Employers need to pay attention to the following issues when a termination of employment occurs:
- the termination must be lawful, eg not in breach of contract, equal opportunity, discrimination or other legislation, and in compliance with any award or agreement that covers the employee and a valid reason exists for termination;
- the date and reasons for termination must be clear to both parties — whoever initiates the termination (employer or employee) should do so in writing. From 1 January 2010, any notice to terminate the employment must be in writing.
- compliance with notice periods required by legislation, awards, or contract (whichever is the most generous) eg a resigning employee must give the required period of notice and a dismissed or retrenched employee must receive at least the minimum period of notice required by law, or payment in lieu of that notice (if the award or agreement permits);
- employees must receive payment of their accrued entitlements, such as payment for untaken annual and long service leave if required by the legislation;
- employers must meet documentation requirements — these may include keeping employment and payroll records of termination (for seven years), giving the employee a detailed statement of his/her termination entitlements and calculations, providing certificates of service where required, notifying external agencies where required (such as Centrelink for some redundancies and workers compensation insurers where injured employees are involved); and
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the employer should collect any employer property issued to the employee before the employee leaves (such as vehicles, mobile phones, credit cards, business cards, uniforms, product samples, security/access cards, etc). See the HR Advance Property Return Checklist for more information.
Practical point: Consider termination issues before the employee starts work
Address the termination of employment process at the pre-employment stage by carefully drafting the employment contract. Make sure you refer to termination of employment provisions in the contract, at least stating the agreed period of notice by each party.
In addition, have clear, unambiguous written policies covering conduct in the workplace, covering a wide range of issues such as workplace safety, sexual harassment, dress requirements, use of email and employer’s property, attendance/timekeeping, termination procedures and other relevant issues. These policies should flag any conduct that would be a serious breach of the employment contract and indicate the consequences of a breach.
Equal opportunity laws affect unlawful dismissal
Federal and State equal opportunity and anti-discrimination legislation sets out a wide range of grounds of discrimination in employment situations that are unlawful. Ensure you are familiar with the provisions of the legislation that cover your employees.
Minimum notice periods for dismissed employees
The Federal minimum notice periods contained in the Fair Work Act, which also apply widely elsewhere (eg in many awards and agreements) are as follows:
Continuous service Amount
- 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
(Note that employees who are over 45 years of age and have worked 2 years or more are entitled to receive an extra week's notice, but do not have to provide extra notice to the employer.)
The noticed prescribed under the Act is the minimum notice that should be given to terminate the employment. If an employee's contract, award or enterprise agreement prescribes a greater period of notice, that greater period must be given.
This notice does not apply in all termination situations, eg summary dismissal. Specific advice on relevant notice periods should be sought.
If the contract is silent as to notice, reasonable notice will be implied. Reasonable notice is a vague term and can be very substantial in some circumstances. This is why it is important to have in place a written contract that specifies the notice required by both parties to terminate the employment.
Notice is not normally required for casual employees (except as required by an award, agreement or contract). Although, long-term casual employees may qualify for some other entitlements. For fixed-term and fixed-project employees, the contract should specify a date or event (eg completion of a project) upon which the contract ends, but you need to check the contract in case it has any other provisions, eg for termination before the specified date/event occurs.
It is important to note the minimum notice periods prescribed do not apply to all employees, eg those who are summarily dismissed. Legal advice should be sought on the relevant amount of notice (if any) to provide on termination.
Redundancy severance payments
For employees of corporations with less than 15 employees, generally no extra severance pay in addition to the minimum notice requirements is payable. From 1 January 2010 most employees will be entitled to severance pay on redundancy. Legal advice should be sought in the event of a redundancy.
Get things in writing
If an employee resigns or retires, ask him/her to confirm it in writing. If the employee cannot or will not confirm in writing, issue a letter confirming that you accept the verbal resignation/retirement.
If you dismiss an employee, you must issue a letter confirming the dismissal. It is also best practice if you briefly explain the reasons for the termination in writing. If there are events that led up to the dismissal, keep records of them as well.
It is also a requirement under the Fair Work Act to set out in writing the actual date of termination of employment.
The employee should receive a written statement of termination entitlements. This statement sets out calculations for each component — ordinary pay, severance pay, leave payments, other payments and tax deducted.
Notify other affected parties
Where the employee is involved in a workers compensation or other insurance-related issues, seek advice in advance of the dismissal and keep your insurers informed during the process, preferably in writing. Inform other people who will be affected by the employee’s departure, such as other employees or external people who regularly deal with the employee.
Return of company property
It is prudent to prepare a checklist of any property issued to the employee, to ensure that everything is returned upon termination of employment. See the HR Advance Property Return Checklist.
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If it’s an ‘unusual’ type of termination …
Some types of termination situations only happen rarely. These may include abandonment of employment by the employee, repudiation of the employment contract by either employer or employee, death of the employee, or the employee is unable to continue working (or to resume work), because of long-term injury or illness. Many of these situations will require specific procedures to be followed. Employers who encounter them should seek further advice from their employer association or a legal adviser.
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