to our Guideline: Avoiding constructive dismissal claims.

Q. My employee verbally resigned but has now shown up for work today as if nothing happened.  What do I do?

Unless you have grounds for believing the resignation was in the heat of the moment, the employee cannot retract the resignation unless you agree.

Q. My ex-employee is trying to get all of my other staff to quit, what can I do legally to stop them?

If the employee is breaching a post-employment restraint not to interfere with staff relations, you may be able to enforce that restraint to prevent the conduct. If the ex-employee is inducing the employee to breach their own obligations (e.g. give short notice) or breach their post-employment restraints, you could seek a court order to restrain the employee from doing so. Otherwise, there is little you can do.

Q. My employee handed in their resignation formally and has now changed their mind and wants to stay, what do I do?

It's up to you – unless you consent to the employee withdrawing their resignation, it stands.

Q. Employee who was on a Performance Improvement Plan (PIP) quit and is now claiming psychological injury, what do I do?

The worker's compensation laws operating in your State or Territory will restrict the employee's rights to claim compensation for this injury. You will need to work with your workers compensation insurer to defend the claim, if possible.

Q. Employee was demoted and then resigned and threatened legal action, what do I do?

You need to obtain a legal opinion as to whether the demotion was within the scope of the employee's employment contract, or whether the employee lost his / her rights to challenge it. This will determine your legal strategy i.e. settle or fight the claim. 

Q. I want to offer my employee the opportunity to resign, or I will terminate them, can I do this?

You should only do this if you are confident you could defend any claim that might be made if you simply dismissed the employee. That is, making sure the employee could not make a claim for unfair dismissal, general protections or constructive dismissal.

Q. My employee has only worked for three weeks, but they are not working out. Do I have to give them notice of termination?

Yes. If they are permanent you will have to give them the notice required by the contract, which must not be less than the FW Act minimum entitlement of one week.

Q. I have dismissed an employee and now they have failed to work out the duration of their notice period, do I have to pay them for the period they did not work?

No. You will have to pay the employee for the period of notice they did work, but you do not have to pay them for work unperformed.

Q. My employee resigned but finished their notice period early. Do I have to pay them for the entire notice period?

No, you don't have to pay for notice not served if the employee refuses to serve notice. You may also be able to withhold from annual leave an amount equal to the wages the employee would have earned if the employee had served the balance of the notice. This requires a modern award to apply with provision for this offset.

Q. What do I do with an underperforming / disruptive employee once they are working out their notice period? Do I performance manage them?

No. The best option is to send them on gardening leave or end the notice period by making a payment in lieu. If the employee engages in serious misconduct you can dismiss the employee summarily without any payment in lieu.

Q. My employee handed in their resignation the day before they went on pre-approved annual leave. Do they still owe me their notice period?

 No.

Q. Do they still accrue leave entitlements whilst on leave?

Yes.

Q. I don't want my employee to work out their notice period? What can I do?

You can make a payment in lieu of the notice period equal to the amount.

Q. Can an employee request their termination payments to be rolled over into a superannuation fund?

No, this ended in 2006.

Q. I have an employee who has not turned up to work for 2 consecutive days and has not contacted us to seek approval for the absence.  What can I do?

You should send a message to the employee warning them that if they do not make contact with the employer and seek approval for their absence, their employment will be terminated on grounds of abandonment. If no response is received within 48 hours, dismissal will generally be permissible. If you know why the employee is absent, termination may not be as straightforward.

 Q. Should an employee abandon their employment what is an employer's obligations in terms of final payments? Specifically, does an employer have to pay out the notice period? 

Notice is not payable because the employer has not terminated the employment, and the employee has not worked the notice. But any accrued leave entitlements should be paid.

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