It is very important to manage employee separation carefully whether the employee is leaving because of resignation, redundancy or dismissal. First, it minimises the risk of legal problems and secondly, it protects the reputation of both your business and you as an employer. People who leave employment on a pleasant note are more likely to recommend their previous employer.
Employers should use fair procedures when terminating employees as replacing employees is expensive and claims for unfair or unlawful dismissal can be costly and time consuming to defend. Also, what may be seen as an unfair process can affect workplace morale.
Always obtain legal advice before dismissing an employee
||Termination of employment can lead to legal action. Employers who are considering dismissing an employee should always obtain legal advice before doing so.
If an employee resigns, he or she is entitled to any annual leave they are owed, and depending on the terms of the relevant award this may include annual leave loading.
The Pastoral Award 2010 provides for annual leave loading to be paid out on termination.
If an employee has been with you for a number of years they may also be entitled to long service leave. Long service leave is an entitlement under state laws. For more information, visit State Industrial Laws
Whether an employee is bound to give notice depends on the terms of the relevant award or workplace agreement. The Pastoral Award 2010 provides for employees to give the same notice as employers except for the additional week based on age and experience. If the employee does not give notice the employer can deduct notice from the employee’s termination payments.
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Summary or instant dismissal is dismissal of an employee ‘on the spot’ and without notice. Employers should only dismiss without notice if the employee is guilty of deliberate and serious misconduct which is so bad that it would be unreasonable to expect the employer to continue employing the employee. Summary dismissal should be reserved for the most serious cases of misconduct and employers who summarily dismiss an employee should always keep accurate records noting what occurred leading up to the dismissal so that they can defend an unfair dismissal action if necessary.
Serious misconduct could include theft, fraud, assault, being intoxicated at work, refusal to carry out a lawful order or deliberate behaviour which is a serious and imminent risk to the health and safety of a person or the reputation, viability or profitability of the employer’s business. Allegations of theft, fraud or violence should be reported to the police.
Notice or pay in lieu of notice is not required in cases of serious employee misconduct.
However, if the employer has, in the past, allowed similar behaviour to occur without taking any action, the misconduct should not be used to justify summary dismissal. Instead the employer should use a procedure of written warnings before dismissing with notice if there is no improvement. Clearly, this does not apply to criminal offences. Visit Fair Procedures for Termination for more information.
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Dismissal with notice
If the employee’s conduct is not sufficiently serious to justify summary dismissal, or if work performance is unsatisfactory, employers may dismiss the employee with notice.
Federal industrial laws lay down which classes of employees must be given notice. Casual and seasonal employees are excluded.
Notice of termination applies to all employers and is provided for in the National Employment Standards, regardless of whether they are national system employers or non-national system employers.
The Pastoral Award 2010 provides for employees to give the same amount of notice as employers and if they fail to give notice, employers can deduct money from the employee’s termination payments.
Note that employees do not have to give the additional week of notice based on the age of the employee and length of service.
Award-free employees can only be required to give notice if it is a term of an enterprise agreement.
The amount paid for notice will also be determined by the relevant award and is usually the amount the employee would have received for the notice period including shift penalties, allowances, etc.
Paying out notice
||Remember that employers can choose to pay out the notice period and this is usually advisable if the relationship between employer and employee has broken down. The pay should be the amount the employee would have earned had they worked the minimum notice period.
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A dismissal is unfair when there is no valid reason for dismissal, the process used by the employer to terminate the employee was harsh, unjust or unreasonable, or the employee was not given a ‘fair go’.
The federal industrial laws and Western Australian state industrial laws have procedures which allow employees who believe that they have been unfairly dismissed to bring an action for unfair dismissal. Requirements and procedures for lodging and defending unfair dismissal actions vary. For more information about Western Australia's unfair dismissal, visit State Industrial Laws
Unfair dismissal and federal industrial laws
As of 1 July 2009, employees can make a claim for unfair dismissal regardless of the number of employees engaged in the business.
However, employees cannot make a claim for unfair dismissal until they have been employed for a certain period of time called a ‘minimum employment period’.
