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Terminating a staff member’s employment can be challenging at the best of times – amid COVID-19, these challenges are heightened. Given the severe implications of termination, employers need to ensure that they take into account procedural fairness, as well as their legal obligations. Employers are not entitled to terminate employment arbitrarily, and there are limited circumstances in which an employer can lawfully issue a termination letter.

When Can a Termination Letter Be Issued?

An employer can formally terminate a staff member’s employment in three circumstances:

  1. Underperformance;
  2. Serious misconduct; or
  3. Redundancy.

Notice of termination must be provided in writing to the employee. These three situations will be explored further in this article.

1. Underperformance

Underperformance refers to when an employee consistently fails to do their job to a satisfactory standard. This can also refer to when an employee does not behave in an acceptable manner in the workplace. Underperformance can include the following situations:

  • When an employee does not complete their work to the required standard, consistently fails to meet deadlines, or doesn’t complete the work at all;
  • When an employee fails to adhere to workplace rules, regulations and policies;
  • When an employee behaves unacceptably (including harassment or using offensive language); or
  • When an employee behaves in a manner that is negative and disruptive.

If any of the above occurs, and continues to occur for some time, an employer would be entitled to terminate the employee. The following steps should be followed to ensure that procedural fairness isn’t denied to the employee. These steps will also lower the chances of an unfair dismissal claim being made.

Performance Improvement Plans

Generally, the first step to take when the employer becomes aware of the employee’s underperformance would be for the employer to have a private meeting with the employee regarding the concerns. During this meeting, employers and employees should discuss:

  • What the problem is, and why it is a concern;
  • How this impacts on the workplace;
  • Whether there are any factors that are inhibiting the employee from performing at their full capacity; and
  • How the situation can be improved.

The employer and employee should also create a performance improvement plan, which outlines strategies by which the employee can improve their work output and performance. This should also outline definable goals and expectations.

Formal Warning

If performance doesn’t improve after the first step, the employer could choose to either hold another meeting with the employee, issue a formal warning letter or both. A formal warning letter clearly outlines the circumstances which have given rise to the view that the employee’s performance is unsatisfactory, and how the situation can be rectified. Employers should include as much information as possible, and clear, definable expectations for the future. For more information on how to issue a formal warning, please see our article ‘How Should I Issue a Formal Warning to My Employee’.

Final Warning and Termination

If the employee’s underperformance continues, the employer could either issue further warnings, or a final warning letter that explicitly outlines that further underperformance will result in termination.

If the underperformance does not cease, then the employer would then be able to issue a termination letter. Employees would still be entitled to a notice period, all pay entitlements, as well as any relevant penalty rates, allowances and entitlements. Employers should be aware that even if they follow all these steps, an employee may still lodge an unfair dismissal claim.  However, if these steps have been followed it is unlikely an unfair dismissal claim would be successful.

2. Serious Misconduct

An employer is entitled to terminate a staff member’s employment if they have engaged in serious misconduct. This refers to deliberate or wilful conduct or behaviour that:

  • Is inconsistent with the terms of the employment contract;
  • Causes serious and imminent danger to the health and safety of a person OR the reputation/profits of the employer’s company.

Some examples of serious misconduct include:

  • Theft;
  • Fraud;
  • Assault; and
  • Refusal to carry out lawful and reasonable directions.

Where an employer terminates an employee for serious misconduct, they are not required to give a notice of termination. The employer must still pay any outstanding entitlements such as payments for hours worked, and annual leave payments.

What about conduct that occurred outside of work hours?

Generally, an employer is not permitted to terminate a staff member’s employment for misconduct that occurred out of work hours. However, an employer may have the right to do so if the out of hours conduct had a connection to the employment relationship. The case of Rose v Telstra summarised when an employer could terminate an employee for serious misconduct that occurred out of work hours:

  • The conduct would be likely to cause serious damage to the relationship between the employee and employer; or
  • The conduct damages the employer’s interests; or
  • The conduct is not consistent with the employee’s duties as an employee.

It must be noted that just because the conduct out of work constituted a criminal offence, this may not necessarily warrant termination. A connection between the conduct and the employment relationship must still be established.

3. Redundancy

Redundancy refers to when an employer no longer requires anyone to do an employee’s job. This can be for a number of reasons, including:

  • Technology can perform the same functions that the employee was performing;
  • The company suffers poor financial growth, or goes into loss;
  • The company becomes bankrupt or insolvent.

For the redundancy to be lawful, the employer must not require the job to be done by anyone anymore, and they must follow all the consultation requirements that were outlined in the relevant award, business agreement or employment contract.

The consultation requirements that constitute a genuine redundancy must be initiated as soon as practicable after the management decides to make workplace changes. Employees who may be affected by the proposed changes must be notified as to how the proposed changes may affect them, and what steps employers will take to minimise harm. The consultation stage should be a collaborative process and the employer must take into consideration any suggestions made by staff regarding the proposed changes.

If an employee is made redundant, they must receive the appropriate notice period, which can be found on the Fair Work Commission website. as well as an accrued entitlements However, the following employees may not have the right to severance pay:

  • Apprentices;
  • Casuals;
  • Employees who were terminated because of serious misconduct;
  • Employees whose period of continuous service was less than twelve months;

Employees that were hired for a stated period or a particular reason.

Key Takeaways

  • A termination letter can be lawfully provided for three reasons: underperformance, serious misconduct and redundancy.
  • Employers should ensure they follow all the necessary steps, and issue a termination letter as an absolute last resort. This will lower the likelihood of an unfair dismissal claim being successful.
  • Employees who think that they may have been unlawfully dismissed should seek urgent legal advice, given the strict time conditions that apply for filing an unfair dismissal claim.

If you have questions about termination letters or unfair dismissals, get in touch Lord Commercial Lawyer’s employment lawyers on 9600 0162 or email us at info@lordlaw.com.au or fill out the form on this page.

About us

Lord Commercial Lawyers is a commercial law firm based in the Melbourne CBD. We work with businesses and individuals to help them achieve their legal and commercial goals.

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