Terminating an employment contract can be a complex process, involving various scenarios and procedures.
In this article, we will explore common termination scenarios and the procedures that employers need to follow. We will discuss the termination of employees during the probationary period, handling underperformance, conduct-based dismissals, theft or misappropriation, and redundancy. Employers can avoid unfair dismissal claims by understanding and following termination procedures effectively.
Terminating a person’s employment often creates legal risk. Because of this, it is important to seek legal advice from a qualified employment lawyer before terminating a person’s employment.
Probationary Period Termination
Terminating employees during the probationary period is a common scenario. It is also simpler than terminating an employee on a standard contract.
An employer can terminate an employee during the probationary period without giving a reason if the probationary period is shorter than the minimum employment period. For a small business with less than 15 employees, the probation period is 12 months. Otherwise, it is six months.
However, if an employee has been employed for at least six months (yes – one day makes a difference, so be careful!), they enjoy protection against unfair dismissal under the Fair Work Act 2009 (Cth).
Employees with less than six months of employment do not enjoy protection from unfair dismissal.
However, they may still bring a claim for adverse action. The employee may claim that the company terminated their employment for a discriminatory reason. For example, if the employee has made a workplace complaint or is pregnant)
The problem with an adverse action claim is that the amount one can claim for unfair dismissal is limited. The limit for damages for unfair dismissal is an equivalent of six months’ pay. In contrast, there is no limit on damages for adverse action.
Employers must carefully manage underperformance. And the best time to do this is when they first notice it.
Under Australian law, employees must be “performance managed” before terminating them.
This means employers must:
Identify poor performance. Clearly identify and document specific instances of poor performance. Provide constructive feedback and identify areas for improvement.
Provide an improvement plan. Develop a Performance Improvement Plan (PIP) that includes measurable goals, timelines, and support mechanisms. Regularly review the employee’s progress and adjust the plan as needed.
Consider termination only if the employee has not improved after exhausting the performance management process. Termination by the employer is ‘justified’.
If an employee is to be dismissed on grounds related to conduct, they must be:
- heard before dismissal,
- allowed to rectify their behaviour and
- have received a warning before the dismissal.
If the dismissal does not have grounds mentioned above, it can lead to a claim for unfair dismissal. However, there are exceptions. For example, if an employee has engaged in serious, repeated or gross misconduct.
This may depend on the degree to which the conduct brings the business into disrepute and what policies the business has in place.
If the behaviour is serious enough (and the employer has an appropriately worded employment contract and policies in place), the employer may be able to dismiss your employee without notice.
This may also mean that the employer does not have to pay the employee a notice period.
Theft or Misappropriation
The National Employment Standards allow employers to terminate employees without notice if they have committed serious misconduct. The employer must determine whether the theft is serious enough to constitute serious misconduct.
To determine this, the employer should consider:
- whether the conduct occurred inside or outside the workplace;
- the value of the stolen property;
- the seniority of the employee; and
- how the theft has affected the business.
If the conduct is not serious, the employer may not be able to terminate the employment immediately. The employer may only issue the dishonest employee with a verbal or written warning.
However, if the conduct is serious or minor conduct continues, termination may be appropriate. Moreover, the employer may report the matter to the police and pursue the employee for recovery. In such a situation, the employer does not owe the employee a dismissal notice. However, the employer must pay out any annual leave accrued.
The employer may have to dismiss an employee if their role becomes redundant. The redundancy may be necessary if:
- the employer no longer needs that specific role
- the business has gone bankrupt or insolvent
- new technologies have removed the need for the role
- the employer is experiencing a business downturn, relocation, merger, takeover or restructuring.
If an employer dismisses an employee because of a redundancy, it must be genuine. Redundancy is not genuine if
- the operational needs have not changed,
- the employer has not consulted the employee,
- the employer could reasonably employ the employee elsewhere in the business or in an associated business.
Employers must be careful when making redundancy. If the redundancy is not genuine, the employee may claim it as an unfair dismissal.
Frequently Asked Questions:
How can an employer handle a redundancy to avoid unfair dismissal claims?
- comply with the consultation requirements of the Fair Work Act,
- give notice of the dismissal,
- explore alternative employment opportunities, and
- seriously consider any suggestions made by the employee concerned.
Compliance with the applicable Modern Awards is also crucial. Read our article on Genuine Redundancy to learn more.
Can an employer deduct amounts from final payments if they terminate an employee for theft?
No, the employer may not deduct any money from the employee’s final payment. This applies even if the stolen item’s value is higher or lower than the payment owed. The employer must pay out all outstanding claims separately.
What legal protection do employees have during the probationary period?
Employees on probation have less protection than those with over six months of service. However, if they believe that someone terminated them based on discriminatory reasons, they can still bring adverse action claims.
If a person’s employment has been terminated for discriminatory reasons, it is important to consultant with employment lawyers.