The ‘minimum employment period’ is different for small businesses and large businesses. A small business is defined as a business which employs fewer than 15 employees including the employee who is being dismissed. Casual employees who are employed on a regular and systematic basis are included in the head count. The 'business' includes all associated businesses.
The minimum employment period for small businesses is 12 months and for all other businesses is 6 months.
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The following classes of employees cannot make an unfair dismissal claim:
- employees earning more than the ‘high income threshold’ who are not covered by an award or workplace agreement;
- employees engaged for a specified task or time if the dismissal takes place at the end of the time or when the task is complete;
- seasonal employees if the termination is at the end of the season;
- the person was demoted but there was not a significant reduction in their duties or pay;
- some trainees;
- short-term casual employees who do not have regular and systematic hours of work and a reasonable expectation of continuing employment.
The ‘high income threshold’ changes in July each year
||The high income threshold is indexed & changes every year on 1 July. As of 1 July 2015, it is $136,700 per annum. Check with the Fair Work Commission to find the latest figure.
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The federal industrial laws which took effect from 1 July 2009 provide a new procedure for small business employers who need to dismiss employees.
||There is now a Small Business Fair Dismissal Code which should be followed by all small business employers when dismissing employees. The code is not compulsory but if it has been followed a dismissal will be taken to be fair by the Fair Work Commission. Download the checklist which employers can complete to ensure that they have complied with the Code (at the end of the Code).
The code also sets out when employers can validly dismiss an employee summarily or without notice. It also sets out when an employer can dismiss an employee with notice and provides guidelines to ensure that the dismissal is fair.
It is recommended that all warnings be in writing and written records kept about each step in the procedure. See fair procedures for termination
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Unfair dismissal claims are lodged with the Fair Work Commission.
Unfair dismissal claims must be lodged with the Fair Work Commission within 21 days of the date of the termination. This time limit can be extended by the Fair Work Commission if there are exceptional circumstances.
Once the claim is received, the Fair Work Commission has the power to make enquiries and discuss the matter with the employer and employee and hold informal conferences if necessary. Formal conferences and hearings can also be held if there are contested facts.
The Fair Work Commission will consider the following when determining if an employee was unfairly dismissed:
For further information about the process for unfair dismissal claims, visit the Fair Work Commission
- was there a valid reason for the dismissal;
- was the person told the reason for the dismissal;
- was the person given any warnings about their performance;
- was the person given a chance to respond to the allegation(s);
- did the employer refuse to allow the employee the opportunity to have a support person present at any discussions about the dismissal;
- the degree to which the size of the employer’s business and the lack of dedicated human resource specialists might have impacted on the procedures followed by the employer;
- did the employer follow the Small Business Fair Dismissal Code (if the employer is a small business).
Redundancy can be considered an unfair dismissal
||A redundancy may also be regarded as an unfair dismissal if the employer could have redeployed the employee elsewhere in the business. See the section on redundancy below.
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Under the federal industrial laws which took effect from 1 July 2009, reinstatement of the employee to the position they held immediately before the dismissal, (or a position which has the same terms and conditions,) is the preferred outcome of an unfair dismissal action unless the Fair Work Commission is satisfied that it is inappropriate. Compensation for lost pay can also be ordered.
If reinstatement is not possible Fair Work can order that compensation of up to 6 months wages or salary be paid to the employee.
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Federal unlawful dismissal laws apply to all employers in Australia, including non national system employers in WA.
Unlawful dismissal occurs when an employer dismisses an employee for a reason based on discrimination (or fails to provide the minimum statutory notice of termination as outlined above).
Termination of employment for one or more of the following reasons (or for reasons including such a reason) is unlawful:
- race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin;
- temporary absence from work because of illness or injury (up to three months with medical certificates if not on paid sick leave);
- maternity leave or other parental leave;
- temporary absence from work for a voluntary emergency management activity, if reasonable; or
- trade union membership or activities or non membership of a trade union or acting as an employee representative.
If an employee makes a claim for unlawful dismissal (for example, they claim to have been discriminated against because of their age) the employer has to prove that the discriminatory reason alleged by the employee was not a reason for the dismissal. This means that the employer will have to prove that there were other reasons for the termination which did not include the discriminatory reason.
