As an employer you may find yourself in a rather sticky situation where a potential employee quits their current job on the basis that you agreed to hire them. After you have both signed the employment contract but before they have started work you realise that you are unable to take on the employee due to your financial situation or for another reason. Can you lawfully terminate an employee before he or she starts?
There are several factors you should consider before taking any action. What is the employee’s current work status? What contractual obligations does your business have? What action can the employee take? This will assist you in deciding what to do next.
Employees need to have some continued service for their employment to be governed by the National Employment Standards (NES) and to be eligible to receive the statutory termination notice period of one week (s117 Fair Work Act 2009 (Cth)). This means that if the employee has not yet commenced work, the NES may not apply.
Generally, an employment contract will have a probation period, and within the probation period, there is usually a shorter notice of termination period, being, for example, one week only. If the employee has just started working for you, and is within their probation period, you can terminate the employment agreement by providing them with the required notice.
As the employee has not completed more than 1 year of service, they would not eligible for any redundancy pay (s119 Fair Work Act 2009 (Cth)). The employee would also not be eligible for redundancy pay if they were working for a small business (s121 Fair Work Act 2009 (Cth).
Time Limits and Unfair Dismissal Claim
To be eligible to make an application to the Fair Work Commission for unfair dismissal the employee must have completed 1 year of employment (where the employer has less than 15 employees) or 6 months (where the employer has 15 or more employees) and meet a number of other requirements.
It is very unlikely that the employee would be eligible to make an unfair dismissal claim, or be successful in making such a claim, as the employee would not have completed the minimum period of employment.
Remedies in Equity
It is possible that the employee may try to bring a claim against your business on the basis of equity. The employee could claim that they relied on the signed employment contract and had formed a reasonable expectation of employment with you, and suffered detriment as he/she may have already resigned from their existing employment.
In equity, the employee may seek that you are precluded from going back on your promise even where the promise is not supported by valuable consideration (Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387).
Taking into account the impractically of rehiring the employee, it is possible that the court may order monetary compensation to be paid for the detriment suffered by your potential employee (Crabb v Arun District Council  1 Ch 179).
This is a rather difficult and less common situation. As a general solution, it may be good practice to terminate an employee in accordance with the notice period as set out in the signed employment contract, and make payment in lieu of the notice. This is, however, a very general solution. There may be certain factors attached to your specific situation in which a different solution may be more suitable.
Employment law is a constantly changing area of law. If you have any issues with your employees or any other questions associated with employment law, contact LegalVision on 1300 544 755 and speak with one of our experienced Employment Lawyers.