Australia: Terminating Employees

The termination of employment under Australia’s Fair Work Act may be brought about in a number of ways, such as exercising a contractual or statutory right to terminate, by agreement or by operation of law. Employers need to be aware of their contractual and common law obligations as well as the statutory provisions when ending an employment relationship.

Notice Requirements

Minimum periods of notice at termination are set out in the National Employment Standards. The length of notice required to be given to an employee will depend on the duration of the employee’s period of continuous service. At the lowest end, an employee who has been with their employer for less than a year is entitled to one weeks’ notice. At the highest point, if an employee has been continuously employed with an employer for more than five years, they are entitled to four weeks’ notice. Under the National Employment Standards, an employee who is over 45 years old is entitled to an extra week of notice if they have at least two years of continuous service. Written notice of the day of termination must be given. Payment may be made in lieu of notice and must include superannuation.

A greater period of notice required for termination is typically stipulated in the employment contract of executives working for the employer. The period of notice may be anywhere between one and three months.

Employees are generally required to give the same minimum period of notice to their employer when terminating their employment.

Procedural Requirements

Notice of termination may be given to an employee by delivering it personally, leaving it at the employee’s last known address or sending it in prepaid post to the employee’s last known address.

Redundancy

All employees are entitled to redundancy pay when their employment is terminated at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, or because the employer is bankrupt or insolvent. The entitlement is based on a sliding scale and calculated by reference to the length of the employee’s continuous service on termination. An employee who has worked more than one year but less than two years is entitled to four weeks’ pay. An employee who has been employed continuously for over nine years but less than 10 years is entitled to 16 weeks of redundancy pay.

The length of an employee’s service prior to January 2010, when the National Employment Standards were enacted, is only counted if the employee had an entitlement to redundancy pay under some other instrument, such as a modern award (or enterprise award), agreement or employment contract.

Summary Termination

The minimum period of notice does not apply where an employee is summarily dismissed for serious misconduct. Serious misconduct occurs where an employee is in serious breach of the obligations owed to his/her employer.

Examples of serious misconduct include dishonesty, assaulting a colleague or refusing to follow a fair and reasonable direction of the employer.

Unfair Dismissal

Employees who have completed six months of service with their employer and are covered by a modern award, an enterprise agreement and/or whose sum of annual earnings is less than the high-income threshold (as defined in the Fair Work Act and indexed annually) are protected from unfair dismissal.

An employee who is earning the high-income threshold and is not covered by an agreement or award is excluded from being able to claim unfair dismissal. The figure representing the high-income threshold is indexed each July, and sits at around $110,000.

Small business employers are subject to the Fair Dismissal Code, formulated under the Fair Work Act. A small business employer is an employer who has less than 15 employees at one time. Under this Code, employees of a small business employer may claim unfair dismissal against their employer if they have completed 12 months of service with the employer and have been dismissed.

A person is unfairly dismissed if their dismissal was harsh, unjust or unreasonable. The Fair Work Act states that an employee is dismissed if his/her employment has been terminated on the employer’s initiative or if the employee resigned but was forced to do so because of the employer’s conduct.

Reinstatement or compensation (capped at six months’ salary) are amongst the orders that an employer may receive if unfair dismissal is established by the employee.

Termination Payments

Upon termination, certain statutory entitlements must be paid to the employee. This includes accrued but untaken annual leave, accrued wages for work performed and payment in lieu of notice (if relevant). An employee may also be entitled to other contractual entitlements on termination.

General Protections

Under the Fair Work Act, employers are prohibited from taking “adverse action” against an employee because the employee has exercised a “workplace right.” Workplace rights include benefits under workplace law, making a complaint or inquiry and participating in a process or proceeding under a workplace law or instrument. Adverse action includes dismissing the employee, altering the position of the employee to the employee’s prejudice and discriminating between the employee and other employees.

Discrimination

Direct and indirect discrimination in employment is prohibited in all states and territories of Australia under the relevant equal opportunity or anti-discrimination legislation. Discrimination may be on the basis of sex, race, pregnancy, impairment, industrial activity, race and religious beliefs, amongst other things. Harassment and victimization are also prohibited. The tests for discrimination differ between states.

Commonwealth equal opportunity legislation is separated into the different categories of discrimination. The Acts relevant to discrimination in employment are:

• The Age Discrimination Act 2004, which prohibits discrimination against a person on the grounds of that person’s age.
• The Sex Discrimination Act 1984, which prohibits discrimination on the basis of sex, marital status, pregnancy or potential pregnancy and family responsibilities (only in relation to dismissal).
• The Disability Discrimination Act 1992, which prohibits discrimination on the basis of a disability, either directly or indirectly, in relation to employment.
• The Racial Discrimination Act 1975, which prohibits direct and indirect discrimination based on a person’s race, color, descent or national or ethnic origin in a range of areas.
• The Australian Human Rights Commission Act 1986, which prohibits discrimination on the basis of age, medical record, impairment, marital status, mental, intellectual or psychiatric disability, nationality, physical disability, sexual preference, trade union activity and, in some circumstances, criminal record.

Confidential Information

Employers should ensure that they have in place sufficient protection of their confidential information and intellectual property rights to prevent a departing employee from causing significant damage to the employer’s business. To protect the employer’s business, a post-termination restraint of trade should be included in the employee’s contract. However, such clauses are generally presumed to be void at law. In order for the restraint to be enforceable it must be reasonable and for a defined period of time. There must also be a legitimate reason for imposing the restraint.

References

Employers are not obliged to provide a reference for a former employee. When considering whether to do so or not, employers must be aware that when a reference is provided, the reference must not mislead. Potential liability may arise if a reference is misleading and the employee engages in serious misconduct to the detriment of the new employer.

Andrew Ball, partner at DLA Piper, has extensive experience across all areas of employment and workplace relations.

Republished with permission. © 2013 DLA Piper. All rights reserved.

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