Can You Terminate an Employee on Sick Leave in Australia?

When you run a small business, every team member matters. So when an employee goes on sick leave (especially for an extended period), it can quickly create pressure on your roster, productivity and cash flow.

At the same time, termination is one of the highest-risk decisions you’ll make as an employer. If the person is away due to illness or injury, there are extra rules you need to understand before you take any steps.

This is why employers often ask: can you terminate someone on sick leave?

The answer is: sometimes yes - but you need to be careful about why you’re terminating, how you do it, and whether the employee has “temporary absence” protections under the Fair Work Act.

Below, we’ll walk you through the key legal issues in plain English, the practical steps to reduce risk, and what to document before you make a decision.

Can You Terminate Someone On Sick Leave In Australia?

Yes, it can be lawful to terminate an employee who is on sick leave, but it’s not lawful to terminate them because they are sick (or because they’re exercising a workplace right to take personal/carer’s leave).

In practice, this usually means:

• High risk: terminating because they took sick leave, asked for time off, provided a medical certificate, made a workers’ compensation claim, or have an illness or injury that is protected.
• Sometimes possible: terminating for a genuine and lawful reason that is separate from the sick leave (for example, serious misconduct, redundancy, or inability to perform the inherent requirements of the role after an appropriate process).

Even where termination might be justified, the next question is whether the employee is protected because their absence counts as a temporary absence. That’s where many employers get caught out.

Temporary Absence Protections: The Rule That Often Trips Employers Up

One of the most important legal concepts here is the Fair Work Act protection against dismissal due to temporary absence because of illness or injury.

In broad terms, an employee may be protected if:

• they are absent due to illness or injury; and
• they have provided evidence that would satisfy a reasonable person (for example, a medical certificate or statutory declaration); and
• the absence falls within the “temporary absence” criteria.

In many cases, an absence is only considered “temporary” (and therefore protected from dismissal for that reason) if it’s:

• 3 months or less (including any period of unpaid leave); or
• less than 3 months in total over the previous 12 months (again, including any unpaid leave).

There’s also an important nuance: if the employee’s absence is more than 3 months, they may lose the “temporary absence” protection if they are not on paid personal/carer’s leave for the whole period (for example, they’ve exhausted paid personal leave and are taking unpaid leave).

This does not mean an employee can never be dismissed while unwell. It means you need to take extra care to ensure the reason for dismissal is lawful and properly evidenced.

What Counts As Evidence For Sick Leave?

For personal/carer’s leave, employees can be asked to provide evidence (such as a medical certificate or statutory declaration). If you’re unsure what a stat dec can look like in practice, statutory declaration requirements for sick leave are an important part of good record-keeping and a fair process.

From a risk perspective, if the employee has provided valid evidence and their absence falls within the “temporary absence” protection, terminating them because of that absence can be unlawful even if your business is under pressure.

What If The Employee Has Been Away For A Long Time?

This is where things get more nuanced. Long absences can raise questions about:

• capacity to work now and into the future
• whether the person can perform the inherent requirements of their role
• whether reasonable adjustments are possible (particularly where the employee may have a disability)
• whether the business can sustain the absence

However, even with a long absence, you should avoid making assumptions. If you jump straight to termination without checking medical capacity and exploring reasonable options, you increase the risk of an unfair dismissal or adverse action claim.

Lawful Reasons You Might Be Able To Terminate (Even If They’re On Sick Leave)

Because the question of terminating an employee on sick leave depends heavily on the facts, it helps to think in terms of lawful reasons that are genuinely separate from the illness or injury.

Below are common scenarios where termination may be possible, provided you follow a fair and well-documented process.

1. Genuine Redundancy

If the employee’s role is no longer required due to operational changes (for example, a restructure, a downturn, loss of a contract, or automation), redundancy may be a lawful reason - even if the employee happens to be on sick leave at the time.

That said, redundancy is frequently challenged when:

• the role still exists (just with a different title)
• the sick employee is selected over others for questionable reasons
• you don’t consult properly or consider redeployment

Also remember redundancy can come with significant payment obligations. If you’re budgeting and planning, a redundancy calculator can help you estimate entitlements, but it’s still wise to get advice before you make final decisions.

2. Serious Misconduct (Unrelated To The Sick Leave)

If you discover serious misconduct (for example, theft, fraud, violence, or major safety breaches), you may be able to terminate even if the employee is currently away sick.

The key is that:

• the reason for termination must be the misconduct, not the sick leave
• you should still follow a procedurally fair process (unless the circumstances are extreme)
• you need evidence and proper documentation

If you’re running an investigation, you may also be considering whether you can lawfully direct the employee not to attend work while it’s ongoing. In that situation, standing down an employee pending investigation can be relevant, but “stand down” is only lawful in limited circumstances (and sometimes the better approach is paid suspension, if your contract/policies/award allow it). The right option depends on your contract, workplace policies, the Fair Work Act and any applicable award or enterprise agreement.

3. Ongoing Capacity Issues (Inherent Requirements Of The Role)

If an employee is unfit for work for an extended period, or can’t perform the essential duties of their role (even with reasonable adjustments), termination may be considered - but this is one of the most legally sensitive areas for employers.

This is where you should slow down and ensure you’ve done the groundwork, including:

• obtaining up-to-date medical evidence about capacity and prognosis
• consulting with the employee and giving them a chance to respond
• considering reasonable adjustments (for example, altered duties, modified hours, or temporary changes)
• considering redeployment (where appropriate)

In many cases, it’s appropriate to request a medical clearance or capacity report before making decisions about a return to work plan. medical clearance can be requested in certain circumstances, but it should be done respectfully, consistently, and with privacy in mind.

