Australia: Termination Of Employment

When an employer ends the employment relationship with their employee, there is potential for the employee to make a number of claims against the former employer. Defending such claims can prove costly. As a result, the risks of any proposed termination should be carefully weighed in light of the individual circumstances and any applicable legislation. This information sheet provides employers with some basic information about the most common claims that can arise when employment is terminated:

  • Breach of Contract
  • Unfair Dismissal
  • Unlawful Termination
  • Freedom of Association
  • Claims under the Trade Practices Act
  • Anti-Discrimination
  • Workers' Compensation.

Breach of Contract

What is Breach of Contract?

When termination occurs, an employer must comply with the terms agreed in the employment contract. Failure to comply with the terms of an employment contract may give rise to an action for breach of contract by the employee. Damages in this context can be open-ended.

Express Terms of the Contract

A contract of employment will generally include express and implied terms. Express terms are those terms that have been specifically agreed upon (in writing or verbally) between the parties. For example, the base salary specified in a contract would be an express term of the contract.

Implied Terms of the Contract

The common law implies a number of terms into the employment relationship that are necessary for its proper operation. For example, an implied duty of fidelity on the employee. Implied terms can also arise by custom and practice where an employer has a history or tradition of acting in a particular way. The law may also imply a term into a contract where it is necessary to give business efficacy to the contract.

Reasonable Notice

Where no notice provision is contained in an employment contract, the common law may impose an obligation on the employer to give the employee reasonable notice of termination (or payment in lieu). What is 'reasonable notice' is an open-ended question and depends, amongst other things, upon the nature of the individual employment, the length of service, the age of employee etc. Failure to provide reasonable notice may give rise to a wrongful dismissal claim, which can prove to be very costly. (For senior employees, awards of damages for reasonable notice have been up to and sometimes in excess of 12 months' remuneration.)

Employment Policies

Policies or handbooks used in the employer's business may also form part of the employment relationship and create binding obligations on the employer. For example, policies concerning disciplinary processes may create binding obligations on the employer to act in a particular way. Noncompliance with these policy obligations can expose the employer to a significant claim for breach of contract.

Industrial Agreements & Awards

Industrial agreements and awards will create specific statutory obligations on an employer with regard to the employment relationship and also in relation to termination (eg notice periods and severance payments upon redundancy). There are dedicated government bodies that monitor compliance with industrial agreements and awards, such as the Workplace Ombudsman.

Unfair Dismissal

What is Unfair Dismissal?

A claim for unfair dismissal is based on the concept that an employer must give an employee 'a fair go all round' when terminating their employment. If an employer fails to do so then the termination may be considered by an industrial commission to be 'harsh, unjust or unreasonable' and therefore compensable.

When does it apply?

Unfair dismissal legislation exists at both state and federal levels. It is important to note that state unfair dismissal remedies are not available to many employees whose unfair dismissal rights on termination, if any, fall under the Workplace Relations Act 1996. The Workplace Relations Act 1996 applies to trading corporations and some other incorporated entities. This information sheet focuses on the Federal jurisdiction under the Workplace Relations Act 1996.

When is termination 'harsh, unjust or unreasonable'?

Key factors in determining if a termination is 'harsh, unjust or unreasonable' include:

  • Whether the employer had a valid reason for terminating the employment; and
  • Whether the employer afforded the employee procedural fairness in connection with the decision to terminate.

Exemptions from Unfair Dismissal

Under the Workplace Relations Act 1996, an unfair dismissal claim will not succeed where one or more of the following exclusions apply:

(a) The employer has 100 employees or less: In determining the number of employees, the calculation will include the employee whose employment has been terminated and any casual employee engaged on a regular and systematic basis for at least 12 months. Where an employer belongs to a 'corporate group' ,the calculation includes any 'related bodies corporate' as defined in the Corporations Act 2001.

(b) Termination occurred within the qualifying period: The legislation sets a default qualifying period of 6 months during which termination will not give rise to a claim for unfair dismissal. The qualifying period can be reduced or extended (if extending it is reasonable) by agreement of the parties at the commencement of the employment relationship.

(c) The employee is dismissed for genuine operational reasons or reasons that include genuine operational reasons: 'Operational reasons' are defined as 'reasons of an economic, technological, structural or similar nature' relating to the employer's business. Therefore, where genuine redundancy is a reason for termination, the employee will be prevented from succeeding in an unfair dismissal claim. Operational reasons need not be the only reason for termination, to qualify for this exclusion.

(d) Other exclusions also exist for other categories of employees: Employees engaged under fixed-term contracts or on contracts for a specified task, certain casual employees, seasonal employees and employees under traineeship agreements are also precluded from making an unfair dismissal claim. Non-award and nonindustrial agreement employees earning in excess of the jurisdictional limit on unfair dismissal claims are also precluded from making an unfair dismissal claim.

What remedies are available?

If the Industrial Relations Commission determines that the termination is 'harsh, unjust or unreasonable', it may make various orders including:

  • Re-appointing the employee to their original position;
  • Appointing the employee to another position with the same employer;
  • Where the employee obtains their job back or another position with the employer, compensation for the period out of work; and
  • Damages of up to 6 months' pay (to a maximum $32,000 for non-award employees as indexed by regulation - $53,200 from 1 July 2008).

Unlawful Termination

What is Unlawful Termination?

Unlawful termination is regulated by the Workplace Relations Act 1996. Unlawful termination occurs where: Employment is terminated " for a proscribed reason under the Workplace Relations Act 1996; or

  • The employer terminates the employment without providing the correct notice or pay in lieu of notice; or
  • The employer fails to notify the Commonwealth Employment Service (CES) of the proposed termination in certain circumstances.

