Terminating employment: a guide for employers – Part 2

In part one, we discussed five of the key steps to follow when it’s obvious an employment relationship is becoming unsustainable, and you’ve made the decision that you need to end your employee’s employment. In this follow-up article, we talk about the risks of unfair dismissal and the importance of why you should always have Citation HR’s number in your back pocket.

What is unfair dismissal?

An unfair dismissal is one which was harsh, unjust, or unreasonable. For a dismissal to be fair, the employer must ensure that:

• there is a valid reason for the dismissal and the person was notified of the reason.
• the employee was warned about their conduct/performance concerns before being terminated (unless of course, the employee has engaged in serious misconduct).
• the employee is provided an opportunity to respond to the proposed termination before a decision is made.
• the employee’s response is considered and taken into account prior to formalising the decision.

Why is providing employees with a warning important?

Prior to an employee being terminated, warnings are appropriate forms of disciplinary action when an employee’s performance is unsatisfactory or they’ve engaged in misconduct.

In the case of Phillipson v Fincar Pty Ltd, Ms Phillipson was terminated from her employment for poor performance and bought an unfair dismissal claim to the FWC. While the FWC acknowledged that Ms Phillipson “did not perform due diligence” in relation to her role, the FWC said that there was a “complete absence of formal procedures documenting the way in which the applicant was meant to go about performing her role, which would have contributed to the difficulties that occurred.” Given this, the FWC found that Ms Phillipson was unfairly dismissed, and Ms Phillipson was compensated six weeks’ pay.

There’s no legislative requirement outlining that an employee must be issued a certain number of warnings before being dismissed for something like poor performance.  However, it has often been the case that the FWC has upheld an unfair dismissal claim where an employee wasn’t given an opportunity to respond to performance concerns or to improve their performance over a reasonable period of time.  As such, issuing warnings when appropriate demonstrates an employer being procedurally fair prior to termination.

Had the employer followed the steps as discussed in Part 1, a very different outcome may have occurred.

Access to Unfair Dismissal

1. Employees who’ve been employed for at least the minimum employment period, which is six months for large businesses, or in the case of small businesses (businesses who employ less than 15 employees) 12 months, have access to make an unfair dismissal application.
2. Employees who earn over the high-income threshold, which is currently $175,000 per annum (this gets indexed every 1 July), don’t have the ability to make an unfair dismissal claim unless their employment is covered by a modern award.
3. Casual employees have the ability to make an unfair dismissal claim if their employment is considered to be regular and systematic and they have an expectation of continuing employment.
4. Employees who are engaged on maximum/fixed-term contracts aren’t eligible to make unfair dismissal claims.

This is why during the minimum employment period, employers should carefully assess the employee’s ability for the role and cultural fit because ultimately termination whilst an employee is still within their minimum employment period protects a business from an unfair dismissal claim.

Employers still need to be careful because an employee may have access to bring another claim, such as a general protections claim.

Remedies available to employees

When an employee makes an unfair dismissal claim, there are several stages at which both parties can attempt to settle the dispute. The first opportunity to settle is at a conciliation. However, if an agreement isn’t reached, the dispute will proceed to a conference or hearing before the FWC, which is a costly and time-consuming process for any business.

If an employee has been unfairly dismissed, the remedies that may be sought include:

• Reinstatement (that is, the employee getting their job back).
• Compensation, up to a maximum of six months’ pay (if the FWC is satisfied that reinstatement is inappropriate, and compensation is appropriate in all circumstances).
• Non-financial outcomes such as a written statement of services.

Whilst reinstatement is considered the preferred remedy, often this isn’t possible due to the breakdown of the relationship between the parties after dismissal. If reinstatement isn’t possible, the FWC may order that a business pay the employee the lesser of six months’ pay or half the current unfair dismissal high-income threshold. The high-income threshold for 2024/2025 is $175,000, which means the maximum remedy a business may be required to pay is $87,500. It’s rare that an employer will be ordered to pay the maximum level of compensation, however in the most extreme unfair dismissal cases, this could be a possibility. It’s therefore important that before terminating an employee, you have all your ducks in order and ensure the process you’re following is strict and compliant – this is where Citation HR can help.

 If I don’t follow dismissal procedure correctly, what might be the consequences?

A failure to follow due process when terminating an employee will cost you, so we want you to understand the legal framework by which employers can minimise their exposure to potential unfair dismissal claims.

 Are you thinking of terminating an employee?

If you’re thinking of terminating an employee, we recommend speaking to an expert to make sure you’re not opening yourself up to unfair dismissal claims or general protection claim. You can reach out to Citation HR for a free, confidential, no-obligation chat to see how we can help.