Key Legal Risks Employers Need To Manage (And Why Process Matters So Much)

Even if you believe you have a valid reason to terminate, a poor process can still expose your business to serious risk.

Here are the main areas to keep on your radar.

Unfair Dismissal

If the employee is eligible to bring an unfair dismissal claim (based on factors like minimum employment period and whether you’re a small business employer), the Fair Work Commission can look at whether the dismissal was harsh, unjust or unreasonable.

When the employee is on sick leave, “harshness” issues often arise if:

• you don’t give them a chance to respond
• you ignore medical evidence
• you fail to follow your own policies
• you move too quickly without exploring alternatives

General Protections / Adverse Action

This is often the bigger risk area. Employees can bring a general protections claim if they believe they were dismissed because they exercised a workplace right (like taking sick leave) or because of a protected attribute (like disability).

General protections claims can be complex, time-consuming and costly to defend. The best risk management strategy is to:

• ensure your reasons are lawful and well documented
• treat the employee consistently with how you treat others
• avoid comments or emails that suggest frustration with them taking leave

Discrimination And Failure To Provide Reasonable Adjustments

If an employee has an illness or injury that amounts to a disability, there may be discrimination law obligations (including considering reasonable adjustments).

Small businesses sometimes assume discrimination laws only apply to large employers, but that’s not the case. It’s important to take capacity and adjustment discussions seriously, document them carefully, and seek advice early.

Wrongful Dismissal / Notice Issues

Even if you have a valid reason to terminate, you still need to comply with notice requirements (unless it’s summary dismissal for serious misconduct).

Where you don’t require the employee to work out their notice, you may consider payment in lieu of notice - but you should make sure your employment contract allows for it and that you calculate it correctly (including any award/enterprise agreement obligations).

Practical Steps Before You Terminate Someone On Sick Leave

If you’re at the point where you’re considering termination while someone is away unwell, it’s worth treating this as a structured process rather than a quick decision. A clear process protects your business and helps ensure the employee is treated fairly.

1. Check What Leave They’re Actually On

It sounds basic, but it matters. Are they on:

• paid personal/carer’s leave?
• unpaid personal leave (after paid entitlements run out)?
• annual leave (taken due to illness)?
• workers’ compensation leave?
• a mix of leave types?

Each scenario can affect your risk profile and your process. If workers’ compensation is involved, be aware there are often additional rules and protections that vary between states and territories, so it’s a good idea to get advice based on where the employee is employed.

2. Confirm You Have Evidence (And That It’s Reasonable)

If the employee is providing evidence (medical certificates or a statutory declaration), keep clear records and avoid “moving the goalposts” by repeatedly rejecting valid evidence without good reason.

If something looks inconsistent, you can ask follow-up questions - but do it carefully and respectfully.

3. Communicate Clearly (And Don’t Pressure Them)

Stay in contact about operational needs and next steps, but avoid:

• pressuring the employee to return before they’re fit
• making threats about their job if they don’t come back
• suggesting they’re a burden on the business

Those kinds of communications often become evidence later, even if they were written in the heat of the moment.

4. If Capacity Is The Issue, Get Up-To-Date Medical Information

Where the question is whether the employee can return to work (and if so, when and how), consider requesting appropriate medical information about capacity.

As mentioned above, this is where a properly framed request for medical clearance can help you make decisions based on evidence rather than assumptions.

5. Consider Reasonable Adjustments And Alternatives

Before you terminate for capacity-related reasons, think about whether there are realistic alternatives, such as:

• reduced hours for a short period
• different duties or modified KPIs
• working from home (if appropriate)
• a staged return-to-work plan

You don’t have to create a role that doesn’t exist or keep a position open indefinitely, but you should be able to show you genuinely considered options.

6. Make Sure Your Employment Documentation Supports You

Many termination disputes are made worse by unclear contracts and inconsistent processes.

Having a clear Employment Contract that sets expectations around notice, misconduct, confidentiality and policies is one of the best preventative steps you can take as a small business employer.

It’s also important to follow any processes you’ve set out in your workplace policies (for example, performance management or disciplinary procedures).

How To Terminate Fairly If You Decide To Proceed

If, after working through the issues above, you still believe termination is the right outcome, focus on doing it in a way that is clear, respectful, and defensible.

While each situation is different, a fair approach often includes:

• Clear reasons: write down the reason(s) for termination and ensure they’re lawful and not connected to the fact the employee took sick leave.
• Procedural fairness: give the employee an opportunity to respond (for example, in a meeting or in writing).
• Documentation: keep records of communications, medical evidence requests, meeting notes, and the decision-making process.
• Correct notice and final pay: calculate notice, accrued entitlements and any required payments accurately.
• Consider a separation deed (where appropriate): in higher-risk matters, a deed can help finalise terms and reduce future disputes, but it should be tailored.

Also, if you operate in an industry with a modern award or enterprise agreement coverage, make sure you check any extra consultation or notice obligations before taking action.

Key Takeaways

• You can sometimes lawfully terminate an employee who is on sick leave, but you generally can’t terminate them because they’re sick or because they exercised their right to take personal leave.
• The “temporary absence” protections are a major risk area - especially where the employee has provided valid medical evidence and the absence falls within the relevant time limits (including rules about unpaid leave).
• Termination may be possible in situations like genuine redundancy, serious misconduct unrelated to the sick leave, or where the employee can’t perform the inherent requirements of the role (after a careful, evidence-based process).
• A fair process matters: communicate clearly, request appropriate medical information, consider reasonable adjustments, and document your decision-making.
• Make sure your Employment Contract and termination steps align with notice and pay obligations, including any applicable awards.

If you’d like help managing a sick leave situation or advice on terminating an employee while staying compliant, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.