Writing a termination letter? Here’s what it must include

Terminating an employee for underperformance or misconduct is a necessary part of any business, but it’s the way it’s handled that determines whether it results in a positive or negative outcome. If you end employment unlawfully, it can leave your business open to immense risk leading to costly and time-consuming unfair dismissal, general protections, and/or discrimination claims. Terminating an employee for underperformance or misconduct is a necessary part of any business, but it’s the way it’s handled that determines whether it results in a positive or negative outcome.

Here, we explain what the first steps towards dismissal are, the pitfalls employers must be wary of, and what a termination letter must include.

You’re dismissed: getting to this point

Before you decide it’s time to terminate an employee, it’s appropriate for you as an employer to address the issues of concern with the employee in question. Whether it’s unsatisfactory performance or conduct, employers should highlight the issues with the employee, remind them of expected performance and behavioural standards, and provide written warnings where necessary.

When it comes to instances of serious misconduct including theft, fraud, or assault, a protracted process of dismissal can be overlooked in favour of immediate termination.

Ending the employment relationship

For serious misconduct, or where the issues raised with an employee who is underperforming or engaging in misconduct haven’t been or can’t be resolved after the employee has had a reasonable opportunity to rectify the situation, an employer may decide it’s time to sever the employment relationship.

Section 117 of the Fair Work Act 2009 (Cth) (FW Act) provides that notice of termination must be provided in writing before the termination takes effect (other than for serious misconduct, casual employees, or employment that has come to an end under a fixed-term contract).

It’s best practice for this written correspondence (aka the termination letter) to outline:

• The period of notice to which the employee is entitled (whether under the FW Act or, if a greater period, under their contract, award, or enterprise agreement).
• Specify whether the employee will be paid in lieu of all or part of their notice period.
• If the employee is required to work the period.
• The employment termination date.

For employees terminated by way of summary dismissal, it should be stated that the employment is terminated immediately and without notice.

What’s the reason?

The reasons for an employee’s termination should always be explained clearly to the employee, who should be allowed the opportunity to respond to the employer’s concerns before a decision is made. The reason for the dismissal is also one of the most critical elements to include in a termination letter. Any ambiguity surrounding the reason for termination may result in unfair dismissal or general protections claims.

Reasons for termination can include:

• Repeated or extended poor performance.
• Misconduct, whether serious or otherwise.
• Breach of contract.
• Inability to perform the inherent requirements of the role.
• Redundancy (employers should have regard to any consultation obligations which may apply if termination is for this reason).

When termination relates to an employee’s extended poor conduct or performance, it’s highly recommended that employers include the following in the termination letter:

• Details of past warnings given to the employee.
• Relevant discussions that occurred before termination.
• References to specific dates of meetings and discussions that can aid in establishing a timeline of events in the event of a future claim.

Finalising an employee’s final pay

It’s also best practice for a termination letter to outline the details of the employee’s final pay. When the employment relationship ends, final remuneration may include the following:

• Any outstanding wages or remuneration still owing.
• Any pay in lieu of notice of termination (if applicable).
• Any accrued but untaken annual leave and long service leave entitlements.
• The balance of any time off in lieu of overtime (TOIL) that the employee has accrued by not yet taken.
• Any redundancy pay or associated entitlements if the employee has been made redundant and is eligible.
• Any bonuses or incentive payments the employee may be eligible to receive.

Employers must comply with any requirements under a contract, modern award, enterprise agreement, or statute to pay an employee’s final remuneration within a specified timeframe.

What else should be included in a termination letter?

To help achieve a fair and compliant process, and to minimise the risk of potential claims, employers issuing a termination letter should ensure:

• the letter avoids any reference to an employee’s protected attributes (e.g., age, gender, pregnancy, or disability etc.);
• they keep a copy of the termination letter as a business record;
• they seek advice if unsure about any part of the termination process.

Where appropriate, the employer may also wish to reiterate any of the employee’s obligations, including to return any company property, or any post-employment obligations.

Don’t let a poorly handled termination come back to bite you. Follow best-practice processes, and seek professional advice when you’re not sure of something, and you’ll be setting yourself (and your business) up for the best possible outcome. Our team of HR experts can help you at every step of the way. Our 24/7 HR Advice Line is ready to help and our industry-leading software will ensure you’re 100 per cent compliant with hundreds of legally sound workflows, checklists and templates. For added peace of mind, a comprehensive HR compliance audit can help identify any gaps in your processes and reduce the risk of costly termination claims.