It is vital for employers considering terminating an employee to be aware of the relevant laws, their obligations and how to avoid claims

An employer considering terminating an employee needs to take great care in how they go about it. Getting it wrong can risk unfair dismissal or adverse action claims in the Fair Work Commission, unlawful termination claims, contractual disputes or even a claim to the Human Rights Commission.

However, employers can mitigate risk by understanding and complying with their legal obligations and approaching employee termination in a considered manner. This article discusses the key considerations for employers when contemplating employee termination, with a focus on the Small Business Fair Dismissal Code.

Compliance with Contracts, Awards and Legislation

Before dismissing an employee, employers should review all employment contracts, modern awards, or enterprise agreements that may affect the termination process. These agreements often contain strict provisions relating to notice periods, termination procedures, and severance pay. The National Employment Standards (NES) in the Fair Work Act also set out the statutory requirements for notice and redundancy pay.

Consistent Processes

Employers must ensure that their dismissal practices apply consistently across the workforce while abiding by specific requirements under different contracts and awards. Inconsistencies in how dismissals are handled within an organisation may lead to claims of unfair treatment. Prudent employers should establish a standard process for terminating employees. This should set out the steps to follow in consideration of factors such as the employee’s performance, conduct, and any mitigating circumstances. Ideally, these processes should be available to all staff in a written policy document.

Unfair Dismissal in Australia

Unfair dismissal occurs when an employee is dismissed from their job in a “harsh, unjust or unreasonable” manner. It is important to understand that a dismissal may be deemed unfair, even if the employer believes it was warranted. To avoid an unfair dismissal claim, employers must ensure that there is a valid reason for termination based on the employee’s conduct or performance and that they follow appropriate procedures. These procedures may include providing a warning to the employee (preferably in writing) and allowing them an opportunity to improve their performance. Employers should keep excellent documentation and seek legal advice in complex cases.

Employees who believe they have been unfairly dismissed may file a claim with the Fair Work Commission (FWC). If the FWC decides that a dismissal was unfair, they may order that the employee be reinstated to their former position or compensated by the employer for the loss caused by the termination. The FWC will not order compensation for any pain or suffering caused by the unfair dismissal.

Genuine Redundancy

Redundancy is a valid reason for termination when a position is no longer required due to changes in the operational needs of the business. However, employers must demonstrate that the redundancy is genuine and that they have explored all reasonable options to redeploy the affected employee within the organisation. Proper consultation with the employee during redundancy processes is crucial.

Small Business Code

The Small Business Fair Dismissal Code applies to businesses with fewer than 15 employees when terminating an employee. The Code precludes small business employees from making a claim for unfair dismissal in the first 12 months following their engagement.

This does not mean that employers are free to dismiss employees just before the end of the 12 month period for the sole purpose of avoiding an unfair dismissal claim. In a recent case, Dabboussy v Australian Federation of Islamic Councils [2024] FCA 1074, the Court reinstated (temporarily, pending final hearing) an employee who had been dismissed 7 hours before the end of the 12 month period. The presiding Judge was of the view that it was likely that the employee was dismissed for the purpose of denying him the opportunity to make an unfair dismissal claim. Taking adverse action against an employee to prevent the employee from exercising a workplace right is a contravention of section 340 of the the Fair Work Act.

For employees with more than a year of service, the Code sets out a simple and clear process to follow when dismissing an employee and aims to provide a defence against unfair dismissal claims. If a small business employee is terminated, the dismissal will be deemed to be fair so long as the employer followed the Code.

Summary Dismissal

It is fair for a small business employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct may include theft, fraud, violence and serious breaches of occupational health and safety procedures. However, if you are considering summarily dismissing an employee, it is a good idea to seek legal advice before doing so, in order to confirm that the breach justifies summary dismissal. There have been many claims made to the FWC involving summary dismissal where the FWC found that summary dismissal was not warranted – in these circumstances if the employer had terminated the employment in the normal way, with notice, they may have avoided a claim.

Other Dismissals

In cases other than serious misconduct, a small business employer must give employees appropriate warnings before being dismissed. This must include providing the employee with an opportunity to respond to the warning and a reasonable chance to rectify the problem. This might involve the employer providing additional training and ensuring the employee understands the employer’s job expectations. Documenting the performance management process can be valuable evidence if an employee later challenges a termination.

Termination Meetings

When conducting a termination meeting, employers should handle the situation with sensitivity and respect. The meeting should be held in a private and neutral location, and a witness should be present to ensure transparency and prevent potential misunderstandings about the content of the conversation.

Documentation

In any termination process, documentation is crucial. Keeping accurate records of performance discussions, warning letters, performance improvement plans, and any other relevant communications can be essential when defending an unfair dismissal claim. These records can demonstrate that the employer has followed a fair and reasonable process.

Conclusion

Terminating an employee is seldom an easy task, and can have significant legal and financial implications for a business. To minimise the risk of an unfair dismissal claim, employers should ensure that they understand and comply with their legal obligations. Having clear policies and processes in place, keeping comprehensive records and seeking legal guidance and advice in complex cases can help mitigate risk.

This is general information only, and we recommend seeking professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact Jackson O’Keeffe on (02) 9923 2321 or email jokeeffe@somervillelegal.com.au.