Termination of Employment Contracts in Australia

Grounds for Termination

The grounds for and process of termination in Australia are dealt with by the Fair Work Act 2009 (Cth) (“Fair Work Act”), provided that the employee in question is covered by the Fair Work Act and is not subject to the exemptions which apply in relation to dismissals.

The Fair Work Act provides that the grounds for dismissal can include capacity, performance, misconduct (including serious misconduct) and redundancy. In addition to a valid reason for dismissal, the dismissal must be fair, in that it is not “harsh, unjust or unreasonable”. The Fair Work Act also provides that employees must not be dismissed on the basis of a protected attribute or as retaliation for exercising a workplace right.

Employer obligations in relation to termination of employment may also be contained in awards, enterprise agreements and contracts of employment.

Finally, collective dismissals are not applicable in Australia.

Individual Dismissals

a. Is severance pay required?

Severance pay may be required if the employee has been made redundant and has an entitlement under the Fair Work Act, an award, enterprise agreement or contract of employment.

Dismissal with Notice

A performance related dismissal requires the giving of notice, or payment in lieu of notice if the payment in lieu is allowed by the contract itself. “Notice” refers to the period of time between notifying the employee that the employer wishes to dismiss them and the time when the contract comes to an end.

Where payment is made in lieu of notice, the date of termination is the date on which the notice is given, and the moneys are paid to the employee.

Where the employer gives notice to an employee, but puts the employee on “garden leave”, wages are paid in the usual manner throughout the notice period and the employment does not end until the expiry of that period.

Notice will be payable (or must be worked out) in all cases unless the employee is guilty of serious or gross misconduct.

Statutory minimum periods of notice are specified in the Fair Work Act. As noted above, the employment contract often provides an entitlement that is more generous than the statutory minimum period of notice. Where the contract does not specify a period of notice, the employee may be entitled to a period of “reasonable notice” which, for longstanding employees, may be more generous than the statutory minimum.

Summary Dismissal 

Not all acts of misconduct will justify summary dismissal (that is, dismissing the employee immediately, without notice). It is a question of degree, taking into account whether the misconduct exhibits an intention by the employee to no longer be bound by the employment contract.

In order to summarily dismiss an employee, the employee’s misconduct must be willful and demonstrate that the employee has disregarded an essential condition of the contract of employment.

In Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698 at 700, it was noted: “One act of disobedience or misconduct can justify dismissal only if it is of a nature that goes to show (in effect) that the servant is repudiating the contract, or one of the essential conditions … the disobedience must at least have the quality that it is ‘willful’. It does (in other words) denote a deliberate flouting of the essential contractual conditions.”

In many circumstances, however, one act of misconduct will not justify summary dismissal.

Separation Agreements

a. Is a Separation Agreement required or considered best practice?

Where an employee, whose employment has terminated (for whatever reason), receives a payment that is higher than the employee’s minimum legal entitlements, it is almost always advisable to seek that a separation agreement (commonly known as a deed of release in Australia) be executed by the employee in exchange for that additional payment.

The execution of the separation agreement will reduce (but not entirely remove) the overall degree of exposure of the employer from adverse legal consequences arising from the termination of employment, including from the causes of action below.

b. What are the standard provisions of a Separation Agreement?

A properly drafted Separation Agreement (which includes a release) will ensure that:

• the employee acknowledges that their termination package is in full satisfaction of any claims they may have against the employer; and
• the employee releases the employer from liability under any such claims.

The following terms are standard in a separation agreement:

• release and indemnity;
• non-disparagement obligations; and
• confidentiality obligations.

Each of the above terms can be can drafted such that they are in favour of a particular party, or they can be mutual.

c. Does the age of the employee make a difference?

The age of an employee does not affect Separation Agreements in Australia. It is however necessary to consider the employee’s capacity to understand the effect of entering into a deed of release. Employees who are very young, very old or subject to some disabling factor may lack capacity to enter into the deed. In such circumstances the deed may be voidable.

d. Are there additional provisions to consider?

There are various other terms that are required, and others that are advisable, including with respect to how a separation agreement must be executed (this depends on the applicable State or Territory) and who may execute the document on behalf of a company.

An employer may wish to include provisions dealing with return of company property, disclosure of confidential information, future competition with the employer’s business and future entitlement to revenue bonuses or share schemes.

Remedies for Employee Seeking to Challenge Wrongful Termination

Wrongful Dismissal

The common law action of “wrongful dismissal” is available to all employees. However, due to the cost of pursuing a claim in the civil courts, it is not often pursued. Those employees who are eligible to pursue a claim of “unfair dismissal” through the Fair Work Commission will generally choose that option, as it is a much cheaper and quicker course of action.

