This country-specific Q&A provides an overview of Employment & Labour Law laws and regulations applicable in Australia.
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?
In Australia, an employer may lawfully terminate an employment relationship without providing a reason any time before the minimum employment period has been completed. If a business employs 15 or more employees, the minimum employment period is six months. For small business employers(less than 15 employees) the minimum period is 12 months.
After an employee has completed the minimum employment period, an employer must provide a valid reason for dismissal, if the employee:
is covered by a modern award;
is covered by an enterprise agreement; or
has an annual rate of earnings below the high income threshold (which for FY2019/20 is $148,700).
If there is no valid reason provided for dismissal, or an employee was not notified of the reason for dismissal and given a chance to respond, the dismissal can be challenged in the “unfair dismissal” jurisdiction of the Fair Work Commission.
The valid reasons for terminating an employment are:
inability to perform the inherent requirements of the role due to illness or injury; and
Most executive or senior employees working in professional or managerial roles are likely to be excluded from this jurisdiction. However, the need for providing reasons to terminate these employees may nonetheless arise from the contract of employment.
Although senior employees may not be able to access the unfair dismissal jurisdiction, they may still bring claims for unlawful discrimination or a breach of the “general protections”under the Fair Work Act 2009 (Cth) (the “FWA”).
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
Under the FWA, a redundancy occurs when an employee’s employment is terminated at the employee’s initiative because the employer no longer requires the role performed by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour.
Courts have noted that redundancies may arise “because of economic circumstances, technological change or company restructure” and share a “common element of unexpected termination.”
Further, if an employee has access to the unfair dismissal regime, redeployment of such an employee must be considered with the employer or an associated entity. Under the FWA, an employer has a positive obligation to redeploy an employee where it would be reasonable in all the circumstances to do so.
Employers must also ensure that the correct notice and redundancy pay are made in accordance with the FWA. The amount required to be paid in a redundancy payment increases according to the length of service of the relevant employee.
Redundancy pay is not required if the employee’s period of service with the employer is less than 12 months or the employer is a small business employer.
All modern awards and enterprise agreements have a consultation process for when major workplace changes such as redundancies occur. Consultation requirements include:
notifying the employees who may be affected by the proposed changes;
providing the employees with information about these changes and their expected effects;
discussing steps taken to avoid and minimise negative effects on the employees; and
considering employees ideas or suggestions about the changes.
Some modern awards also include industry–specific redundancy schemes which allow an employer to offset redundancy entitlements through contributions to those schemes.
When implementing redundancies of 15 or more staff, an employer must give written notification the Department of Human Services (Centrelink).
Often employees will request that their separation be characterised as a redundancy due to the favourable tax treatment of redundancy payments. Employers who agree to these requests bear a significant risk of becoming the subject of an inquiry from the Australian Tax Office or the Fair Work Ombudsman. Therefore, there is a crucial need to understand what constitutes a “genuine redundancy” to avoid large penalties.
A further consideration when considering redundancies is the ability to make an application to reduce the amount of any redundancy payments to a specified amount (which may be nil) if the employer secures “acceptable alternative employment” for the employee. Whether or not a role is an “acceptable alternative” depends not only on the value of the work, and the employees’ capacity to carry out that work, but also on whether the work was of a like nature.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
When negotiating for the sale and purchase of a business, the vendor and purchaser must negotiate whether the purchaser will take the business with or without its existing employees. When transferring employees, the sale of business provision in the FWA will be enlivened.
When workers are terminated as a result of the business sale, the vendor is responsible for honouring allof the existing employees’ accrued entitlements, notice of termination entitlements and redundancy payments.
What, if any, is the minimum notice period to terminate employment?
The minimum notice period required to terminate employment will be determined by a range of factors.
