Employment Law Information Series
Liability limited by a scheme approved under Professional Standards Legislation
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.
Level 1, 20 Hunter Street, Sydney NSW 2000
© Swaab Attorneys 2008 This document is not legal advice and the views and comments are of general nature only. This document is not to be relied upon in substitution for dedicated legal advice.
© Swaab Attorneys 2008
Issue 1 2008
Richard Ottley
Partner
T +61 2 9233 5544
E rbo@swaab.com.au
Emma Powys
Solicitor
T +61 2 9233 5544
E ejp@swaab.com.au
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. Non-
compliance 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.
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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 rem-
edies are not available to many employees whose unfair dis-
missal 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.
Level 1, 20 Hunter Street, Sydney NSW 2000
© Swaab Attorneys 2008 This document is not legal advice and the views and comments are of general nature only. This document is not to be relied upon in substitution for dedicated legal advice.
(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 non-
industrial 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).
Unfair dismissal is based on the
concept of ‘a fair go all round’
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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.
Generally speaking, all employees
can make a claim for unlawful
termination for a proscribed reason
Level 1, 20 Hunter Street, Sydney NSW 2000
© Swaab Attorneys 2008 This document is not legal advice and the views and comments are of general nature only. This document is not to be relied upon in substitution for dedicated legal advice.
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 prohib-
ited 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.
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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.
Level 1, 20 Hunter Street, Sydney NSW 2000
© Swaab Attorneys 2008 This document is not legal advice and the views and comments are of general nature only. This document is not to be relied upon in substitution for dedicated legal advice.
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.
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