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, or if they earn less than $153,600 (as at 1 July 2020, indexed in July annually).
The Fair Dismissal Code allows a simpler standard of fairness for small businesses (employers with fewer than 15 employees).
The Fair Work Commission can order re-instatement or award compensation, up to 6 months pay (or up to total pay received in the last 6 months of employment if the employee has been employed for less than 6 months). Usually, each party has to 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 can be extended.
Discrimination and Adverse Action/General Protections Claims
Employees can also make claims alleging:
- adverse action 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 there are circumstances which suggest that the termination may have been prompted by an illegitimate discriminatory reason (such as sex, pregnancy, race, age and so on), or as victimisation for the employee exercising a workplace right, a terminated employee may make an application to the State or Federal discrimination authorities, or allege “adverse action” in a “general protections” claim, or may raise that issue in an unfair dismissal claim.
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 fewer than 15 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.
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 the 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 considering the response in good faith.
If a termination is for misconduct there should be:
- clear policies as to the conduct required which have been properly communicated (unless the conduct is so unacceptable that it goes without saying); and
- a proper investigation with opportunity for the employee to respond to allegations.
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.
- 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 have to consider the appropriate sanction for poor performance or misconduct even more carefully.
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 precedents in the workplace, the employment contract, policies about redundancy or an obligation to give ‘reasonable notice’. While the Fair Work Act mandates redundancy entitlements for all employees (including executives and other non-award employees), the extent of the entitlement for non-award employees depends on the employee’s pre-2010 history.
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 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.
For more information, or if you have any questions in this area, please contact our Employment Law team.
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.