Many employment contracts, employment term summaries and employee policy manuals state that the employer can terminate an employee’s employment ‘without cause’ by giving a specified period of notice. The minimum amount of notice required varies according to the length of the employee’s service with the employer, as stated in the National Employment Standards.
The term ‘without cause’ means that the employee has not done anything wrong. For example, the employee has not been incompetent or inefficient, failed to follow a lawful direction or been guilty of some other misconduct, each of which could be grounds for termination ‘for cause’.
The reality of course is that there will always be a reason for an employer to terminate an employee. Companies keep good employees unless the financial circumstances or specific requirements of the Company change. In particular:
- If the termination is due to the disappearance of the employee’s role (e.g., because of a business restructure or technological change), a proper process of consultation and selection for redundancy must be undertaken and the employee may be entitled to redundancy pay;
- Poor handling of the termination process may result in an unfair dismissal claim against the employer; and
- If the termination follows the employee exercising a workplace right (e.g., an employment benefit or role or a right to complain under a workplace law), then it may constitute prohibited ‘adverse action’ by the employer.
In the case of a small business (i.e., one with less than 15 employees at the relevant time – there are special rules in relation to casual employees and associated entities), compliance with The Small Business Fair Dismissal Code & Checklist enables the business to ensure that termination of an employee’s employment is carried out in a way that will prevent an unfair dismissal claim against the business. In effect, the Code protects a small business if the employee:
- Has been employed for less than 12 months; or
- Is dismissed ‘for cause’ (‘summary dismissal’); or
- Is dismissed on the grounds of genuine redundancy.
To avoid an unfair dismissal claim, it is important that the small business clearly communicates a ‘valid reason’ for the dismissal to the employee. Often the reason is that the employee’s position has become redundant, in which case the employer should say so in writing, rather than dismissing the employee ‘without cause’.
Similarly, to avoid an adverse action claim, an employer must be able to demonstrate that a dismissal was due to a reason that is not prohibited. Because the onus is on the employer to prove that, it is vital to convey the real reason for dismissal to the employee in writing.
Termination of an employee’s employment carries significant risks of claims against the employer. If not handled properly, a dismissal can result in substantial costs in terms not only of potential compensation payments, but also of legal costs, executive time, and stress. Atkinson Vinden can assist employers to avoid such costs by ensuring that the termination is carried out in a way that complies with the law.
For advice on termination of employment, please contact one of our employment lawyers on (02) 9411