Grounds For Termination Of Employment In Australia

Ending someone’s employment is one of the hardest parts of running a business. It needs to be done lawfully, fairly and with care - otherwise you risk claims, penalties and damage to your team’s trust.

The good news is there are clear, lawful grounds for termination of employment in Australia. When you understand those grounds and follow a sound, documented process, you put your business in a much stronger position.

In this guide, we’ll walk through the main lawful reasons to end employment, the steps to take before making the call, and what to pay on exit. We’ll also cover common risks (like unfair dismissal and general protections), and the essential documents to have ready so you can act confidently and compliantly.

What Does “Lawful Grounds” For Termination Mean?

In Australia, you can only dismiss an employee for legitimate reasons connected to the job, and you must handle the process fairly.

At a high level, lawful grounds for termination fall into a few broad categories:

• Conduct: when behaviour breaches your policies or is otherwise unacceptable
• Capacity: when the employee can’t meet the requirements of the role (e.g. performance or inherent capacity)
• Genuine Redundancy: when the role is no longer required due to operational change
• Other limited scenarios: end of a fixed-term, termination during probation, mutual separation

Separately, your process matters. Even with a valid reason, a flawed process (for example, no warnings where required, or no chance to respond) can expose you to claims.

Lawful Grounds To Terminate An Employee

1) Misconduct Or Serious Misconduct

Misconduct includes breaches of your policies or contract (for example, repeated lateness after warnings, refusing lawful and reasonable directions, or inappropriate behaviour).

Serious misconduct covers more severe conduct such as theft, fraud, assault, serious breaches of safety, or wilful refusal to follow lawful directions. It often justifies summary dismissal (termination without notice), but you should still carry out a fair process: investigate, give the employee a chance to respond, and document your decision.

When concerns arise, it’s common to issue a formal warning or a show cause letter so the employee can put forward their side before any decision is made.

2) Poor Performance Or Lack Of Capacity

If an employee isn’t meeting the required standard, you can move to terminate - but only after a fair performance management process. This usually includes setting clear expectations, providing training or support, giving reasonable time to improve, and communicating the consequences of not meeting targets.

Capacity can also involve an employee’s inherent ability to perform the role (for example, loss of licence where a licence is an inherent requirement). If capacity is affected by medical issues, the situation is more complex and you should consider reasonable adjustments and medical evidence before deciding.

3) Termination On Medical Grounds (Handle With Care)

Ending employment due to medical incapacity requires careful, evidence-based decision making and consideration of your return-to-work obligations and anti-discrimination laws. If you’re in this territory, it’s wise to get specific advice. For deeper context on processes and risks, see termination on medical grounds (handle this with support and sensitivity).

4) Genuine Redundancy

Redundancy is about the job, not the person. A dismissal is a genuine redundancy where:

• You no longer need the job to be done by anyone because of operational changes (for example, restructure, technology, or downturn), and
• You have complied with any consultation obligations under an award or enterprise agreement, and
• It wouldn’t have been reasonable to redeploy the employee in your business (or an associated entity).

Genuine redundancy requires consultation, exploring redeployment options, and payment of redundancy entitlements (unless an exception applies). If any element is missing, the dismissal risks being treated as an unfair dismissal rather than a redundancy.

5) End Of A Fixed-Term Or Maximum-Term Contract

When a fixed-term contract ends on the contracted end date, the employment typically concludes without the need for a further reason. However, it’s still important to check the contract terms, notice requirements (if any), and how renewals have been handled. In some cases, repeated renewals can complicate the position.

If you’re relying on a term ending, review your documents ahead of time so there are no surprises.

6) Termination During Probation

Probation periods allow you to assess suitability. You can terminate during probation with shorter notice, provided you don’t breach any discrimination or general protections laws and you follow your contract and policy.

A short, written process is still sensible: outline concerns, allow a brief response, and record the decision. This helps show you acted fairly even where the threshold is lower during probation.

Process Matters: How To Terminate Fairly And Reduce Risk

Having a valid reason isn’t enough on its own. The way you manage the process is often decisive in any dispute. Here’s a practical roadmap.

