Dismissing staff isn't easy, but it's sometimes necessary for the sake of your business.
As an employer you have certain legal obligations when terminating someone's employment. Following proper process should help you avoid former employees claiming unfair dismissal or unlawful termination.
Fair reasons to terminate employment
Fair reasons to terminate an employee's contract include:
- poor performance
- dangerous behaviour
- refusing to follow instructions
- no further need for the position (redundancy or retrenchment)
What is unfair dismissal?
Unfair dismissal occurs when:
- there's no valid reason for the dismissal, or
- you haven't given the employee a warning or a fair chance to improve their performance
Another form of unfair dismissal is if the employer:
- makes a position redundant
- retrenches the employee
- hires a new employee to do the same duties shortly after.
When can an employee claim unfair dismissal?
An employee can claim unfair dismissal if the business employs:
- fewer than 15 staff (excluding irregular casuals) and the employee has worked there for 12 months or more, or
- 15 or more staff (excluding irregular casuals) and the employee has worked there for 6 months or more
The number of employees is based on a simple headcount (excluding irregular casuals), not per full‑time equivalent.
Employees have a maximum of 21 days from the date of dismissal to lodge an unfair dismissal claim.
What is unlawful termination?
Unlawful termination applies to all employers in the following situations:
- An employee is dismissed or made redundant for a prohibited reason (usually discriminatory).
- An employer fails to give or pay proper notice.
- An employer dismisses 15 or more employees without first notifying Services Australia.
Required notice period for dismissal
The required notice period for dismissal varies depending on how long your employee has worked for your business.
If you want the employee to stop working immediately or before the end of the notice period, you can choose to pay 'payment in lieu of notice'. This is money equal to the wages for the notice period.
Providing fair warning for dismissal
It's important that you communicate well with your staff during difficult periods.
While many people quote a 'three strikes' policy for fair dismissal, this isn't a legal requirement. However, before you dismiss an employee, you should give them fair warning and a reasonable chance to reach the standards you set.
You might also offer extra training or guidance to help them improve their performance.
You don't need to give warnings or notice if the employee has committed gross or serious misconduct.
Instant dismissal for misconduct
An employee can be instantly dismissed for gross or serious misconduct such as:
- being intoxicated, or
- refusing to carry out a lawful and reasonable instruction
You should still give them a fair hearing about the circumstances surrounding the incident.
Under some awards or agreements instant dismissal can affect their final payment. For example, depending on the conditions, you may not have to pay their pro rata long service leave or payment in lieu of notice.
Process for discipline and dismissal
Your HR policy manual should set fair and clear procedures for discipline and dismissal so staff know what to expect.
If you don't have a policies and procedures manual, use our template to get started:
As part of the dismissal process, you might consider conducting an exit interview. Exit interviews are an ideal opportunity to discover parts of your business that need improving from departing employees.
Our sample exit interview template has examples of questions to ask during an exit interview. You can adjust the questions to fit your business's needs.
Small Business Fair Dismissal Code
The Small Business Fair Dismissal Code applies to businesses with fewer than 15 employees (excluding irregular casuals). The Code contains a checklist to help employers comply with the Fair Dismissal Code when terminating an employee.
Calculating final payments
Your employee is entitled to the termination payments under state and federal law and their award, agreement or contract.
Their final pay often includes:
Most businesses with fewer than 15 staff don't have to pay severance or redundancy pay (except for some pre-March 2004 awards).
Breaching the National Employment Standards
You will be in breach of the NES if you:
- don't give the correct amount of notice to an employee
- don't pay the correct final payments, such as severance pay
In these situations, either the employee or the Fair Work Ombudsman can take you to the Fair Work Commission to recover money owed. They might also seek to impose financial penalties on you or your business.