Terminating an employee in Australia and the legal duties you must meet

Ending someone's employment is one of the highest-risk decisions an Australian business makes. The law does not just ask whether you had a good reason. Under the Fair Work Act 2009 (Cth) (the Act), a dismissal can be found unfair even where the reason was sound, if the process around it was not. Get either half wrong and you can face an unfair dismissal claim, a general protections claim, penalties and the cost and distraction of defending them.

The good news is that the duties are knowable. Before you terminate, you must: have a valid reason, follow a fair process, get notice and final pay right, and make sure the reason is not one the Act prohibits. This guide sets out who those duties apply to, what each one requires in practice, what happens if you miss them, and where a lawyer earns their keep.

Who the termination rules apply to, and the thresholds that matter

Most private-sector employers in Australia are national system employers covered by the Act, so these duties apply to you unless you operate in an excluded area such as state government employment. But the unfair dismissal protections only reach employees who clear a set of thresholds, and checking them before you act saves you from assuming a risk that does not exist, or ignoring one that does:

Minimum employment period: An employee must have completed 6 months of continuous service to be protected from unfair dismissal, or 12 months if you are a small business employer (s 383 of the Act).
Small business employer: You are a small business employer if you employ fewer than 15 employees at the time of dismissal (s 23). Associated entities are counted together, and a casual counts only if they are a regular casual.
Casual employees: Service as a casual only counts towards the minimum period if the employment was regular and the employee had a reasonable expectation of continuing employment on a regular and systematic basis (s 384).
High income threshold: Employees whose earnings are above the high income threshold are generally outside unfair dismissal protection unless a modern award or enterprise agreement covers them.
Time limits: An unfair dismissal application must be lodged within 21 days of the dismissal taking effect, although the Fair Work Commission (the FWC) can extend that period in exceptional circumstances (s 394).
No minimum period for general protections: The prohibition on dismissing someone for a prohibited reason applies from the first day of employment. There is no 6 or 12 month buffer.

A probationary clause in a contract does not override these statutory thresholds. If an employee meets the minimum period, a probation label will not stop them from bringing a claim.

Duty one: have a valid reason for the dismissal

When the FWC decides whether a dismissal was harsh, unjust or unreasonable, the first factor it must weigh is whether there was a valid reason related to the employee's capacity or conduct, including its effect on the safety and welfare of other employees (s 387(a)).

Australian courts have long described a valid reason as one that is sound, defensible or well founded, as opposed to capricious, fanciful, spiteful or prejudiced (Selvachandran v Peteron Plastics [1995] IRCA 329). The reason must be based on facts you can establish, not impressions. The grounds that commonly satisfy the test are:

Performance: Ongoing underperformance after clear expectations, feedback, support and a reasonable period to improve. The Act separately requires that you warn an employee about unsatisfactory performance before dismissing them for it (s 387(e)).
Misconduct: A breach of a policy or a lawful and reasonable direction, such as repeated lateness, dishonesty or disrespectful conduct, where warnings and process have been followed.
Serious misconduct: Conduct that justifies dismissal without notice. Regulation 1.07 of the Fair Work Regulations 2009 defines it to include theft, fraud, assault, sexual harassment, intoxication at work, wilful behaviour inconsistent with the continuation of the employment contract, and conduct that creates a serious and imminent risk to health and safety or to the reputation, viability or profitability of the business.
Genuine redundancy: The job itself is no longer required because of changes in the operational requirements of the enterprise, you have complied with any award or enterprise agreement consultation obligations, and redeployment within the business or an associated entity was not reasonable (s 389). A redundancy that is really a performance dismissal in disguise is not genuine.
Capacity or incapacity: The employee cannot perform the inherent requirements of the role, for example because of ongoing illness or injury, even after reasonable adjustments have been considered. This ground often overlaps with disability discrimination law, so it is one to treat cautiously.

Duty two: follow a fair process

A valid reason is only half the job. In assessing a dismissal, the FWC also weighs whether you notified the employee of the reason, gave them an opportunity to respond, unreasonably refused a support person at discussions, and warned about performance issues (s 387(b) to (e)). It also takes into account the size of your enterprise and whether you have dedicated human resources expertise, but those factors soften the standard rather than remove it.

A practical sequence that protects you in most cases:

Identify the reason and gather evidence: Pull together performance reviews, warnings, policy documents, emails and witness accounts before you act.
Put the concerns in writing and invite a response: Tell the employee the specific issues and invite them to a meeting. Give reasonable notice and allow a support person if they ask for one.
Meet and genuinely consider the response: Keep an open mind. New information, context or medical evidence can change the picture.
Decide and communicate: If dismissal is still appropriate, confirm it in writing with the reasons, the notice arrangements and the last day of work.
Document everything: Meeting notes, warnings, investigation steps and the decision itself. Consistent process across your workforce also matters: treating one employee differently from others in the same situation invites claims of differential treatment.