Who can access Unlawful Termination?

Generally speaking, all employees in Australia irrespective of whether or not they are employed by constitutional corporations, can make a claim for unlawful termination on the grounds that they were terminated for a proscribed reason (see below). The various exclusions that apply to unfair dismissal (above) will also apply to preclude an employee from making an unlawful termination claim where the employer fails to give notice or notify the CES.

What are proscribed reasons for Unlawful Termination?

An employer must not terminate employment for a proscribed reason under the Workplace Relations Act 1996. Proscribed reasons in relation to unlawful termination include:

  • The employee has had a temporary absence from work because of illness or injury;
  • The employee is filing a complaint against an employer alleging violation of laws or regulations;
  • The employee's race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin;
  • The employee's refusal to negotiate in connection with, make, sign or extend, vary or terminate an AWA; or
  • The employee's absence from work during maternity leave or other parental leave.

What remedies are available?

If the court finds that an employer has dismissed an employee for a proscribed reason, it may make one or more of the following orders:

  • Impose a penalty on the employer of up to $10,000;
  • Order the employer to reinstate the employee; or
  • Award damages of up to 6 months' pay (to a maximum $32,000 for non-award employees as indexed by regulation).

If a court finds that an employer has failed to provide the correct notice to the employee, then it may award an amount equivalent to the amount that should have been paid in lieu of notice.

Freedom of Association

What is Freedom of Association?

Freedom of association under the Workplace Relations Act 1996 covers aspects of workplace law that protect against undue pressure, discrimination, victimisation and other forms of unlawful conduct, and operate to guarantee the rights of employees, independent contractors (and where relevant, employers). Such provisions apply, amongst other things, to termination of employment.

What type of behaviour is unlawful under Freedom of Association?

Under the freedom of association provisions, an employer must not terminate or threaten to terminate an employee for reasons that include what is known as a 'prohibited reason'. A prohibited reason includes such things as:

  • The employee participating in industrial action;
  • The employee giving evidence in industrial proceedings;
  • The employee participating in a secret ballot; or
  • The employee's entitlement to the benefit of an industrial instrument.

What remedies are available?

Where an employer has terminated an employee for a prohibited reason, the employee may obtain an order from the court for reinstatement. They may also be entitled to an award of damages. The court may also impose a fine on the employer.

Claims under the Trade Practices Act

The Trade Practices Act 1974 provides potential remedies for terminated employees of corporations in some situations including:

  • Deceptive and misleading conduct by the employer - Section 52; or
  • Representations in relation to employment by the employer - Section 53B.

Claims under Sections 52 and 53B are directed at conduct that is 'misleading or deceptive'. Employers who do not deliver on representations made to employees (eg about the duration of employment, future remuneration or safety) may face claims under Section 52 or Section 53B of the Act.

Anti-Discrimination Legislation

Grounds for Discrimination claims in employment

Legislation exists at both state and federal level to prohibit discrimination in relation to employment on a number of grounds. Discrimination occurs where a person is treated less favourably than another on the basis of a proscribed ground which can include: race, colour, sex, sexual preference, age, disability, medical record, impairment, marital status, pregnancy, potential pregnancy, family responsibilities, criminal record, trade union activity, political opinion, religion, national extraction or social origin. Where an employer dismisses an employee by reason of any of these grounds, the employer may be liable under anti-discrimination legislation.

Disability Discrimination and the 'Inherent Requirements' exemption

Generally speaking, it is not unlawful to terminate the employment of a person with a disability if after taking into consideration the person's training, qualifications and experience relevant to the position, the employee is unable to perform the inherent requirements of their position. The inherent requirements are the essential or core components of the employee's position, however each situation must be carefully assessed on its own merits, and it is recommended that professional advice be sought.

What remedies are available?

The following remedies are available when a Federal court finds unlawful discrimination:

  • An order requiring a employer to perform any reasonable act or course of conduct to redress any loss or damage suffered by an employee;
  • An order requiring an employer to re-employ the employee;
  • An order requiring an employer to pay damages to an employee to compensate for any loss or damage suffered because of the conduct of the employer. (Note that whereas the federal jurisdiction has no ceiling for damages where an employer is liable, the NSW jurisdiction has set a $40, 000 limit for awards of damages); and
  • An order requiring an employer to vary the termination of a contract or agreement to redress any loss or damage suffered by an applicant.

Workers' Compensation Legislation

Requirement of 6 months to pass before terminating an employee under Workers' Compensation Legislation

In addition to observance of other legislative requirements, NSW employers may be guilty of an offence under the Workers' Compensation Act 1987 (NSW) if the employer dismisses an employee who is on workers' compensation within 6 months of the date the employee became unfit for work.

Employee can apply to their former employer for reinstatement

The Workers' Compensation Act 1987 provides that an employee who is dismissed due to a workplace injury may in certain circumstances apply to their former employer for reinstatement to a position of the kind that the employee held at the time that they became unfit because of the workplace injury. If an employer does not immediately reinstate the employee to an equivalent position, the employee may apply to the Industrial Relations Commission for reinstatement.

Workers' Compensation and claims by employees for unlawful termination

Recent case law suggests that receipt by an employee of workers' compensation payments may operate to deem absence from work as temporary absence or illness, thereby exposing employers who terminate such employees to claims for unlawful termination.

Swaab was recently named winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' and at the 2008 BRW- Client Choice Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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