Ending An Employment Contract In Australia: A Practical Guide For Employers

Ending someone’s employment is a big moment for any business. Whether you’re dealing with poor performance, a restructuring, or a resignation, the way you handle termination matters for culture, compliance and risk.

In Australia, there are clear rules around how and when you can end employment. Getting it wrong can lead to unfair dismissal claims, general protections disputes, reputational damage and unexpected costs. The good news? With a clear process and the right documents, you can make confident decisions and keep things fair for everyone.

This guide walks you through what termination of employment means in Australia, common lawful reasons to end employment, the legal obligations to keep in mind, a step-by-step process you can follow, and the key documents to have ready.

What Does ‘Termination Of Employment’ Mean?

Termination of employment is the formal end of the employment relationship between you (the employer) and a worker. It can be initiated by either party, and it covers several scenarios:

• Employer‑led dismissal: Ending employment due to performance, conduct, genuine redundancy or other lawful reasons.
• End of a fixed term: The contract ends on its agreed date or at the end of a specific project.
• Resignation: The employee chooses to leave and provides any required notice.

Regardless of how employment ends, you need to follow minimum legal standards, any applicable modern award or enterprise agreement, and the terms of your Employment Contract.

When Can You End An Employment Contract In Australia?

Australian law recognises several legitimate reasons to end employment. The key is ensuring your reason is genuine, supported by evidence and that your process is fair.

Common Lawful Reasons

• Performance or capacity: Ongoing underperformance despite warnings, support and a reasonable chance to improve.
• Misconduct: Breaches of policy or standards. For serious misconduct (for example theft or violence), you can dismiss without notice, but the conduct must justify that outcome and the process must still be fair.
• Genuine redundancy: The role is no longer required due to operational change and you’ve complied with any consultation obligations. Where the National Employment Standards (NES) apply, redundancy pay may be required (small businesses under 15 employees are generally exempt from redundancy pay under the NES).
• End of fixed term: The contract naturally ends on its expiry date, if it is a true fixed-term arrangement.
• Resignation: The employee leaves voluntarily and works out their notice (or you agree to waive it).

Reasons That Create High Legal Risk

• Prohibited or discriminatory reasons: For example because an employee used workplace rights (took leave, made a complaint), or due to protected attributes (such as race, sex, age, disability, pregnancy or religion). These can give rise to general protections claims independent of unfair dismissal rules.
• Rushed or unfair process: Even with a valid reason, skipping warnings, not giving a right of reply, or failing to investigate can lead to findings of harsh, unjust or unreasonable dismissal.

When assessing “harsh, unjust or unreasonable,” the Fair Work Commission looks at factors set out in section 387 of the Fair Work Act, including whether the employee was told why they were at risk of dismissal and had a chance to respond.

Legal Obligations And Risks For Employers

The rules you need to follow depend on the Fair Work Act 2009 (Cth), the NES, any modern award or enterprise agreement, anti-discrimination laws and your contract. Here are the must‑knows.

Notice Of Termination (Or Payment In Lieu)

• Minimum notice: The NES sets minimum notice based on service. Some awards or contracts require more.
• Payment in lieu: Instead of having an employee work out their notice, you can usually make a lump sum payment. The calculation should reflect what the employee would have earned during the notice period. See payment in lieu of notice for the key rules.
• Serious misconduct: No notice is required if dismissal is for serious misconduct (but procedural fairness still matters).

Including detailed reasons in the written notice is not always legally required, but clearly communicating the reason during the process is part of a fair approach and helps manage risk.

Small Business Fair Dismissal Code

If you employ fewer than 15 employees at the time of dismissal, the Small Business Fair Dismissal Code may apply. Complying with the Code can be a strong defence to an unfair dismissal claim. In practice, this means having a valid reason, giving warnings for performance issues (unless it’s summary dismissal for serious misconduct), and keeping records of what you did.

Unfair Dismissal Eligibility

Not every employee can bring an unfair dismissal claim. There are qualifying periods (generally 6 months’ service, or 12 months for small business employers) and coverage limits (for example, some high-income employees who aren’t covered by an award or enterprise agreement may be excluded). However, even if unfair dismissal doesn’t apply, employees may still bring general protections claims if a prohibited reason is involved.

Redundancy Obligations

• Genuine redundancy test: The role is no longer required, you’ve complied with any consultation obligations in an award or agreement, and redeployment isn’t reasonable.
• Redundancy pay: If the NES applies, redundancy pay may be owed unless an exception applies (including the small business exemption). Use the right method when working out redundancy pay.

Final Pay

There’s no universal rule that final pay is due on the employee’s last day. Many awards set a timeframe (for example by the next pay day or within a set number of days). If no timeframe is specified, pay as soon as reasonably practicable. Final pay usually includes outstanding wages, accrued but untaken annual leave, and any other entitlements under an award, agreement or contract. Our guide to calculating final pay explains the typical inclusions and timelines.