Step 1: Check The Contract, Policies And Any Award/Agreement

Start with the paperwork. Your Employment Contract and any applicable award or enterprise agreement set the baseline for notice, disciplinary steps, consultation and other requirements. Your policies should align with these obligations and outline how performance or conduct issues are handled.

Step 2: Investigate And Document

For conduct or performance concerns, gather facts and evidence. If allegations are serious, consider standing down an employee pending investigation (on pay unless a lawful exception applies) to protect the workplace while you assess the situation.

Keep detailed notes, attach copies of emails or messages, and log dates and conversations. Good records are your best defence.

Step 3: Notify The Employee And Seek A Response

Explain the issue clearly, provide any evidence you’re relying on, and invite a response within a reasonable timeframe. A formal show cause letter is a common way to do this. If they ask to bring a support person to a meeting, allow it.

Step 4: Consider The Response And Decide

Assess the employee’s explanation and any mitigating factors. If termination is still appropriate, decide on the type of termination (notice, payment in lieu, or summary dismissal for serious misconduct) and prepare your documents.

Step 5: Provide Notice Or Payment In Lieu

Unless it’s summary dismissal for serious misconduct, employees are entitled to statutory or contractual notice. It’s common for employers to provide payment in lieu of notice where immediate separation is needed. Make sure you calculate entitlements correctly and confirm the last day of employment in writing.

Step 6: Finalise Final Pay And Exit Steps

Issue a termination letter, pay final entitlements on time, collect property, remove systems access, and confirm any ongoing obligations (like confidentiality or restraints). Keep the conversation respectful - how you exit someone affects morale across the team.

Notice, Garden Leave And Final Pay: What You Need To Know

Minimum Notice

Minimum notice depends on length of service and the contract. Employees over a certain age or those covered by an award may have additional requirements. For serious misconduct, notice is not required - but ensure the conduct truly meets the threshold and your process is sound.

Payment In Lieu

Instead of having an employee work through their notice, you can pay out their notice period. When paying in lieu, check how it’s treated under awards, the contract and super rules. If you’re unsure about super on different components, review how payment in lieu interacts with ordinary time earnings and consider guidance specific to payment in lieu arrangements.

Garden Leave

Garden leave means the employee remains employed (and paid) for their notice period but stops working and stays away from the workplace. This can protect client relationships and confidential information, especially for senior or client-facing roles. If you want this option available, ensure the clause exists in your contract and that you apply it reasonably.

Final Pay Components

Final pay usually includes:

• Outstanding wages and allowances to last day of employment
• Accrued but untaken annual leave (with leave loading if applicable)
• Long service leave where applicable (state-based rules apply)
• Redundancy pay (if it’s a genuine redundancy and threshold conditions are met)
• Any contractual entitlements (for example, bonuses, subject to terms)

Pay on time - some awards set strict deadlines.

Common Risk Areas: How To Avoid Pitfalls

Unfair Dismissal Risk

An employee may bring an unfair dismissal claim if they were dismissed harshly, unjustly or unreasonably and they’re eligible. Tribunals consider factors like whether there was a valid reason related to capacity or conduct, whether the employee was notified of that reason, given a chance to respond, and other procedural elements under section 387 of the Fair Work Act.

Good process significantly reduces your risk.

General Protections (Adverse Action)

It’s unlawful to dismiss someone for prohibited reasons such as exercising a workplace right, making a complaint or inquiry, participating in industrial activity, or due to protected attributes (like sex, race, age, disability or pregnancy). These claims carry reverse onus - meaning you’ll need to prove the decision was not for a prohibited reason - so clear records of your genuine, lawful reason are essential.

Temporary Absence Due To Illness Or Injury

Employees are generally protected from dismissal due to a temporary absence because of illness or injury, provided certain conditions are met. If health is impacting capacity to perform the role, take a measured, informed approach. Seek medical evidence, consider reasonable adjustments and explore alternatives before moving to termination.

Probation And Eligibility For Claims

Probation can limit access to certain dismissal claims, but it’s not a free pass. Discrimination and general protections still apply, and your contract and policies still matter. Keep basic procedural fairness in place when considering termination during probation.

