Terminating an employment contract in Australia is lawful when you have a valid reason, follow a fair process, and pay the correct notice and final entitlements. Get any of those wrong and your business can face an unfair dismissal claim, a general protections (adverse action) claim or an underpayment dispute.
In this guide, our employment contract lawyers explain what employers need to check before ending employment, the lawful ways to do it, and how to handle the most common scenarios we see: probation, underperformance, misconduct and redundancy.
Before you terminate: an employer checklist
Work through these steps before you make a final decision. Each one reduces your exposure if the employee later challenges the dismissal.
- Read the employment contract: Check the notice clause, any probation clause, payment in lieu of notice, and post-employment restraints.
- Identify the industrial instrument: Find out whether a Modern Award or enterprise agreement covers the role. It may set notice, redundancy consultation and final pay timing.
- Check unfair dismissal eligibility: Confirm the employee’s length of service, your business size, and whether they earn under the high income threshold (see below).
- Confirm a valid reason: The reason must be sound, defensible and related to the employee’s capacity or conduct, or to a genuine redundancy.
- Rule out a prohibited reason: Make sure the decision is not connected to a workplace right, a complaint, pregnancy, illness, carer responsibilities, union membership or another protected attribute.
- Follow your policies: If your disciplinary or performance policy sets a process, follow it.
- Give the employee a chance to respond: Put the allegations or concerns to them in writing and consider their answer before deciding.
- Allow a support person: Do not unreasonably refuse a request for a support person at meetings about dismissal.
- Calculate notice and final pay: Work out the notice period, leave payouts, redundancy pay and superannuation.
- Document everything: Keep file notes of meetings, warnings, emails and the reasons for your decision.
Lawful ways to end an employment contract
An employment contract is a legal agreement, so it can only be ended on recognised grounds. For employers, these are the main options.
Method | When it applies | Notice required? | Main risk |
Termination with notice | A valid reason relating to capacity, conduct or operational needs | Yes, the greater of the contract, award or NES minimum | Unfair dismissal if the reason or process is unfair |
You want the employee to finish immediately | Paid out instead of worked | Underpaying if the full rate of pay is not used | |
Summary dismissal | Serious misconduct, such as theft, fraud, assault or a serious safety breach | No | Claim that the conduct was not serious enough, or not proven |
Mutual agreement | Both parties agree to end the relationship, often with a deed of release | As agreed | A later claim that the employee was forced to agree |
Redundancy | The job is no longer needed to be done by anyone | Yes, plus redundancy pay where applicable | Unfair dismissal if it is not a genuine redundancy |
Breach of contract
If an employee breaches a fundamental term of the contract, the employer may be entitled to end it. A breach by the employer can also give the employee a right to damages. In practice, most employee breaches are dealt with as misconduct or performance issues, using the process set out below.
Mutual agreement
The employer and employee can agree to end the contract. This is usually recorded in a deed of release, which may include a settlement payment, an agreed reference and confidentiality terms. Importantly, the agreement must be voluntary. If an employee can show they were pressured into resigning, the Fair Work Commission may treat it as a dismissal at the employer’s initiative.
Serious misconduct
Serious misconduct is defined in the Fair Work Regulations 2009 (regulation 1.07).
It includes wilful or deliberate conduct inconsistent with the continuation of employment, conduct causing serious and imminent risk to health and safety or the business’s reputation, theft, fraud, assault, sexual harassment, and being intoxicated at work. It can justify summary dismissal without notice.
Performance-related grounds
An employer can end employment for poor performance, provided the employee has been warned and given a real opportunity to improve. See the underperformance scenario below, and our guide to employment termination scenarios and procedures.
Small Business Fair Dismissal Code
Small businesses, being those with 15 for less employees, may also have options to terminate an employment contract under the Small Business Fair Dismissal Code.
Common reasons for terminating an employment contract
1. The employee is on probation and it is not working out
Ending employment during probation is usually the lowest-risk scenario, but only if the employee has not yet completed the minimum employment period (6 months, or 12 months for a small business). Once they pass that point, even by one day, they can claim unfair dismissal. Diarise the date and make your decision well before it.
A probation clause in the contract does not override the minimum employment period. Notice under the contract or the NES must still be given.
