Employee Termination Procedures: Legal Steps for Australian Employers

Ending someone’s employment is one of the hardest parts of running a business. Whether it’s due to performance, a genuine restructure, or serious misconduct, the way you manage the process really matters.

Getting your employee termination procedure right in Australia isn’t just about doing the right thing by your team – it’s also about meeting your legal obligations and protecting your business from unfair dismissal, general protections and other claims.

If the legal steps feel overwhelming, don’t stress. Below, we break down a clear, compliant process you can follow with confidence.

What Is an Employee Termination Procedure in Australia?

An employee termination procedure is the structured process you follow to lawfully end a staff member’s employment. It typically covers valid reasons for termination, procedural fairness, written notice, final payments and records you need to issue.

In Australia, the rules come from the Fair Work system (primarily the Fair Work Act 2009 and the National Employment Standards), plus any applicable modern award or enterprise agreement, and the employee’s contract. There are also anti-discrimination and workplace health and safety obligations to consider.

Most private sector employers are covered by the national workplace relations system, but some state and local government employers may sit outside it. If you’re unsure which system applies to you, it’s wise to confirm this early.

A well-drafted termination policy helps you apply a fair, consistent process every time. It sets expectations, reduces risk, and helps your managers handle difficult conversations the right way.

Which Laws Apply When You End Employment?

Australian employment law aims to ensure terminations are fair and transparent. Key points to know:

• Fair Work Act and NES: These set minimum notice periods, redundancy entitlements (including exemptions), and protections against unfair dismissal. Your award or enterprise agreement may add further process requirements.
• Unfair dismissal eligibility: Employees must have completed the minimum employment period (generally 6 months, or 12 months for a small business with fewer than 15 employees) to be eligible to bring an unfair dismissal claim. The Fair Work Commission assesses whether a dismissal was harsh, unjust or unreasonable, including the factors outlined in section 387 of the Fair Work Act.
• Small Business Fair Dismissal Code: Small businesses have a specific code to follow. If you comply with it, this can be a strong defence to an unfair dismissal claim.
• General protections (adverse action): You must not dismiss an employee because they exercised a workplace right (e.g. took sick leave), or for discriminatory reasons. These claims are separate to unfair dismissal and do not require a minimum employment period.
• Discrimination laws: You cannot dismiss someone for protected attributes such as age, race, sex, disability, pregnancy, religion or family responsibilities.
• Awards and enterprise agreements: Many instruments require specific steps before termination, such as consultation (for redundancies) or formal warnings (for performance issues).

A quick legal health check before you proceed can save a costly dispute later, especially if there are performance concerns or restructuring plans in play.

Step-By-Step: How to Terminate Employment Lawfully

Here’s a practical, compliant sequence to follow. Adjust the steps as needed for your industry instrument and the circumstances.

1) Review the Contract, Award/Agreement and Policies

• Check the employee’s contract for termination clauses, notice, and any special provisions.
• Review the applicable modern award or enterprise agreement for process requirements (warnings, consultation, redeployment) and timing for final pay.
• Confirm internal policies (e.g. performance management, disciplinary procedures) and apply them consistently.

If the employee is still in a probation period, you still need to act fairly and provide correct notice, but your process may be shorter. For context, here’s more on terminating employment during probation.

2) Identify Lawful, Clear Grounds

• Performance/capability: Where the employee hasn’t met required standards despite support and warnings (document performance plans, feedback and timelines).
• Misconduct or serious misconduct: Misconduct may justify warnings. Serious misconduct (e.g. theft, violence, serious safety breaches) can justify summary dismissal, but you still need a fair process.
• Genuine redundancy: The job is no longer required due to changes in the operational requirements of your business. Consultation and redeployment considerations apply (more below).
• Mutual separation/resignation: Sometimes employment ends by agreement. Confirm terms in writing.

3) Apply Procedural Fairness (Natural Justice)

Even when the outcome feels clear, procedural fairness is critical.

• Tell the employee the concerns or reason you’re considering termination and share key evidence or examples.
• Give them a reasonable opportunity to respond and genuinely consider what they say.
• Offer a support person for meetings where possible.

Many employers issue a written invite to a meeting and ask the employee to respond to the concerns – commonly called a show cause letter.

4) Decide and Confirm in Writing

If termination is appropriate after considering the response, confirm the decision in writing. Your termination letter should cover:

• The decision and effective date (last day of employment).
• The reason for the decision (where appropriate and subject to your award/EA obligations).
• Notice period or payment in lieu of notice.
• Outline of final pay (wages, unused annual leave, any redundancy pay), superannuation handling and timing.
• Return of company property, confidentiality, and any post-employment restraints that continue.

5) Follow the Correct Notice Rules

The National Employment Standards set minimum notice based on continuous service:

• 1 week (up to 1 year of service).
• 2 weeks (1–3 years).
• 3 weeks (3–5 years).
• 4 weeks (5+ years).

