5 Questions Employers Should Ask Before Terminating an Employee

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Table of Contents

• 1. Termination or Redundancy?
• 2. Have I Complied With the FWA?
• 3. Are There Grounds for the Employee to Bring a Claim for Unfair Dismissal?
• 4. Is the Ground For Terminating the Employee Lawful?
• 5. What Paperwork is Required When Terminating an Employee?
• Key Takeaways 

As a business owner, you may find yourself needing to let one of your employees go. This might be because their performance is not up to scratch or there has been an instance of misconduct. Alternatively, it might simply be the case that your business needs have changed since the employee came on board. However, before you start directing your employee to pack up their things, there are a few essential questions you should ask yourself before terminating an employee. This article will take you through five of these critical questions.

1. Termination or Redundancy?

A redundancy occurs when the company no longer requires the employee’s role due to operational changes in the business. This often occurs due to downsizing, outsourcing, or a change in the direction of the employing entity. If this is the case, the end of the employment relationship will be a redundancy. 

To reduce the risk of facing an unfair dismissal claim, you should ensure that you meet the requirements of a genuine redundancy. A genuine redundancy is where: 

• the reason for termination is that you no longer require someone to perform the employee’s role because of changes in operational requirements; 
• you have complied with any obligation under an applicable modern award or enterprise agreement to consult with the employee about the redundancy; and
• you have considered and offered the employee any redeployment opportunities within the business or its associated entities.

Employers should also be aware of their requirements under the Fair Work Act (‘FWA’) to make a redundancy payment to impacted employees. Redundancy pay is calculated based on years of service with the company and ranges from 4 to 16 weeks’ pay. Employers with less than 15 permanent employees in Australia, including the impacted individual, will not be required to make any redundancy payment. 

On the other hand, termination occurs when the business:

• still requires a person to perform the role; but
• the employee currently in that role consistently fails to meet the requirements of their duties.

This can occur due to underperformance or any kind of misconduct. As outlined below, there are strict processes to follow in these circumstances to comply with the FWA. 

2. Have I Complied With the FWA?

As an employer, you cannot terminate employees without a valid reason. If you do not have a valid reason and you fail to follow a procedurally fair process, you could face an unfair dismissal claim. Therefore, except where serious misconduct has occurred, you must ordinarily:

• duly warn the employee that their employment may be terminated, including through written warnings and consultations;
• identify the issues that have led to the potential termination;
• inform the employee of the expectations on them to retain their role; and
• if the issues are related, explain the performance review criteria and the expected improvement timeline. 

Other legislative requirements apply in the event of termination, including how much notice you must give employees in advance of their termination. Minimum notice periods are as follows:

If you have contractually agreed to a notice period greater than the statutory minimum, you must provide the greater contractual notice period. 

3. Are There Grounds for the Employee to Bring a Claim for Unfair Dismissal?

Employees can bring a claim for unfair dismissal if they:

• have been employed for more than six months (or 12 months if you have less than 15 permanent employees in your business); and
• earn less than the applicable high-income threshold (currently $162,000) or are otherwise covered under a Modern Award or Enterprise Agreement.

When determining whether a dismissal is harsh, unjust or unreasonable, the Fair Work Commission will consider the:

• reason for termination; and 
• procedure by which the employee was dismissed. 

This means that it is essential to:

• ensure that you are terminating an employee for a lawful reason; 
• correctly consult with your employees to advise them of any performance issues or misconduct; and
• give them reasonable time to improve. 

4. Is the Ground For Terminating the Employee Lawful?

In Australia, there are specific reasons that are considered fair to terminate an employee’s contract. This includes:

• poor performance;
• misconduct;
• participation in dangerous behaviour;
• genuine redundancy; and
• failure to comply with lawful and reasonable directions. 

That being said, the punishment must fit the crime, and you should not terminate an employee for a minor instance of one of the above grounds. Unless extremely serious, the behaviour must be continued, and you must communicate with the employee that they are not meeting expectations first to justify termination later. You should be sure that you are not terminating employment because: 

• the employee exercised their workplace rights; or 
• of your employee’s protected attributes, such as their gender or race.

5. What Paperwork is Required When Terminating an Employee?

When terminating an employee, you should complete the proper paperwork. You must: 

• issue a formal termination or redundancy notice; and 
• provide proof of termination payment. 

You should maintain proper written records of the termination documents and any written warnings related to the termination or records of relevant meetings in the employee’s file. Not only is it essential to provide such documentation to the employee, but these documents will also be helpful if the employee later makes an unfair dismissal claim.

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Key Takeaways 

As a business owner, it might be the case that you find yourself needing to let one of your employees go. Although an unpleasant experience, you must exercise caution before terminating the employee. Therefore, you shoulder consider:

• whether it is termination or redundancy;
• the FWA’s requirements;
• whether the employee can bring an unfair dismissal claim;
• if you have lawful grounds to terminate the employee; and
• the paperwork you need. 

If you need assistance understanding your obligations when terminating an employee, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.