The statutory minimum set out in the Fair Work Act depends on the length of service:
1 year of less:1 week
1 – 3 years:2 weeks
3 – 5 years: 3 weeks
5+ years: 4 weeks
If an employee is over 45 years old and has worked for a business for over 2 years, the employee will be entitled to 1 extra week of notice.
A modern award, enterprise agreement or employment contract may provide for a longer notice period than the legislated minimum.
For senior management and executive employees, the contract will typically provide a much longer notice period, ranging from three to 12 months.
If a contract is silent as to the required notice period, then reasonable notice must be provided to the employee. This is usually significantly longer than the statutory minimums.
If an employee is fired for serious misconduct (such as theft, fraud, criminal conduct) the notice period will not apply to them.
Casual employees and employees terminated at the conclusion of a fixed term contract are not entitled to notice.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
It is open to an employer let the employee work through their notice period, provide payment in lieu of notice or a combination of the two. If the employee does not wish to work out the notice period, an employer can agree to reduce the employee’s notice period. If the employer does not wish to reduce the notice period, the employee may resign and provide their minimum notice required to be given to the employer.
An employer may choose to give more notice than required, however the employee is only obliged to work out the required minimum notice period.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to say at home and not participate in any work?
An employer can require an employee to be on “garden leave” if the contract expressly provides for it. A well–draftedcontract will grant the employer a wide discretion on when and for how long an employee can be placed on garden leave, including in contexts other than of serving out a notice period,for example, when standing down an employee pending an investigation. It is also open for an employer and an employee to come to an agreement on the taking of garden leave if the employment contract does not provide for it.
Courts have held on occasion that certain employers have an implied power to direct an employee to take garden leave.However, this is dependent on the circumstances of the employment, and is usually only successful for fixed term employees or senior management with access to confidential information.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.
To achieve an effective termination of the employment relationship, an employer must provide an employee with written notice of their last day of employment. This written notice can be delivered personally, left at or sent to the employee’s last known address.
If the employee is eligible for protection from unfair dismissal, the employer must provide reasons for the dismissal and allow the employee to respond to those reasons.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If an employer has provided an invalid notice of termination, it will not operate to end the employment contract. An invalid notice may arise when the employer gives an insufficient notice period ordoes not fill other specified requirements under an award or contract.
If an employer does not give reasons for dismissal and an employee is eligible for unfair dismissal protection, the dismissal is valid. However, the employee may challenge the dismissal as being “unfair”and seek reinstatement or compensation.
How, if at all, are collective agreements relevant to the termination of employment?
Collective agreements (called “enterprise agreements” in Australia) may be relevant to termination in that they may provide a different minimum notice period higher than the “safety net”notice periods under the FWA, and may contain a provision outlining a particular process to be followed in order to terminate employment.
Does the employer have to obtain the permission of or inform a third party (eg local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
It is unlawful for an employer to take adverse action (including termination) on the basis of a protected attribute. These include:
physical or mental disability;
family or carer’s responsibilities;
national extraction; or
However, this does not include action that is not unlawful under any anti-discrimination law in force in the place where the action is taken, or action taken because of the inherent requirements of the particular position concerned.
Sexual harassment is prohibited under the Sex Discrimination Act1984 (Cth),as is the victimisation of employees who have made a complaint of sexual harassment.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
The prohibition on discrimination is a civil remedy provision meaning that aCourt may impose penalties on an infringing employer, or grant other orders including reinstatement or compensation to an affected employee.
A common scenario where a discrimination claim made in the context of termination, is that discriminatory criteria were relied on in selecting positions for redundancy for example age, gender or parental responsibilities. Another common risk is claims for disability discrimination when terminating an injured or unfit employee.
It is also open to employees who have suffered discrimination to make a complaint to the Australian Human Rights Commission, although this jurisdiction does not have the ability to make or enforce orders against employers.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
Certain workers are entitled to protection from dismissal if they fall within a protected category at a point in time.For example, an employee cannot be terminated in the first three months of an absence if they are absent from work because of illness or injury.