Employees aged 45+ get one extra week of notice if they have at least 2 years of continuous service. Awards, enterprise agreements or contracts can specify longer notice.

Instead of working out the notice period, you can make a lawful payment in lieu of notice if permitted. Keep in mind there can be different superannuation treatment for various termination payments; this guide on payment in lieu and superannuation explains the key considerations.

6) Calculate and Pay Final Entitlements

Final pay usually includes:

• Outstanding wages and allowances to the last day.
• Accrued but unused annual leave (and annual leave loading if the instrument provides it).
• Long service leave (state/territory laws vary on accrual and payout).
• Redundancy pay (if applicable and not exempt).
• Any other contractual entitlements (e.g. commission already earned under the contract rules).

Personal/carer’s leave is generally not paid out on termination unless your award/EA or contract says otherwise.

Timing for final pay can depend on your award or agreement, but best practice is to pay on the last day or the next regular pay run (earlier if your instrument requires it). Good records and an accurate calculation reduce the risk of underpayment claims.

7) Manage Redundancy Obligations (If Applicable)

A dismissal is a genuine redundancy if:

• The job is no longer required due to operational changes, and
• You have complied with any consultation obligations in the relevant award/enterprise agreement, and
• It wasn’t reasonable to redeploy the employee within your business (or an associated entity).

Small businesses (fewer than 15 employees) are generally exempt from paying redundancy under the NES, but consultation may still be required by an award or agreement. To estimate potential severance, see this practical redundancy calculator.

8) Issue Required Records and Update Systems

• Provide a final payslip and any standard exit documents.
• If asked, give an Employment Separation Certificate (Services Australia uses this to assess claims).
• Update payroll and superannuation records and remove systems access.
• If the departing person is also an officeholder, ensure ASIC records are updated separately.

Redundancy vs Dismissal: What’s the Difference?

Understanding the difference helps you apply the right process and entitlements.

• Redundancy: The role itself is no longer required for genuine operational reasons. Obligations usually include consultation, considering redeployment options, and paying redundancy unless an exemption applies (e.g. small business). If the change is really about an individual’s performance or conduct, it isn’t a genuine redundancy.
• Dismissal (performance/conduct/capability): You’re ending employment because standards weren’t met, behaviour breached policies, or the person can’t perform the role. Procedural fairness, correct notice (or payment in lieu), and accurate final pay are essential. Where relevant, ensure warnings and improvement plans are properly documented.

If you’re deciding between managing performance or restructuring, think about what has truly changed: the person or the role. Document the business rationale and apply the appropriate process from the start.

Paying Final Entitlements and Notice

Getting the money side right is critical for compliance and trust.

Notice and Payment in Lieu

You can require the employee to work out their notice or choose to pay the equivalent amount instead (if allowed by the award/EA/contract). Make sure you specify this clearly in the termination letter and factor in any contractual benefits tied to employment during the notice period. If you’re unsure what counts for superannuation on different termination payments, check your obligations before processing payroll using guidance like payment in lieu and superannuation.

Annual Leave, Long Service Leave and Other Amounts

• Annual leave: Accrued, unused annual leave must be paid out on termination (plus any loading if your instrument provides it).
• Long service leave: Payout rules depend on state/territory law and length of service; check the jurisdiction where the employee ordinarily works.
• Personal/carer’s leave: Generally not paid out unless an instrument or contract says so.
• Bonuses/commissions: Check the contract for eligibility on termination, including pro‑rata rules and when amounts are “earned.”

Unfair Dismissal, Small Business and Risk Management

To minimise risk of claims, follow a fair, documented process and keep your paperwork consistent. If you’re a small business, the Small Business Fair Dismissal Code is your roadmap – and employees generally need 12 months’ service to be eligible for unfair dismissal. The factors the Fair Work Commission considers under section 387 are a helpful checklist for all employers.

For conduct or capability matters, build a clear paper trail with invitations to meetings, show cause letters, warning letters and meeting notes. For restructures, use a business case, consultation documents and redeployment records. This evidence is often decisive if a dispute arises.

Key Takeaways

• Use a clear, consistent termination procedure that aligns with the Fair Work Act, your award or enterprise agreement, and the employment contract.
• Apply procedural fairness: explain the concerns, allow a response, and genuinely consider it before deciding.
• Check notice periods carefully, including the extra week for employees aged 45+ with 2+ years’ service, or provide a lawful payment in lieu of notice.
• Handle redundancies correctly: consult where required, consider redeployment, and remember small businesses are generally exempt from NES redundancy pay.
• Pay final entitlements accurately and promptly, including wages, unused annual leave, and long service leave where applicable, and issue an Employment Separation Certificate if requested.
• Reduce claims risk with strong documentation and by following the factors in section 387; small businesses should also follow the Small Business Fair Dismissal Code.

If you’d like a consultation on employee termination procedures for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.