Separation Certificates

Separation certificates are not required for every termination. Employers must provide one when the employee (or Services Australia) asks for it to support claims for government payments. It’s best practice to issue it promptly on request. If you need a refresher on the format and details to include, see how to prepare a separation of employment certificate.

Other Key Risks

• Adverse action (general protections): Don’t dismiss because someone exercised a workplace right, engaged in industrial activity, or due to protected attributes.
• Discrimination and health/safety: Be careful where performance or capacity issues intersect with illness, injury or disability. Consider reasonable adjustments and medical evidence before acting.
• Record‑keeping: Keep notes, warnings, evidence and correspondence. Good records are often decisive in disputes.

Step‑By‑Step: How To End Employment Lawfully

Here’s a practical sequence you can adapt to your business and the specific situation.

1) Check Coverage And Your Documents

• Confirm if a modern award or enterprise agreement applies and whether it adds procedures (for example, consultation or extra notice).
• Review the Employment Contract for termination clauses, notice, probation and any post‑employment restraints or confidentiality terms.
• Consider eligibility for unfair dismissal and whether the Small Business Fair Dismissal Code applies.

2) Identify A Valid Reason And Plan The Process

• For performance: set clear expectations, provide feedback, training or support, and issue written warnings with a chance to improve.
• For conduct: investigate, gather evidence and offer the employee an opportunity to respond (they can have a support person if they wish).
• For redundancy: prepare a business case, consult in line with any award or agreement, and explore redeployment.

3) Meet And Communicate Fairly

• Invite the employee to a meeting, outline concerns and possible outcomes, and allow a support person.
• After considering their response, make a decision and communicate it respectfully. Confirm the decision in writing with the effective date and notice arrangements.

4) Provide Notice (Or Pay In Lieu)

• Give the correct notice under the NES and any award/contract, or make a compliant payment instead of notice. If you’re paying out notice, follow the approach described in payment in lieu of notice.
• For serious misconduct, you can dismiss without notice. Make sure the conduct meets the serious misconduct threshold and your investigation and process are sound.

5) Calculate And Pay Final Entitlements

• Work out wages to the last day worked, accrued annual leave (and leave loading if applicable), and any redundancy or other amounts owed by law or contract.
• Pay within the timeframe in the applicable award or agreement. Where there’s no specified timeframe, pay as soon as practicable and by the next regular pay cycle. Our final pay guide outlines common rules.

6) Wrap Up Access And Property

• Organise return of devices, keys, uniforms and documents. Disable system access in a secure and respectful way.
• Remind the employee of continuing obligations (confidentiality, IP, restraints if they are enforceable).

7) Issue Paperwork And Close Out

• Provide a termination letter, payslip and any required certificates. Issue a separation certificate if the employee or Services Australia requests it, using the pointers in our separation certificate guide.
• Consider whether a deed of release is appropriate (for example, if you’re agreeing on terms to resolve a potential dispute). A deed of release can settle claims arising from the employment and termination.

Common Pitfalls To Avoid

• Not giving a chance to respond before deciding on dismissal.
• Skipping consultation steps in a redundancy where an award requires it.
• Misjudging “serious misconduct” and dismissing without notice when the facts don’t support it.
• Not checking award timelines for final pay or failing to include all entitlements.
• Using generic documents that don’t align with your award or business, increasing the risk of non‑compliance.

Documents You’ll Need When Employment Ends

The right paperwork helps you manage risk and stay compliant. Depending on the circumstances, consider the following.

• Employment Contract: Sets out termination clauses, notice and post‑employment obligations. If you need to refresh your template, start with a clear, up‑to‑date Employment Contract.
• Warnings and performance records: Notes of meetings, written warnings and improvement plans that show procedural fairness.
• Termination letter: Confirms the decision, last day of work and the notice approach (worked or paid in lieu).
• Final pay calculation: A breakdown of entitlements, consistent with award/contract rules and the NES. Our guide to final pay can help you check inclusions.
• Separation certificate: Provided on request to support Services Australia claims, using the format described in our separation certificate guide.
• Deed of release (where appropriate): A tailored deed of release can resolve disputes and bring certainty at exit.
• Policies and handbooks: Clear procedures on performance management, conduct and grievances support a fair process and consistent decision‑making.

Where redundancy is in play, confirm entitlements using a reliable method of redundancy pay calculation and retain your consultation records.

Key Takeaways

• End employment only for a lawful, genuine reason and follow a fair process, including warnings and a right of reply where appropriate.
• Check the NES, any award or agreement and your contract for notice, consultation and redundancy obligations before you act.
• Notice can be worked or paid out, and serious misconduct is the main exception to notice - use payment in lieu correctly if you choose that route.
• Final pay timeframes come from awards or agreements where they apply; otherwise, pay as soon as practicable and include all owed entitlements.
• Separation certificates are provided when requested (they’re not mandatory in every exit), and a deed of release can help resolve risks in sensitive matters.
• Keep general protections in mind - never dismiss for a prohibited reason - and document each step to support your decision if it’s reviewed under section 387 factors.

If you’d like a consultation about ending an employment contract or planning a fair, low‑risk process for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.