If there are no written documents this will be difficult. If the employer has kept records of warnings given and the responses of the employee to the warnings, the employer will be in a better position to prove that the reason for the termination was not based on unlawful or discriminatory grounds.
Unlawful dismissal claims can be very costly and time consuming for employers to defend regardless of the outcome.
Reason for dismissal based on the inherent requirements of position
||It is not unlawful to dismiss an employee for reasons of race, colour, sex, sexual preference, age, physical or mental disability, marital status, family/carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin if the reason is based on the inherent requirements of the particular position concerned. For example, if an employee is injured in a car accident not related to work and cannot drive machinery due to a serious back injury and it is an inherent requirement of the employee’s job that he or she drive the machinery.
Fair procedures for termination
All employees should be told why they are being dismissed and be given a fair opportunity to respond to any allegations of poor performance or misconduct.
||The federal industrial laws which came into effect on 1 July 2009 set out a Code for Small Businesses which should be used when dismissing employees.
Businesses which do not fit the definition of small business and state employers in Western Australia should follow the traditional practice of providing three written warnings, with details of the inappropriate conduct and a time frame allowing for improvement, before dismissing an employee.
All warnings should be in writing and (including warnings given under the Small Business Fair Dismissal Code) should:
- clearly identify the problem and indicate the changes expected;
- state that dismissal might occur if the problem continues;
- set a time in the near future to review the employee’s performance or behaviour; and
- specify a time for improvement and also make it clear that dismissal could still occur in the review period if the employee’s performance is unacceptable.
The best way to prove the procedure has been followed is to keep a signed and dated copy of the written warnings and make a diary entry. If possible the written warnings should be signed by the employee to show they have seen them.
You should also offer an employee the chance to have a support person attend any counselling session with them. This is especially important if the employee has any language or learning difficulties, or for particularly young or old employees.
The selection of employees for termination for redundancy should be fair and employees should be given an opportunity to have their say.
In addition, the federal industrial laws which came into operation on 1 July 2009 require you to consider whether the employee can be redeployed elsewhere in your business rather than being made redundant.
Similarly, a fair and open selection process, recorded in writing, will be of great assistance to an employer who has to prove that a redundancy was not based on unlawful or discriminatory reasons.
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A job becomes redundant when an employer decides that the job the employee has been doing is no longer needed or that fewer employees are needed to do that type of job because of the operational requirements of the employer's business.
Redundancies usually occur in farming where a farmer is retiring, cutting staff to save costs or introducing new machinery or technology.
Redundancy and federal industrial laws
The NES provide for redundancy pay for national system employers as of 1 January 2010.
The NES entitlement for redundancy pay applies to all employers who employ 15 or more employees immediately before termination.
Redundancy may be unfair dismissal
||A redundancy may be regarded as an unfair dismissal if the employer could have redeployed the employee elsewhere in the business.
Employers who intend to make employees redundant should seek advice from their state farming organisation or independent legal adviser.
Additional award terms about redundancy
In addition to the NES, the Pastoral Award 2010 provides redundancy entitlements. Employees who have been given notice of termination due to redundancy are entitled to one day’s paid leave per week of the notice period to look for work. Employers can ask for proof of attendance at a job interview if employees take more than one day off during the notice period.
Also, if employees are transferred to lower paid duties because of redundancy they are still entitled to receive the same period of notice before transferring to the lower duties. Employers can choose to pay the employee the difference between the higher and lower duties for the notice period if they wish.
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In addition to redundancy pay, employees who are made redundant are entitled to the same periods of notice as apply to any dismissal, calculated on the length of continuous service. For further information about notice of termination, visit the National Employment Standards
If any of the employees are members of a union the employer must also notify the union, and enter into discussions about ways to reduce the impact of termination on the employees and the number of employees whose employment is being terminated.
Employees who leave during the notice period do not lose their redundancy pay entitlement but are not entitled to pay in lieu of notice.
All employers who dismiss 15 or more employees (not including employees falling within the exclusions) at one time for economic, technological, structural or similar reasons must notify Centrelink as soon as possible after making the decision and before dismissing any employees.
There are financial penalties for failing to notify Centrelink and unions can complain to the Fair Work Commission and seek orders if not consulted.
The Pastoral Award 2010 also requires the employer to consult with employees and any unions whenever they decide to introduce major changes to the workplace.