Workers who have been injured at work and are receiving Workers Compensation payments are protected from termination during a certain period. The time period and exact rules vary from state to state.
Employees on parental leave who have worked at a business for over 12 months prior to taking leave have a “return to work guarantee” which means that they are entitled to their job on return to the work force, or if that job no longer exists, a job that is substantially similar based on position and pay. However, it is still possible for an employer to implement a “genuine redundancy” provided that they have first consulted with the employee on parental leave.
Workers who are employed on a fixed term contract (without a notice period) are entitled to be paid out for the remainder of the contract term if terminated early.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
Whistleblowers who have reasonable grounds to suspect misconduct, are protected from detriment.This includes dismissal, demotion or victimisation as a result of the whistleblower making a disclosure.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
The amount of anyfinancial compensation required to terminate an employment relationship depends on the nature of the employment relationship and the mode of termination.
In the case of a redundancy, the employer will be required to make a redundancy payment as described above.
All accrued entitlements including accrued annual leave and pro rata long-service leave (if applicable) must be paid out on termination.
“Golden handshakes” may be customary in certain industries or employers for executive level employees.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
It is possible to enter into a deed of release where an employee is paid a certain sum to waive his or her rights to bring any legal claims against the employer.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
It is possible to restrain workers from working for a competitor for a period after the employment relationship ceases to the extent that it is reasonable to protect an employer’s legitimate business interests. What is reasonable will depend on the particular factual circumstancessurrounding the employment relationship including:
how the contract was terminated;
length and geographical area of the restraint;
the seniority of the employee;
the employee’s access to confidential information;
the employee’sbusiness relationships, knowledge and influence over clients;
The terms of the restraint will usually be contained in the contract of employment or a deed of separation.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
A well–drafted employment contract will expressly provide thatobligations of confidentiality will survive termination of the employment relationship.It is also commonto enter into a deed of separation either reinforcing the continuing obligations of confidentiality orprovidingrevised confidentiality obligationsif appropriate.
If an employee breaches or intends to breach their obligations of confidence, the employer may take legal action to seek an injunction, damages or an account of profits.
Are employers obliged to provide references to new employers if these are requested?
There is no duty in Australia for an employer to provide a reference for a former employee. There are risks involved with providing references asan employer may be liable for defamation if a reference is inaccurate or damaging. It is also possible that a new employer may suefor negligence if the employer does not disclose issues which may cause harm to the new employer.
For this reason, it is good practice to provide departing employees with a statement of service. In some cases, the Federal Government may require employers to provide an Employment Separation Certificate, for example when a former employee is seeking unemployment benefits.
What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
The most common difficulties arise when terminating employees who are protected from unfair dismissal jurisdiction. In order to mitigate the risk of a dismissal being deemed unfair, employers should ensure that best practice processes are followed leading up to termination, and everything is communicated and explained clearly and in writing to the employee.
Under-performing employees must be carefully managed and given a chance to improve their performance. Employees who are terminated for misconduct should be given a chance to explain their conduct. Particular care should also be exercised when considering terminating an employee who can no longer perform the inherent requirements of a role due to illness or injury.
Out-of-hours conduct and social media use have also been difficult issues for employers to manage in recent times highlighted by the high-profile case of an international rugby player being terminated for making offensive and discriminatory social media posts. While these cases will never be easy and will usually be divisive no matter what decision an employer takes, the best way to manage these risks is by having up-to-date and appropriate policies.
Are any legal changes planned that are likely to impact on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
As far as we are aware, there are no legal changes planned that are likely toimpact on the way employers in Australia approach termination of employment. However, the significant changes to the annualised wages provisionscontained incertain modern awards which impose a number of record-keeping and audit obligations on employer will also create an obligation to conduct a review and reconciliation of an employee’s salary on termination of employment to reconcile any additional payments required to comply with the award for those employees paid under the annualised wages provisions.