What are the legal risks from termination of employment?
Unfair Dismissal Claim
This is the most common form of litigation arising from termination of employment.
Under the Fair Work Act, employees have broad rights to allege unfair dismissal if they are covered by an award, have met the minimum employment period (which is 6 months or more service if the employer has 15 or more employees, or 12 months or more service if the employer has 14 or less employees) and if they earn less that the high income threshold which is currently $167,500 (as at 1 July 2023, indexed annually).
The Small Business Fair Dismissal Code allows a simpler standard of fairness for small businesses (employers with fewer than 15 employees).
The Fair Work Commission can order reinstatement (which is the primary remedy in unfair dismissal cases) or award compensation up to six months of the employee’s pay (or half of the high income threshold, whichever is the lesser amount). Usually, each party must pay its own costs, win or lose. An unfair dismissal application should be filed within 21 days of the termination of employment, but this period may be extended upon the employee proving exceptional circumstances.
Discrimination and Adverse Action/General
Employees can also make a general protections claim under the Fair Work Act if they believe the employer has taken “adverse action” against them. Some examples include:
- if the dismissal was partly because of a discriminatory reason (sex, race, age, religion etc), because of union activity or because of temporary absence form work because of illness;
- if the dismissal is alleged to arise from the exercise of a ‘workplace right’ (a very broad concept, including, for example, complaints about pay or safety issues)
if the dismissal is alleged to arise from industrial activities (engaging in protected industrial action, being a member of a union etc)
If there are circumstances which suggest that the termination may have been prompted by an illegitimate or discriminatory reason (such as sex, pregnancy, race, age and so on), a terminated employee may also make an application to the State or Federal discrimination authorities.
Are any employees excluded from making an unfair dismissal claim?
There is a 6-month qualifying period (12 months for small business employers – ie, employers of 14 or less employees) which precludes an employee claiming unfair dismissal if their service is shorter than that period.
However, this does not apply to adverse action or discrimination claims.
Even prospective employees can make an adverse action claim against a prospective employer.
Casual employment where the employee does not have regular and systematic work, or has no reasonable expectation of ongoing work, does not count towards the 6 or 12 month qualifying period.
Employees on fixed term contracts or engaged to undertake a particular task or for a specified season
Employees whose employment comes to an end at the end of a fixed-term contract or task or season for which they were engaged have not been “dismissed” and therefore cannot make an unfair dismissal claim.
How can I manage these risks?
The law and tribunals expect employers to terminate employment fairly: that is, to have a good reason for the termination, and give the employee procedural fairness in the termination process.
In the case of termination for poor performance, this involves:
- telling the employee the level of performance expected and the (reasonable) time in which improvement must occur and that failure to improve may result in termination of employment; and
- giving the employee a reasonable opportunity to respond to criticism, and consider the response in good faith.
- If a termination is for misconduct there should be:
- clear polices as to the conduct and expectations required which have been properly communicated to all employees of the business; and
- a proper investigation to be undertaken with an opportunity afforded to the employee to respond to the allegations.”
- There are instances where an employee may be terminated summarily and without notice. Examples of serious misconduct include but are not limited to:
- verbal or physical violence;
- breaches of health and safety;
- wilful or deliberate behaviour by the employee that is inconsistent with the continuation of the employment contract.
It is important to consider how other employees have been dealt with for similar conduct. If you have condoned similar behaviour from others, or similar conduct by this employee in the past, it will be harder to justify termination even if the conduct is in breach of policy or performance requirements. In that case, some lesser penalty such as a final warning, a demotion or a pay cut may be a better option.
Good Termination Practice
- Keep records of warnings and counselling.
- Take notes
- Have a second person attend significant interviews, and give the employee the opportunity to have a support person at interviews.
- Don’t terminate in anger.
- Don’t respond in kind to any “game playing” by an employee: maintain a professional attitude.
- Give warnings as necessary depending on the nature of the problem: it is not necessary to give three warnings in all cases.
- Give notice of termination in writing.
For employees who have a long period of service, or who are in a senior position, you must consider the appropriate sanction for poor performance or misconduct even more carefully to ensure it is proportionate to the conduct alleged.
Payments on Termination
It is important to get the payment right. Annual leave and long service leave are statutory entitlements and should be paid promptly and without deduction. Delay or underpayment always looks bad.
Getting notice payments right, particularly payments on redundancy, involves considering a variety of sources of obligation to pay redundancy (also referred to as severance or retrenchment) or notice, and making a judgment about what is required in your situation. A right to severance pay may arise from the combination of the National Employment Standards, a modern award, an old state award, precedents in the workplace, the employment contract, policies about redundancy or an obligation to give ‘reasonable notice’.
When can an employee be terminated without payment of notice?
Termination without notice, or summary dismissal, is only allowed when the employee is guilty of serious misconduct. ‘Serious misconduct’ may include theft, dishonesty, serious breaches of confidentiality obligations or other acts directly against the interest of the employer, violence in the workplace, serious sexual harassment or bullying.
If you are considering terminating an employee’s employment without notice, you need to ensure that you have conducted a proper investigation, resulting in a sufficiently strong case against the employee, who is given an appropriate level of procedural fairness (eg opportunity to respond, option to have a support person present at interviews). If a summary dismissal results in an unfair dismissal or unfair contract claim, you will bear the onus of justifying the termination without notice.
How can Coleman Greig help you?
Lawyers at Coleman Greig have many years of experience in representing employers and employees in proceedings in industrial tribunals and the discrimination authorities.
The lawyers at Coleman Greig can also help you to manage your risks by:
- Responding quickly to advise in person, by phone or by email, when employment issues arise;
- Highlighting risk areas for you, and suggesting ways of dealing with risks in particular circumstances;
- Advising generally on management of poor performance, misconduct or redundancies.
Disclaimer: The information provided above is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.