Except for genuine summary dismissal for serious misconduct, skipping these steps converts a defensible dismissal into an expensive one.

Duty three: get notice and final pay right

The National Employment Standards set minimum notice periods and final entitlements that you cannot contract out of:

Notice or payment in lieu: You must give written notice specifying the day of termination, and the notice period must be at least the minimum under s 117: 1 week for up to a year of service, 2 weeks for 1 to 3 years, 3 weeks for 3 to 5 years and 4 weeks for more than 5 years. Add a week if the employee is over 45 and has at least 2 years of service. You can pay in lieu of notice instead. The notice requirements do not apply to casual employees or employees employed for a specified period or task (s 123). Awards and enterprise agreements may require more.
Summary dismissal: For proven serious misconduct you can dismiss immediately without notice. You should still establish the facts through a reasonable investigation first, confirm the decision in writing, and pay all wages and entitlements accrued up to the termination.
Annual leave: Any untaken annual leave must be paid out on termination (s 90(2)).
Redundancy pay: For a genuine redundancy, statutory redundancy pay under s 119 ranges from 4 weeks for 1 to 2 years of service up to 16 weeks for 9 or more years, paid at the base rate. Small business employers are exempt from statutory redundancy pay, and awards or agreements may provide more.
Long service leave and separation certificates: Long service leave is governed by state and territory law, so check the rules that apply to your state. Provide an employment separation certificate when an employee asks for one, since they need it for Centrelink purposes.

Duty four: never dismiss for a prohibited reason

Independent of unfair dismissal, the Act's general protections prohibit dismissing an employee because of a protected reason, and they apply from day one. The most common traps are:

Adverse action because of a workplace right: Dismissing someone because they made a complaint or enquiry, exercised a right under the Act, requested flexible work, or joined or were active in a union (s 340).
Discrimination: Dismissal because of race, sex, age, pregnancy, disability, religion, sexual orientation, marital status or other protected attributes (s 351).
Temporary absence: Dismissal because of a temporary absence from work due to illness or injury (s 352).

What makes these claims dangerous is the reverse onus: if an employee alleges you dismissed them for a prohibited reason, the Act presumes you did unless you prove otherwise (s 361). That shifts the burden of proof onto you, which is why contemporaneous records of your genuine reasons matter so much. An employee generally cannot pursue both an unfair dismissal claim and a general protections claim for the same dismissal, but they can choose the more powerful avenue.

What happens if you get the duties wrong

If the FWC finds an unfair dismissal, it can order reinstatement or, where that is not appropriate, compensation in lieu (s 392). Compensation is capped at the lesser of 26 weeks of the employee's remuneration or half the high income threshold, and the FWC must reduce it where the employee's own misconduct contributed to the dismissal. There is no cap on what a general protections claim can produce: courts can order compensation for loss, and can impose civil penalties expressed in penalty units, which are indexed each year and are higher for companies than individuals. Add legal costs and management time, and a poorly managed dismissal can cost many times the notice period you were trying to save.

A compliance checklist for your next termination

Work through these checks before you confirm any termination:

Confirm the thresholds first: continuous service, small business status, casual status and the high income threshold.
Identify the reason and assemble the evidence before you speak to the employee.
Notify the employee of the concern and invite a response, with a support person available.
Genuinely consider the response before deciding.
Warn about unsatisfactory performance before dismissing for it.
For redundancy, consult as required and consider redeployment.
For serious misconduct, investigate reasonably before dismissing without notice.
Give written notice or pay in lieu, and pay all final entitlements including untaken annual leave.
Keep copies of every step in case the decision is challenged.

When you need a lawyer

Some terminations are routine. Others should have a lawyer involved before the decision is made: summary dismissal for serious misconduct, dismissal while an employee is on leave or claiming workers compensation, incapacity cases that brush against disability discrimination, genuine redundancy with redeployment questions, and any situation where you already know a claim is likely. A lawyer can pressure-test your reason against the s 387 factors, review the fairness of your process, calculate notice and entitlements correctly, and respond to an FWC application within the 21 day window. If a claim has already been lodged, early advice can also resolve it by settlement far more cheaply than defending it.

The process duty is where terminations go wrong

Most employers have a defensible reason. What sinks them is the process half: no warning, no written notification of the reason, no real opportunity to respond, or no records of any of it. The FWC weighs process as heavily as reason, and under a general protections claim you carry the burden of proving your own motives. So the question to answer this week is simple: if a Commission member asked you today, could you produce the file note, email or warning letter that shows you told the employee the concern and invited their response? If you cannot, build that habit now, before you need it, because a dismissal decided in five minutes can take a year to defend.