Employees on probation can still bring a general protections claim. This can happen if they allege the dismissal was for a prohibited reason, for example because they made a workplace complaint, took sick leave or are pregnant, or for a discriminatory reason. In these claims the employer must prove the reason was not a prohibited one, and there is no cap on compensation. Record the genuine, lawful reasons for your decision at the time.
2. The employee is underperforming
Underperformance needs to be performance managed before termination. A fair process usually includes:
- specific examples of where performance falls short of the required standard
- clear guidance and support to improve, often through a Performance Improvement Plan (PIP)
- a reasonable period to improve, typically 4 to 12 weeks depending on the role
- regular review meetings, with written outcomes
- a written warning that continued underperformance may lead to termination
- an opportunity for the employee to respond before a final decision.
If the employee has a medical condition, including a mental health condition, take extra care. Consider reasonable adjustments and seek advice before proceeding.
3. The employee's conduct brings your business into disrepute
Whether this justifies dismissal depends on how serious the conduct is, its connection to the workplace, and what your contract and policies say. Out-of-hours conduct, including social media posts, can justify dismissal where it damages the business’s reputation or the employment relationship.
If the conduct is serious enough, summary dismissal without notice may be available.
4. The employee has behaved inappropriately towards a colleague
Your business should have clear policies on workplace behaviour, bullying and harassment, and should actively train staff and enforce them. Where those policies are in place and an investigation substantiates the allegations, serious breaches can justify summary dismissal.
Employers now have a positive duty under the Sex Discrimination Act 1984 (Cth) to take reasonable and proportionate measures to eliminate sexual harassment. Read more in our article, Sexual Harassment: Compliance for Employers.
How you respond to proven misconduct matters as much as the investigation itself. For example, if an investigation substantiates serious harassment by a manager and the business responds only with a warning, the employees affected may feel they cannot safely stay. If one of them resigns, the Fair Work Commission can treat that resignation as a dismissal at the employer’s initiative, leaving the business exposed to an unfair dismissal claim from someone it never intended to dismiss.
5. The employee has stolen from you or a customer
Theft is serious misconduct and can justify summary dismissal. You do not need a criminal conviction, but you must be satisfied on the balance of probabilities (the civil standard) that the theft occurred. Investigate, collect evidence, put the allegations to the employee and consider their response.
You may also report the matter to police and pursue the employee to recover the loss. However, you generally cannot deduct the value of stolen property from final pay. Deductions are only lawful where the Fair Work Act permits them, such as with the employee’s written authorisation. Pay all outstanding entitlements, then pursue recovery separately.
Check every allegation against your own records before you act. Take a finance employee accused of making unauthorised payments. If one payment turns out to be an honest duplicate that the employee has already found and recovered, and another alleged payment never happened, there may be no valid reason for dismissal. The person making the decision should read the evidence themselves rather than rely on a summary. Dismissing on unchecked facts can lead to an order to pay compensation, even where the employee made some mistakes along the way.
6. There is no longer work for the role (redundancy)
A redundancy happens when you no longer require the job to be performed by anyone, because of operational changes to the business. It can also apply where the duties can be absorbed by other employees.
A redundancy is only a genuine redundancy under section 389 of the Fair Work Act if:
- the employer no longer requires the job to be performed by anyone because of operational requirements
- the employer has complied with any consultation obligations in an applicable Modern Award or enterprise agreement
- it would not have been reasonable to redeploy the employee elsewhere in the business or an associated entity.
If any of these are missed, the employee may bring an unfair dismissal claim. Redundancy pay under the NES applies unless the employer is a small business (fewer than 15 employees) or another exception applies. If you plan to make 15 or more employees redundant, you must also notify Services Australia before the dismissals. Learn more about employer obligations under the Fair Work Act.
Redeployment is not limited to vacant roles. If your business uses contractors or labour hire to do work that a redundant employee could perform, the Commission can ask whether it would have been reasonable to bring some of that work back in-house to keep the employee on. Before confirming a redundancy, review those arrangements as well as any open positions, and record why redeployment was not reasonable.
Notice periods, final pay and entitlements
The National Employment Standards (NES) set the minimum notice an employer must give. The contract, award or enterprise agreement may require more, and the higher amount applies.
