Termination of Employment

Employers often say that dismissing an employee can be one of the most stressful and challenging situations to be faced with in the workplace. Not only do employers have to manage difficult, emotional or even disgruntled employees, they are also have to navigate the complex legal system that governs termination of an employee’s employment.

There are many important issues that an employer must consider when an employee’s employment ends, including, but not limited to, how to manage the potential misconduct of the employee, notice periods, termination payments, probationary periods, award coverage and unfair dismissal.

Employers and managers need to be aware and understand the lawful processes when dismissing employees and the rights of both the employer and employee of when an employment relationship ends.

When does an employment relationship end?

An employment relationship can end in the following ways:

  1. Employee may resign from their employment;
  2. Employer may dismiss an employee;
  3. The employees contract may come to an end; and
  4. The employee’s contract may become “frustrated”.

There are many reasons that you may want to or need to dismiss an employee, this can include the following:

  1. Unsatisfactory performance of an employee
  2. The employee does not have the ability, or complete the work
  3. The employee has engaged in misconduct
  4. The job is no longer needed to be performed, and the employee’s job is redundant

What is the difference between dismissal and resignation?

It is important to understand the difference between the dismissal and resignation of an employee as it will affect the steps that an employer is required to take before and after the employee’s employment comes to an end.

In summary:

  1. Resignation – is when the employee decides that they want to end their employment.
  2. Dismissal / termination – is when the employer decides to end the employee’s employment.

What happens if an employee resigns?

When an employee resigns, it needs to be clearly communicated to the employer (it is usually done in writing in accordance with an employee’s contract) and done so voluntarily (without pressure from any other forces.

Depending on the nature of the employment, the employee is required to give an employee ‘notice’ of their resignation. This means that the employee gives advance warning to the employer that they have decided to end their employment. An employee’s contract of employment may stipulate the amount of notice that the employee is required to give to an employer, for example, they may be required to give 4 weeks’ notice. This means that the employee is required to notify the employer 4 weeks before the date they want to end their employment and work during that time.

If the employee does not have a contract of employment, or their contract is silent on the issue, the Fair Work Act 2009 (Cth) provides for the minimum notice period an employee is required to give. A modern award or enterprise agreement may also include a notice provision. Make sure you check what the correct notice period is.

If an employee resigns and does not provide the correct amount of notice, an employer may be able to withhold monies owing to the employee. However, if you withhold money from an employee, it is crucial that you get this right as if you wrongfully deduct an amount payable to an employee, you may be in breach of the Fair Work Act 2009 (Cth).

There are other steps that an employer will need to take if an employee resigns, for example;

  1. ensure the employee returns all company property;
  2. remind the employee of their post-employment restrains (if they are subject to any);
  3. pay the employee their final pay, which include the following entitlements:
    • any outstanding wages for the hours they have worked (this includes penalty rates and allowances (if applicable);
    • any accrued annual leave (including leave loading);
    • any accrued pro rata long service leave.

Make sure you keep in mind that there are some employees who do not have to give an employer ‘notice’, this includes, but is not limited to:

  1. Casual employees or seasonal workers
  2. Employees who are only employed for a set period of time (for example, an individual who is only contracted to work for a period of 3 months (fixed term contract) or an individual undertaking a training arrangement for a set time, but not an apprentice)
  3. Employees who are terminated because they have engaged in ‘serious misconduct’

In order to ensure you are complying with your record keeping obligations, make sure you keep the relevant records of the resignation, including, the resignation letter in the individuals personnel file.

What happens if you want to dismiss an employee?

Considerable care must be taken by an employer when terminating an employee, as if the appropriate process is not taken, an employer may be faced with the cost and reputational risk in defending a legal claim. We have all heard the horror stories of managers sacking an employee in the heat of the moment – it is not that uncommon. However, if this does occur, you are opening yourself and the business, to lengthy and expensive legal proceedings, including unfair dismissal applications in the Fair Work Commission.

In order to prevent this from occurring, there are many things that you have to consider, for example:

  1. What type of employee am I considering terminating – for example, is it a casual employee, full time employee or senior management?
  2. Is the employee covered by a contract or employment, enterprise agreement or modern award?
  3. Do we need to terminate this employee due to a performance issue – is it serious enough to terminate them on the spot?
  4. Is the job the employee performing no longer required? Is there another job the individual can go to? Have I discussed this with them?
  5. Should the employee receive any entitlements?
  6. Have I given the employee the relevant notice?

While these are only some of the questions that you have to ask yourself, you can see that you must follow the correct process when terminating an employee. If you don’t, an unfair dismissal application, or general protections claim may land on your desk.