Termination of employment

1 Feb

Written By For Good Digital

Most claims in relation to termination of employment fall into three categories:
1. unfair dismissals under the FW Act;
2. breach of general protections provisions involving dismissal under the FW Act; and
3. common law claims for wrongful dismissal.
This section deals with unfair dismissals under the FW Act and common law claims for wrongful dismissal (for information about dismissals prohibited under the FW Act, see ‘General protections’, below). This chapter does not discuss claims under other legislation relating to termination of employment, e.g. equal opportunity legislation (see Chapter 11.1: Discrimination and human rights).

Under section 385 of the FW Act, a person has been ‘unfairly dismissed’ if all of the following apply:
1. the person has been dismissed;
2. the dismissal was harsh, unjust or unreasonable;
3. the dismissal was not consistent with the Small Business Fair Dismissal Code (‘Dismissal Code’) (which is only relevant where the employer has fewer than 15 employees); and
4. the dismissal was not a genuine redundancy.
Has the person been dismissed?
For the purpose of section 385 of the FW Act, a person has been dismissed if they:
- were terminated at the employer’s initiative; or
- were forced to resign because of the employer’s conduct or course of conduct (FW Act s 386).
However, a person is not considered to be dismissed, and will not be entitled to a remedy for unfair dismissal, if:
- they were employed under a contract of employment for a specified period, or a specified task, or a specified season, and the employment ended at the end of the period, task or season (e.g. fixed term employees);
- they were employed under a training arrangement for a specified period or for the period of the training and the employment ended at the end of the training; or
- they were demoted but the demotion did not involve a significant reduction in their remuneration or duties (FW Act s 386).
The dismissal was harsh, unjust or unreasonable
To fall within the scope of the unfair dismissal regime, the dismissal must have been ‘harsh, unjust or unreasonable’. This standard is informed by the following factors under section 387 of the FW Act:
- whether there is a valid reason for the dismissal that is connected with the employee’s capacity/conduct (including in relation to sexual harassment);
- whether the employee was notified of the reason for the dismissal relied on by the employer;
- whether the employee was given an opportunity to respond to the allegations made in relation to the employee’s conduct or performance;
- whether there was any unreasonable refusal by the employer to allow the employee to have a person to assist in discussions related to the termination;
- if the termination was related to the employee’s performance, whether warnings were given to the employee;
- the degree to which the size of the employer’s business impacted on the procedures followed in effecting the termination; and
- the degree to which the absence of dedicated human resource management specialists impacted on the procedures followed in effecting the termination.
The dismissal was not consistent with the Small Business Fair Dismissal Code
A separate dismissal regime applies to small employers of less than 15 employees, where the lawfulness of a dismissal is made by reference to the Dismissal Code (FW Act s 388). The number of employees includes the employees of related and associated entities of the employer, but not casual employees (FW Act s 23).
The Dismissal Code provides that a dismissal is fair if the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Therefore, under the Dismissal Code, an employer does not need to prove the misconduct actually occurred or commence a burdensome investigation.
If the employer is a small business employer and the employer complied with the provisions of the Dismissal Code, the termination is deemed to be fair and the elements of an unfair dismissal required for section 385 of the FW Act will not be made out. If the small business employer has not complied with the Dismissal Code, then the necessary elements of section 385 will be made out and the employee may be able to apply for unfair dismissal.
A copy of the Dismissal Code is available on the FWC’s website (see www.fwc.gov.au/issues-we-help/smallbusiness-hub/dismissal-rules-small-business-owners).
The dismissal was not a genuine redundancy
A person’s dismissal is a genuine redundancy if the following requirements are met (FW Act s 389):
- the person’s employer no longer requires the person’s job to be done by anyone because of changes in operational requirements;
- the employer, in dismissing the employee, complied with any consultation obligations in a modern award or enterprise agreement; and
- it was not reasonable to redeploy the person within the employer’s enterprise or within an associated entity.
If an employee’s dismissal is a genuine redundancy, that employee will not be entitled to an unfair dismissal remedy under section 385 of the FW Act.
The FW Act will only entitle an employee to an unfair dismissal remedy if an employee is ‘protected’ from unfair dismissal. An employee is protected from unfair dismissal if any of the following applied to them at the time they were dismissed (FW Act ss 382–384):
1. the employee had completed a minimum period of employment of either one year (for a small business employer) or six months (for an employee other than a small business employer); and
2. either:
  - the employee was covered by a modern award,
  - the employee was covered by an enterprise agreement,
  - the employee’s income was less than the high-income threshold (being $175 000 as at 1 July 2024), or
  - the employee was a regular casual employee of a business other than a small business employer and the employee was employed for more than six months and had a reasonable expectation of ongoing employment on a regular and systematic basis.
Reinstatement
A primary remedy for an unfair dismissal is to reinstate the employee to the same position they held before they were dismissed (or to a comparable position) (FW Act s 390). However, this remedy is not always practical or desired, and may be substituted with an order for compensation, which is more commonly sought by employees for practical reasons (see below).
In certain circumstances, the FWC has the power to reinstate a worker to an equivalent position with an associated entity of the employer (FW Act s 391(1A)).
A reinstated worker can seek compensation for lost wages between the date of dismissal and reinstatement, including any employment benefits that would have continued to accrue without loss of continuity.
Compensation
An order of compensation is regulated by section 392 of the FW Act. The appropriate quantum is assessed by reference to a number of factors, including the employer’s ability to pay compensation, the length of service, any contributing factors by the employee, among other things (FW Act ss 392(2)-(3)). Evidence of shock, hurt or humiliation will not factor into the compensation payable.
Under section 392(5) of the FW Act, the maximum compensation recoverable by an employee is six months’ wages or the lesser amount of either six months’ pay or half the high-income threshold (being $87 500 as at 1 July 2024).
Time limits
An application for a remedy for unfair dismissal must be submitted to the FWC within 21 days after the day on which the dismissal took effect, or such period as the FWC allows (FW Act s 394).
This time limit can be extended by the Commission. The matters that may be considered for an extension of time are set out in section 394(3) of the FW Act, and requires demonstration of exceptional circumstances (although in practice this is not an unduly high threshold for short delays).
Before the unfair dismissal is considered
A number of matters must be decided by the FWC before the merits of an unfair dismissal are considered, including:
- whether the application was made within 21 days (or further period as allowed by FWC);
- whether the person is protected from unfair dismissal;
- whether the dismissal was consistent with the Dismissal Code (if relevant); and
- whether the person was dismissed because of a genuine redundancy (FW Act s 396).
Conciliation conference
After filing an application, the Commission will usually first require parties to participate in a telephone conciliation conference with a FWC conciliator. In a conciliation conference, each party can negotiate in an informal manner and can explore the possibility of reaching an agreed settlement. These discussions are confidential, so as to encourage full and frank negotiation and cannot be brought up at later hearings if the negotiations are unsuccessful.
Fair Work Commission hearing
If a matter is not resolved at a conciliation conference, then the dispute usually proceeds to an arbitral hearing. Unlike in a conciliation conference (which can only resolve by negotiated outcome), a decision at hearing is imposed on the parties by a Commission member.
The FW Act gives the Commission considerable discretion in relation to the method of finalising claims. Appeals to a full bench of the FWC (three FWC members) can be made where there has been an error of law or a significant error of fact (FW Act s 400).
Costs
Generally, the FWC can only award costs against a party if an application or response was made vexatiously or without reasonable cause, or if it should have been apparent to that person that the application had no reasonable prospect of success (FW Act s 611).
In unfair dismissal matters, there is a broader power to award costs if the other party against whom costs are sought has caused those costs to be incurred because of an unreasonable act or omission of the other party in connection with the conduct or continuation of the matter (FW Act s 400A).
More information
The FWC’s Unfair Dismissal Benchbook provides detailed information about the law and procedures of unfair dismissal cases. The FWC’s Fair Hearings Practice Note describes the procedures to be adopted in a hearing in the FWC (see www.fwc.gov.au/hearings-decisions/ practice-notes/practice-note-fair-hearings).