Length of continuous service | Minimum notice (NES) |
1 year or less | 1 week |
More than 1 year, up to 3 years | 2 weeks |
More than 3 years, up to 5 years | 3 weeks |
More than 5 years | 4 weeks |
Add 1 extra week if the employee is over 45 and has at least 2 years’ continuous service. Notice is not required for casual employees, employees on genuine fixed-term contracts that expire, or employees summarily dismissed for serious misconduct.
Final pay should include:
- outstanding wages, including penalty rates and allowances
- notice, or payment in lieu of notice
- accrued but untaken annual leave, plus leave loading where it applies
- long service leave, where the relevant state or territory law requires it
- redundancy pay, where applicable
- superannuation on ordinary time earnings. Since payday super started on 1 July 2026, contributions on final pay must reach the fund within 7 business days of payday.
Personal (sick and carer’s) leave is not paid out. Under most Modern Awards, final pay must be made within 7 days of the employment ending, or on the last day of work if being terminated immediately. See the Fair Work Ombudsman’s guidance on final pay.
How to run a termination meeting
The termination meeting is where many disputes start, so prepare carefully.
- Prepare the termination letter in advance: Section 117 of the Fair Work Act requires written notice of the day employment ends. State the reason, the end date, notice arrangements and final pay details.
- Hold the meeting in private, in person where possible, with a second manager or HR present as a witness.
- Tell the employee they can bring a support person when you schedule the meeting.
- Be clear and brief: Explain the decision and the reasons. Do not reopen the investigation or debate the outcome.
- Treat the employee with respect: Offer access to an Employee Assistance Program if you have one.
- Cover the practical steps: return of property, system access, final pay, and any continuing confidentiality or restraint obligations.
- Make a file note straight after the meeting, recording who attended and what was said.
Do not terminate by text message or email unless there is no reasonable alternative. The Fair Work Commission has found dismissals by text to be unfair.
Common mistakes employers make
In our experience, these are the errors that most often turn a manageable termination into a claim:
- missing the end of the minimum employment period by a couple of days;
- deciding to dismiss before hearing the employee’s side;
- relying on a vague reason, such as “not a good fit”, with no records to support it;
- dismissing shortly after the employee made a complaint, took leave or disclosed a pregnancy or illness, without clear evidence of an unrelated reason;
- calling a role redundant, then advertising or refilling it;
- skipping award consultation requirements before a redundancy;
- deducting money from final pay without lawful authority; and
- underpaying notice by not using the employee’s full rate of pay.
Get advice before you terminate
A short call before you act usually costs far less than defending a claim. Prosper Law’s employment lawyers help employers review contracts, run performance and misconduct processes, plan redundancies, draft termination letters and deeds of release, and respond to Fair Work Commission claims.
Book a consultation with our employment team or call 1300 003 077.
Frequently Asked Questions
What steps must an employer follow to terminate an employee in Australia?
Have a valid reason, tell the employee about it, give them a chance to respond, allow a support person, then confirm the decision in writing with the correct notice or payment in lieu. For performance issues, you should also have warned the employee and given them time to improve.
What is the minimum notice period for termination in Australia?
Under the NES it ranges from 1 week (1 year’s service or less) to 4 weeks (more than 5 years), plus 1 week if the employee is over 45 with at least 2 years’ service. Your contract or award may require more.
Can I pay an employee instead of giving notice?
Yes. Payment in lieu of notice must equal the full rate of pay the employee would have earned during the notice period. Employers may also offer an ex gratia payment, usually in exchange for a signed deed of release.
Can I dismiss an employee without notice?
Generally, only in cases of serious misconduct, such as theft, fraud, violence or a serious safety breach. You still need evidence and should give the employee an opportunity to respond before deciding.
Can I terminate an employee during probation?
Yes, with the notice required by the contract or the NES. The employee cannot claim unfair dismissal until they complete the minimum employment period, but it is important to remember that they can still bring a general protections or discrimination claim.
If you’re not sure whether terminating during probation is the right choice, reach out to our experienced Brisbane employment lawyers to seek peace of mind.
How long does an employee have to make an unfair dismissal claim?
21 days from the date the dismissal takes effect. The same time limit applies to general protections claims involving dismissal.
What happens in a termination meeting?
The employer tells the employee of the decision and the reasons, confirms the end date and final pay, and hands over the termination letter. It should be private and respectful, and the employee should be able to bring a support person.
Last updated: September 2026.
About the Author
Farrah Motley
Contact an Australian Business Lawyer Today.
Contact us for a free consultation