Damages for wrongful dismissal can, in some circumstances, be limited to the amount of notice provided in the employee’s contract of employment or, if no period of notice is specified, “reasonable notice”. There are some exceptions, which allow for greater damages to be awarded, depending on the circumstances. This is particularly so, where under the contract, the employee had a reasonable expectation of employment for a long period of time.

A number of factors are taken into account in determining what amounts to “reasonable notice” in the circumstances, for example:

• evidence of industry practice or custom;
• the status or importance of the position;
• the size of the salary;
• the nature of the employment;
• the length of the employee’s service in that position;
• the employee’s age and educational qualifications;
• the professional standing of the employee;
• the employee’s degree of job mobility;
• the expected length of time it would take the employee to find alternative employment;
• the likely period the employee would have continued, but for the dismissal, in the employment;
• whether the employee had given up a secure job to take up the position with the present employer;
• the employee’s eligibility for superannuation benefits.

Whether the notice is reasonable is determined at the time the notice is given, and not at the time the contract is made.

The Fair Work Act: Unfair Dismissal

Under section 390 of the Fair Work Act, a dismissed employee may apply to the Fair Work Commission for relief on the basis that their dismissal was “harsh, unjust or unreasonable”. This is commonly known as an unfair dismissal claim. The legislative intention underlying the unfair dismissal provisions, as set out in section 381 of the Act, is to provide employers and employees with a “fair go all round”.

The federal unfair dismissal regime is the primary statutory remedy available to dismissed Australian employees. State industrial legislation also includes unfair dismissal provisions. However, following the broad exclusion of State laws introduced by the Work Choices reforms and maintained by the Fair Work reforms, most Australian employees can no longer access these provisions.

An employee who has been dismissed may have grounds to bring an unfair dismissal claim under the Fair Work Act provided that:

• there is no valid reason for the termination that relates to the employee’s performance or conduct;
• the employee has completed the minimum employment period;
• the employee earns less than $167,500 per year; and
• the termination was not as a result of a genuine

The Fair Work Act contains a specific definition of “genuine redundancy” for the purposes of excluding certain employees from the unfair dismissal protections, namely, a dismissal will be a genuine redundancy if each of the following criteria are satisfied:

• the employer no longer required the employee’s job to be performed by anyone because of changes in the operational requirements of its enterprise;
• the employer complied with any award or agreement consultation requirements; and
• it would not have been reasonable in the circumstances for the employee to be redeployed within either the employer’s enterprise or an associated

The Fair Work Commission states that the key steps in the unfair dismissal process are as follows:

• the employee lodges an application;
• the application is checked to ensure it is complete and valid;
• the employer is notified of the application;
• the Commission conciliates the application to try to resolve the dispute;
• an application that cannot be resolved at conciliation is then determined by the Commission at conference or hearing.

Potential remedies for unfair dismissal include the person’s reinstatement, or the payment of compensation (capped at the lower of six months’ salary or $83,750), if the Fair Work Commission is satisfied that the person was protected from unfair dismissal at the time of being dismissed, and found that the person has been unfairly dismissed.

Remedies for Unfair Contracts

Whilst the above protections operate in respect of employees, independent contractors are not without protections.

The Independent Contractors Act 2006 (Cth) applies to a contract for services which has the “requisite constitutional connection” and therefore relates to performance of work where:

• at least one party to the contract is a constitutional corporation, or the Commonwealth or a Commonwealth authority, or a body corporate incorporated in a territory in Australia; or
• the contract has some connection to a territory in Australia, for example, the work concerned is wholly or principally to be performed in a territory of Australia.

A party to an applicable contract for services may apply to the Federal Court or the Federal Circuit and Family Court of Australia to determine whether the contract is “unfair” or “harsh”. The court has the power to vary or set aside the contract, or provisions within the contract, but does not specifically have the power to award compensation.

Whistleblower Laws

Whistleblowers currently have protections under three legislative instruments at the Federal level:

• the Corporations Act;
• the Public Interest Disclosure Act 2013 (Cth) (disclosures in respect of the Australian Public Service, statutory agencies, Commonwealth authorities, the Defence Force and contractors); and
• the Fair Work (Registered Organisations) Act 2009 (Cth) (disclosures about corruption or misconduct in unions and employer organisations).

Whistleblowers can also rely on safeguards under the general protection provisions of the Fair Work Act, if their disclosure pertains to a complaint or inquiry related to their employment, and the protections against “discriminatory conduct” for a “prohibited reason” under the Work Health and Safety Model Laws.

To address criticisms that the existing laws, in particular the private sector whistleblower protections, were insufficiently broad to fully enable whistleblowers to come forward, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2019 (Cth) was passed in 2019. The Act expanded the whistleblower protections in the Corporations Act to provide greater protections for whistleblowers who report misconduct about companies and company officers.