Terminating employment: how to get the process right

By Isla Amin

Dismissing an employee is never easy. It’s a difficult day for the person you are “letting go” and it can also be tough news to deliver. However, sticking to some clear rules will make it easier on everyone and help you stay on the right side of the Fair Work Act.

It’s not legal to fire an employee on-the-spot in Australia, unless the action is so serious you must remove the employee from the business immediately. Doing so without taking steps to solve the problem first will leave you exposed to unfair dismissal claims.

The result could be that the Fair Work Commission (FWC) orders you to pay damages to the employee, or even reinstate them, which is not an ideal outcome.

The first step is to do your homework and make sure you’re well prepared.

We’ve pulled together some key information to help you understand your obligations and navigate the choppy waters of terminating an employment contract.

Keep it fair and reasonable

The Fair Work Act requires that any dismissal be for good reason. This means you must be able to clearly outline your reasons for dismissing an employee, which may include:

  • Serious and/or repeated misconduct (e.g. theft or assault).
  • Poor performance.
  • A probation period not working out.
  • Commercial reasons (redundancy).
  • Incompatibility.

Whatever the reason, you must also be committed to a fair process, which includes keeping an open enough mind to consider the employee’s response or any suggestion about how issues could be resolved.

To demonstrate that the outcome is not predetermined, you’ll need to allow for periods of reflection and requests for feedback as part of the dismissal process. You will also need to do everything you can to keep lines of communication open, to reassure the employee that their response is encouraged and will be carefully considered.

Be warned! Unfair dismissal claims are relatively cheap and easy for an employee to lodge, but expensive and time consuming to defend. That’s why it pays to do your homework and stay on the right side of the Fair Work Act.

Choose the right response

Once you have established a fair and reasonable argument for addressing unsatisfactory conduct or work performance, you need to consider how serious the employee’s breaches are and then choose an appropriate response.

As a rule, you should first consider counselling, possibly followed by disciplinary action, and if both these steps fail, then consider termination of employment.

Counselling and disciplinary action

Counselling is the recommended first course of action for most situations. In all instances, you need to assume the problem is less serious and can be potentially resolved.

Once you've investigated and have all the facts, you’ll need to consider your options before making any final decisions. If less formal counselling is not going to work or you've already tried it without any effect, more formal disciplinary action may be the appropriate response.

Remember, while the word “disciplinary” suggests punishment, that’s misleading. The process is about communication, to help the employee get their performance or conduct on track.

Discussion about resolving performance issues should begin early and should be in the spirit of achieving an alternative outcome to termination. Potential solutions to problems could include redefining an employee’s role, ongoing counselling, relationship-building work, and/or performance training.

In more serious situations, you may have to issue formal warnings or put the employee on a performance improvement plan.

Learn more about the disciplinary process.

Resignation or mutual agreement to terminate employment

This may be an outcome if the employee does not want to change their behaviour, conduct or performance, and elects to leave the business.

It may be that when you start a dialogue with your employee about their performance or conduct, they are open to ending employment. In this case, you should ensure that any mutual agreement or resignation is free of duress and in writing, stating specifics like end dates and final pay amounts.

Also try to ensure any mutual agreement to terminate employment is signed by both of you or is recorded in writing and sent to the employee. The written record needs to confirm the detail of any discussions and agreed outcomes.

Where an employee decides to resign, it's best to receive the resignation in writing directly from them, but alternatively an email or written communication from you confirming the verbal resignation and its date can be relied upon.

Final warning

Rarely, a first and final warning could be issued but this is an option reserved for serious misconduct, e.g. if the employee was intoxicated at work, committed theft or fraud, or refused to carry out "lawful and reasonable" instructions consistent with their employment contract.

Dismissal with notice or pay in lieu of notice

This should be reserved for serious breaches of the employment contract or in circumstances where an employee flatly refuses to modify their behaviour.

In most instances, if you decide to terminate employment, you will issue notice (or decide to pay the notice out) and have the employee leave as soon as possible. Any such terminations of employment must be in writing (unless a wilful and serious breach of the employment contract).

Summary dismissal

Summary dismissal is rarely used as it is a very serious reaction to an employment situation.

Sometimes called instant dismissal, it means just that: the employee ceases employment immediately and any wages/salary and payable leave accruals are calculated to the moment the employee ceases employment. No notice or payment in lieu of notice needs to be paid.

Your first step should always be to look into the matter thoroughly and to identify what impact the misconduct had on the business (report allegations of theft, fraud or violence to the police). Suspend the employee from work while you conduct the investigation.

Should your claims of serious misconduct be upheld, it is best to give the employee a written letter of termination to confirm you are ending their employment. Include the reasons for the termination and when their employment ends. You should also explain in person, and make sure the employee understands and can ask questions.

In cases where the employee challenges their dismissal, the onus shifts to the employer and you will have to be able to prove fair and reasonable justification for your actions.

Remember that summary dismissal is contemplated for only the very worst circumstances where an employee has wilfully breached the terms and conditions of employment and this breach has resulted in serious consequences.

We recommend you get expert advice before taking any action.