If an employer does not comply with these terms, the person dismissed may be able to make an unfair dismissal claim.
Exclusions from notification and consultation requirements
These notification and consultation provisions do not apply to the termination of the following employees:
- employees employed for a specified period of time, for a specified task, or seasonal employees;
- employees whose employment is terminated because of serious misconduct;
- casual employees;
- trainees (other than apprentices) and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement.
Seek advice before dismissing employees
||Employers intending to terminate the employment of 15 or more employees at one time should contact their local state farming organisation or seek legal advice.
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Payments on termination
The following payments may apply when employment is terminated. Payments may differ depending on whether the employer or the employee has terminated the employment.
Payment for accrued annual leave
Accrued annual leave must be paid out on termination under federal and state (WA) laws.
Payment of annual leave loading
State and federal industrial laws do not provide for annual leave loadings but these loadings may be a part of awards. Some awards allow for annual leave loading to be paid on termination and other awards only allow the payment of a loading if annual leave is actually taken as leave as opposed to being paid out on termination.
The federal Pastoral Award 2010 requires annual leave loading to be paid out on termination of employment if any annual leave is paid out at that time.
Payment for long service leave
State and territory laws provide for long service leave entitlements. The length of service required before long service leave falls due or is payable on a pro-rata basis varies significantly and may not be payable on termination when an employee is dismissed summarily for serious or wilful misconduct. Employers are advised to check state and territory laws to be sure of their obligations. For more information, visit State Industrial Laws
For more information about long service leave, you can contact your local state long service leave department:
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Payment for work performed until time of termination
Employees are entitled to be paid for all work performed and other entitlements owing at the time of termination. This could be amounts due for personal/carer's leave taken during the notice period, public holidays or overtime worked during the notice period.
Payment in lieu of notice
The minimum periods of notice of termination and payments which must be made if notice is given are dealt with in the NES
Payment for sick/personal leave
The WA State industrial laws do not provide for cashing out of sick/personal leave.
Under the National Employment Standards cashing out of personal leave is only permitted if there is a term in a workplace agreement or award allowing this and there is a written agreement between the employer and the employee. If so any amounts due must be paid out upon termination otherwise accrued sick/personal leave does not have to be paid out on termination.
The Pastoral Award 2010 does not provide for the cashing out of Personal/Carer’s leave.
The following types of termination payments are not regarded as ordinary time earnings for the purposes of the Superannuation Guarantee Charge and therefore no superannuation is payable on these amounts:
- accrued annual leave, long service leave or personal/carer's leave paid as a lump sum on termination;
- payment in lieu of notice;
- redundancy pay; or
- other payments made by an employer on termination of employment.
Taxation of termination payments
The Australian Taxation Office (ATO) treats some payments made upon termination differently to others. As of July 2007, these payments are called employment termination payments (ETPs).
ETPs are taxed at different rates depending on the age of the person whose employment has been terminated.
Payments that are ETPs, when paid because of termination of employment, include the following:
- payments in lieu of notice;
- payments for unused rostered days off (RDOs);
- payments for unused sick leave;
- a gratuity or ‘golden handshake’;
- compensation for loss of job;
- compensation for wrongful dismissal;
- compensation for permanent disability, other than compensation for personal injury;
- bona fide redundancy and approved retirement scheme payments in excess of the tax-free amount; or
- lump sum payments after the death of an employee.
||Employers who are terminating employees should seek advice from their accountant and/or check the ATO website http://www.ato.gov.au for further information on ETPs.
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People leave employment for various reasons. It’s important to understand why they have left, what ramifications their leaving has on the daily and weekly working operations, the impact on other employees, and how to prevent an unhappy exit from happening again.
One way to understand the reasons for the leaving is via an exit interview. The timing for this interview will differ depending on the circumstances of the employee leaving. If the employee is leaving on a pleasant note, the interview can take place before they finish; if he or she is leaving on an unpleasant note, it may be beneficial to wait a week or month until the situation has cleared up and both the employer and employee can think clearly.
People leaving your employment will be advocates for your business, be it good or bad. It is in your best interests to ensure they leave on good terms and only mention good things about you as an employer.
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