Dismissing an executive–level employee in Australia is a complex process that requires careful navigation of employment law, contractual obligations, and fair work regulations. Employers must ensure compliance with legal frameworks to avoid disputes, protect their business interests, and maintain a fair workplace.
This guide has been written by our Brisbane employment lawyers and provides essential insights into the legal and practical considerations for dismissing executives in Australia.
Key Takeaways
- Understand the Fair Work Act 2009 (Cth) and its implications for executive dismissals.
- Ensure compliance with employment contracts, including notice periods and termination clauses.
- Use restraint of trade clauses to protect legitimate business interests.
- Follow procedural fairness when dismissing for misconduct or performance issues.
- Consider the impact of dismissal on succession planning and business operations.
Why Executive Dismissals Require Special Attention
Executive dismissals are not only legally intricate but can also have significant operational and reputational impacts on a business. Unlike other employees, executives often have high salaries, unique contractual terms, and access to sensitive business information. Employers must balance their legal obligations with protecting their business interests while ensuring procedural fairness.
Understanding the Legal Framework for Executive Dismissals in Australia
Unfair Dismissal Protections
Under the Fair Work Act 2009 (Cth), executives earning above the high-income threshold (AUD $162,000 as of 2023) and not covered by an award or enterprise agreement are generally ineligible to claim unfair dismissal. However, they may still pursue claims for adverse action or breach of contract.
General Protections
Employers must not dismiss executives for exercising workplace rights or on discriminatory grounds. Breaching these protections can lead to significant penalties under the Fair Work Act
Redundancy and Restructuring
If the dismissal is due to redundancy, employers must ensure that:
- The redundancy is genuine as per the legal definition.
- Reasonable attempts have been made to redeploy the executive within the company.
Key Considerations Before Dismissing an Executive
1. Succession Planning
Before initiating dismissal, assess:
- The impact on staff and business units reporting to the executive.
- How to capture the executive’s institutional knowledge.
- Strategies to address operational gaps.
- The timing of dismissal to minimise disruption.
2. Compliance with the Company Constitution
If the executive is a director or company secretary, ensure:
- Removal complies with the company constitution.
- Notification to ASIC within 28 days of removal.
- Adherence to shareholder agreements if the executive holds shares.
3. Employment Contracts
Review the executive’s employment contract for:
- Termination clauses, including notice periods and grounds for dismissal.
- Conditions precedent to dismissal.
- Potential claims for breach of contract if terms are not followed.
4. Notice Periods and Garden Leave
Executives often have extended notice periods (3–12 months). Employers may place the executive on garden leave, where they remain employed but are not required to attend work. Ensure:
- The employment contract allows for garden leave.
- Full remuneration and entitlements are provided during this period.
5. Restraint of Trade Clauses
Restraint clauses prevent executives from joining competitors or starting competing businesses. To enforce these clauses:
- Ensure they are reasonable in duration, geographical scope, and purpose.
- Use cascading clauses (e.g., multiple timeframes or regions) to improve enforceability.
- Reinforce obligations through a deed of release.
6. Protection of Trade Secrets
Prevent misuse of trade secrets by:
- Placing the executive on garden leave to restrict access to sensitive information.
- Including clear definitions of trade secrets in employment contracts.
- Pursuing legal action if trade secrets are misused.
7. Bonus Entitlements
If the executive is entitled to bonuses, ensure compliance with the employment contract, even if they are on garden leave. Failure to honour bonus entitlements can lead to breach of contract claims.
8. Share Buybacks
If the executive holds shares, comply with shareholder agreements regarding valuation and buyback mechanisms. Factor these costs into the dismissal process.
Deeds of Release: A Key Tool for Employers
A deed of release can help resolve potential disputes and reinforce post-employment obligations. Key points to remember:
- Deeds are binding only when signed and delivered by both parties.
- Use a wet ink signature for validity.
- Include an ex gratia payment to strengthen enforceability of restraint clauses.
Case Studies: Lessons from Australian Courts
Just Group Ltd v Peck
This Victorian Supreme Court case involved the enforcement of a non-compete clause. The executive was restrained from joining a competitor for 6 months post-employment. The court upheld the restraint, citing its reasonableness in duration and geographic scope.
Well-drafted restraint of trade clauses (especially with cascading options) can be enforceable, provided they protect a legitimate business interest and are not overly broad.
Commonwealth Bank of Australia v Barker
In this High Court case, an executive alleged breach of an implied term of mutual trust and confidence when made redundant without proper consultation. The High Court overturned earlier decisions, holding that no such implied term exists under Australian law.
This landmark decision limits executives’ ability to claim unfair treatment unless express contract terms are breached. Always ensure employment contracts are comprehensive and clear.
Frequently Asked Questions (FAQs)
Can an executive earning above the high-income threshold claim unfair dismissal?
No, executives earning above the high–income threshold and not covered by an award or enterprise agreement are generally ineligible for unfair dismissal claims under the Fair Work Act 2009 (Cth).
What is garden leave, and when can it be used?
Garden leave is a period during which an employee is not required to work but remains employed and fully remunerated. It can only be used if expressly or impliedly allowed in the employment contract.
Are restraint of trade clauses enforceable in Australia?
Yes, but only if they are reasonable in scope, duration, and purpose. Cascading clauses improve enforceability by providing alternative timeframes or regions.
What happens if an executive misuses trade secrets?
Executives who misuse trade secrets may face legal action and be liable for damages. Employers should take preventive measures, such as garden leave and clear contractual definitions.
Do I need to notify ASIC when dismissing a director?
Yes, if the executive is a director or company secretary, you must notify ASIC within 28 days of their removal.