Fixed-Term Contracts

Ending employment at the end of a genuine fixed term is typically lower risk than mid-term termination. However, manage renewals carefully and avoid inconsistent practices that could undermine the fixed-term structure. Before you reach the end date, review the arrangement so you’re on the front foot if the contract will end or be renewed.

FAQs: Practical Scenarios Employers Ask About

Can I Dismiss Someone Immediately For Serious Misconduct?

Yes, summary dismissal can be lawful for serious misconduct such as theft, fraud, assault or serious safety breaches. However, always investigate, put the allegations to the employee, allow a response, and make a reasoned decision that you can document.

What If I Need The Employee To Leave Right Away But It’s Not Serious Misconduct?

Use notice or payment in lieu of notice, and consider garden leave if the contract allows. Confirm the termination details and entitlements in writing.

Is Redundancy Always Low-Risk?

Only if it’s genuine. You must consult where required, explore redeployment, and show the role is no longer needed for operational reasons. If the redundancy isn’t genuine, the dismissal can still be challenged as unfair.

Can I Stand An Employee Down While I Investigate?

In appropriate circumstances, yes. It must be lawful and reasonable in the situation, and usually on pay unless a specific exception applies. Review your contract and policy and consider guidance around standing down an employee pending investigation before deciding.

What About Medical Incapacity?

Proceed carefully. Obtain medical evidence, consider reasonable adjustments, and keep thorough records. If the employee can’t perform the inherent requirements of the role even with adjustments, termination may be lawful - but the process needs to be careful and well-documented.

Essential Documents And Policies To Protect Your Business

Strong, tailored documents help you manage issues early and exit fairly if you must.

• Employment Contract: Sets duties, expectations, notice, policies, garden leave, confidentiality and post-employment restraints. Keep it clear and up-to-date for every role.
• Workplace Policies: Code of conduct, performance and disciplinary policy, bullying and harassment, leave, IT and privacy. Policies guide behaviour and ensure everyone understands the rules.
• Performance Management Tools: Templates for warnings, performance improvement plans and meeting notes to track concerns and support improvement.
• Show Cause Letter: A structured notice that sets out concerns and invites a response before a decision - see show cause letters for what to include.
• Termination Pack: A practical suite covering termination letters, final pay checklists and scripts to keep the process consistent. Many employers streamline this with an employee termination documents suite.

If you use fixed-term arrangements or initial trial periods, ensure the contract language matches your intended flexibility and that you manage renewals deliberately. If you expect turnover in a role or periods of higher risk (for example, client-facing sales), build in options like garden leave and clear confidentiality.

Putting It All Together: A Practical Checklist

Use this as a quick cross-check before you decide to terminate.

• Reason: Identify the lawful ground - conduct, capacity, genuine redundancy, end of fixed-term or probation.
• Evidence: Gather documents and witness accounts. Keep concise, dated notes.
• Contract/Award: Review the Employment Contract, policies and any award/enterprise agreement obligations.
• Process: Notify the employee, allow a response (consider a show cause letter), consider all factors, and document the decision.
• Notice: Decide between working notice, garden leave or payment in lieu of notice (or summary dismissal where serious misconduct is proven).
• Final Pay: Calculate and pay all entitlements on time; double-check any redundancy or long service leave obligations.
• Risks: Sense-check against unfair dismissal factors under section 387 and ensure there’s no prohibited reason (general protections).
• Exit: Confirm restraints, confidentiality and return of property; remove systems access; keep a respectful tone.

Key Takeaways

• Lawful grounds for termination include conduct, capacity (including performance), genuine redundancy, end of fixed-term and termination during probation.
• Process is critical: investigate, notify concerns, allow a response, consider the explanation, and document every step.
• Unless it’s serious misconduct, provide notice or pay it out; garden leave can protect clients and confidential information where your contract allows.
• Watch key risks - unfair dismissal (procedural fairness matters) and general protections (avoid any prohibited reasons).
• Solid foundations like a clear Employment Contract, practical policies and a reliable termination pack reduce stress and safeguard your business.
• If in doubt on tricky scenarios (probation, fixed terms, medical capacity, or investigations), get advice early and keep good records throughout.

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