Navigating employment termination in Australia requires a thorough understanding of the legal framework, primarily governed by the Fair Work Act 2009 and the National Employment Standards (NES). Employers must adhere to specific requirements regarding notice periods, severance entitlements, valid reasons for dismissal, and procedural fairness to ensure compliance and avoid potential claims such as unfair dismissal or general protections breaches.
Properly managing the termination process is crucial for businesses operating in Australia, whether they are local entities or international companies employing staff through an Employer of Record. Compliance ensures fair treatment of employees and protects the business from significant legal and financial risks associated with non-compliant dismissals.
Notice Period Requirements
When terminating an employee's employment, employers are generally required to provide a minimum period of written notice or payment in lieu of notice. The minimum notice period is determined by the employee's length of continuous service with the employer.
The minimum notice periods under the National Employment Standards are as follows:
| Employee's Period of Continuous Service | Minimum Notice Period |
|---|---|
| Not more than 1 year | 1 week |
| More than 1 year but not more than 3 years | 2 weeks |
| More than 3 years but not more than 5 years | 3 weeks |
| More than 5 years | 4 weeks |
Employees over 45 years of age with at least 2 years of continuous service are entitled to an additional week of notice.
It is important to note that an award, enterprise agreement, or employment contract may specify longer notice periods than the NES minimums. If so, the longer period applies. Notice is generally not required in cases of serious misconduct.
Severance Pay (Redundancy Pay) Calculations and Entitlements
In Australia, what is often referred to internationally as severance pay is typically known as redundancy pay. An employee is generally entitled to redundancy pay if their job is made redundant and they are covered by the NES redundancy pay entitlements.
A job is considered redundant if the employer no longer requires the job to be performed by anyone, usually due to changes in operational requirements, or if the employer becomes insolvent or bankrupt.
Eligibility for redundancy pay under the NES depends on several factors:
- The employee must be covered by the NES redundancy provisions (most employees are, but some exceptions apply).
- The employee's employment must have been terminated because their job was made genuinely redundant.
- The employer must not be a small business employer (fewer than 15 employees at the time of redundancy). Small businesses are generally exempt from paying NES redundancy pay.
- Other exceptions may apply, such as where employment is transferred to a new employer, or where an award or agreement provides for different redundancy entitlements.
The amount of redundancy pay is based on the employee's length of continuous service with the employer:
| Employee's Period of Continuous Service | Redundancy Pay Entitlement (Weeks) |
|---|---|
| Less than 1 year | 0 |
| 1 year but less than 2 years | 4 |
| 2 years but less than 3 years | 6 |
| 3 years but less than 4 years | 7 |
| 4 years but less than 5 years | 8 |
| 5 years but less than 6 years | 10 |
| 6 years but less than 7 years | 11 |
| 7 years but less than 8 years | 13 |
| 8 years but less than 9 years | 14 |
| 9 years but less than 10 years | 16 |
| 10 years or more | 12 |
Note: The entitlement for 10 years or more was reduced from 16 weeks to 12 weeks effective from 1 January 2010.
Redundancy pay is calculated based on the employee's base rate of pay for their ordinary hours of work.
Grounds for Termination
Employment can be terminated for various reasons, which generally fall into categories of termination with or without cause.
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Termination with Cause: This typically relates to the employee's conduct or capacity.
- Serious Misconduct: This includes theft, fraud, violence, serious breaches of safety procedures, or refusal to follow lawful and reasonable directions. Termination for serious misconduct can occur without notice or redundancy pay, but a fair process is still required.
- Other Misconduct: Less serious breaches of company policy or conduct issues.
- Poor Performance: Failure to meet the required standards of the job.
- Lack of Capacity: Inability to perform the inherent requirements of the role due to illness or injury (subject to specific legal requirements and considerations regarding discrimination).
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Termination Without Cause: This usually relates to the operational needs of the business.
- Redundancy: As discussed above, where the employee's job is no longer needed.
- Other Legitimate Reasons: While less common as a standalone ground without process, this could potentially encompass situations not directly related to performance or conduct, provided they are not discriminatory or otherwise unlawful.
A dismissal must have a valid reason related to the employee's capacity or conduct, or based on the operational requirements of the employer's business, to be considered fair.
Procedural Requirements for Lawful Termination
Regardless of the reason for termination, following a fair and reasonable process is critical to avoid claims of unfair dismissal or breaches of general protections.
Key procedural steps often include:
- Investigation: For conduct issues, conduct a thorough and impartial investigation into the allegations.
- Notification of Concerns: Clearly inform the employee of the specific concerns regarding their performance, conduct, or the reasons for potential redundancy.
- Opportunity to Respond: Provide the employee with a genuine opportunity to respond to the allegations or reasons for termination. This should be done in a meeting, often with the option for the employee to bring a support person.
- Consideration of Response: Genuinely consider the employee's response before making a final decision.
- Warnings: For performance or less serious conduct issues, a series of warnings (typically written) outlining the issue, expected improvement, timeframe for improvement, and potential consequences of failure to improve is usually required before termination.
- Consultation (Redundancy): If the termination is due to redundancy, employers must consult with the employee about the proposed changes, the reasons for redundancy, and explore alternatives to dismissal.
- Written Notice: Provide the employee with written notice of termination, stating the effective date and the reason for termination.
- Final Pay: Ensure the employee receives all outstanding entitlements in their final pay, including wages up to the termination date, accrued but untaken annual leave, long service leave (where applicable), and any redundancy pay entitlement. Payment in lieu of notice must also be included if notice is not worked.
Documentation is essential throughout the process, including records of meetings, warnings, investigation findings, and the final termination letter.
Employee Protections Against Wrongful Dismissal
Australian law provides significant protections for employees against unfair or unlawful termination.
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Unfair Dismissal: Eligible employees can make an unfair dismissal claim to the Fair Work Commission (FWC) if they believe their dismissal was harsh, unjust, or unreasonable.
- Eligibility: Generally, employees must have completed a minimum period of employment (6 months for employers with 15 or more employees, 12 months for small business employers) and earn below the high income threshold (unless an award or enterprise agreement applies).
- Assessment: The FWC considers whether there was a valid reason for dismissal, whether the employee was notified of the reason, given an opportunity to respond, and other factors related to procedural fairness and the specific circumstances.
- Outcomes: If a dismissal is found to be unfair, the FWC can order reinstatement or compensation.
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General Protections: Employees can make a general protections claim if their employment was terminated because they exercised a workplace right, were discriminated against, or for other prohibited reasons (e.g., temporary absence due to illness, union membership). These claims can be made regardless of the employee's length of service or income level.
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Discrimination: Termination based on protected attributes such as age, race, gender, disability, religion, or sexual orientation is unlawful under federal and state anti-discrimination laws.
Common pitfalls for employers include failing to have a valid reason for dismissal, not following a fair process, insufficient documentation, terminating based on discriminatory reasons, or failing to pay correct final entitlements. Adhering strictly to legal requirements and best practices is paramount.