Employees who are not entitled to bring proceedings for unfair dismissal (see ‘People protected from unfair dismissal’, above) may still commence proceedings for wrongful termination of their contract of employment under common law breach of contract.
It is important to note that reinstatement is not an available remedy under common law wrongful dismissal.
In the absence of misconduct or any other circumstances justifying immediate dismissal, an employee is entitled to be given notice in accordance with the written contract of employment (if any).
If there is no express term in the contract for the period of notice, an employee is entitled to rely on an implied term of reasonable notice. The question of what is ‘reasonable notice’ depends on the employee’s circumstances (including their position, seniority, salary, length of service and age).
An employee who can show that their dismissal was wrongful has a claim for damages. The amount of damages may relate to the wages that could have been earned during the ‘reasonable’ period of notice, taking into account whether the employee has subsequently found work.
Suspensions and stand downs under common law
At common law, an employer does not have the right to suspend or stand down employees without pay when they cannot be usefully employed (e.g. there is not enough work to justify their attendance at a workplace). Unless there is a provision in the contract of employment or award to the contrary, an employer must either pay the employee his or her wages during the period or elect to terminate their employment. In the case of the latter, an employer should take careful note of the unfair dismissal provisions.
Some awards permit deductions of pay where employees cannot be usefully employed for reasons such as during a strike, a breakdown of machines, or a stoppage of work for which the employer cannot reasonably be held responsible.
Stand downs under the Fair Work Act
In contrast to the common law position on stand downs, Part 3-5 of the FW Act allows an employer to stand down an employee during a period in which the employee cannot be usefully employed.
Under the FW Act, the circumstances in which an employee can be stood down include industrial action, machinery breakdown, or a stoppage of work for any cause for which the employer cannot reasonably be held responsible. In these circumstances, the employer is not required to pay the employee for the stand down period (FW Act s 524).
Employees are not entitled to access personal/carer’s leave (also known as sick leave) or compassionate leave during a period in which they are stood down without pay under the FW Act.