Navigating Termination Of Employment In Australia: A Practical Guide For Employers

Ending someone’s employment is never easy. Whether it’s due to poor performance, serious misconduct, redundancy or a structural change in your business, termination of employment raises legal, operational and human questions all at once.

The good news? With the right process, documents and planning, you can manage termination fairly, lawfully and respectfully - reducing the risk of disputes while protecting your business and your people.

In this guide, we’ll walk through when you can lawfully terminate an employee in Australia, the process to follow, key decisions around notice and payouts, and the documents that help you stay compliant. We’ll keep it practical, so you can make confident decisions and move forward.

What Does “Termination Of Employment” Mean In Australia?

Termination of employment simply means ending the employment relationship between your business and an employee. This can happen for a range of reasons, including:

• Performance or conduct issues (after a fair process)
• Serious misconduct (e.g. theft, violence, serious safety breaches)
• Redundancy (the role is no longer required)
• End of a maximum-term or fixed-term contract
• Mutual agreement to part ways (often with a negotiated release)

Each pathway has different legal requirements under the Fair Work system, modern awards or enterprise agreements, your Employment Contract, and workplace policies.

It’s also important to distinguish termination from other actions, such as suspending an employee during a workplace investigation or lawfully standing them down when there’s no useful work. These aren’t terminations - but they do have their own rules and risks.

When Can You Lawfully Terminate An Employee?

In Australia, termination must be for a lawful reason and follow a fair process. Unfair dismissal laws generally apply to national system employers once an employee has completed the minimum employment period (usually 6 months, or 12 months for small businesses).

Lawful Reasons To Terminate

• Performance or capacity: The employee can’t perform the inherent requirements of the role despite support and a reasonable performance management process.
• Conduct: Misconduct that justifies disciplinary action, up to termination, after a procedurally fair investigation.
• Redundancy: The role is genuinely no longer required, and you’ve met consultation and redeployment obligations.
• End of a term: The employment ends when a genuine fixed-term or maximum-term contract expires.

Reasons That Are Not Lawful

Termination must not be for a prohibited reason such as a discriminatory ground, a protected industrial activity, exercising a workplace right, or temporary absence due to illness or injury (within the protections of the Fair Work Act). These risks need careful assessment before you act.

If you’re weighing up the risk of unfair dismissal, it helps to understand how the Fair Work Commission assesses whether a dismissal was “harsh, unjust or unreasonable,” including the factors under section 387 of the Fair Work Act.

What Process Should You Follow Before Termination?

A fair and well-documented process is your best protection. It also treats people with dignity and gives you clearer information before you decide.

1) Identify The Issue Clearly

Define whether this is a performance issue, conduct issue, business restructure, end of contract, or something else. Your process flows from this first step.

2) Gather Facts And Evidence

Collect relevant documents, emails, timesheets, CCTV (if applicable), supervisor notes, and policy references. If the concern relates to alleged misconduct, run a fair investigation before making any decisions.

3) Consider Interim Measures

Where allegations are serious, you may need to remove the employee from the workplace temporarily. Make sure you understand the difference between standing an employee down and suspending them on pay while you investigate. Our guide to suspending an employee pending investigation explains the legal steps and documentation required.

4) Put Allegations Or Concerns To The Employee

Invite the employee to a meeting in writing, outline the issues, share relevant evidence, and allow them to bring a support person. For conduct matters, a formal show cause letter is often appropriate.

5) Consider The Employee’s Response

Genuinely consider any explanations, mitigating circumstances, and evidence provided. It’s important to keep an open mind and document your reasoning.

6) Decide Outcomes And Communicate Clearly

If termination is warranted, provide a clear termination letter that sets out the reason (where appropriate), notice or payment in lieu, the final day, return of property, and any entitlements to be paid. For less serious matters, consider alternatives like further training or a formal warning.

For medical capacity issues, there are additional risks around discrimination and the duty to make reasonable adjustments. See our guide on termination on medical grounds before taking any steps.

Notice, Garden Leave And Payment In Lieu: What Are Your Options?

In most cases, you must provide the applicable notice period or pay in lieu, unless the employee is dismissed for serious misconduct (in which case notice doesn’t usually apply). The applicable notice comes from the National Employment Standards (NES), a modern award or enterprise agreement, and any contractual terms.

Make sure you understand how notice periods apply in your situation - including minimum statutory notice, any additional contractual obligations, and how service length affects the calculation.

Option A: Work Out The Notice Period

The employee continues working until the end of the notice period, receiving normal pay and entitlements. This is common when handovers are needed and there’s no risk to the business.

Option B: Garden Leave

Garden leave means the employee remains employed and paid during the notice period, but is directed not to attend work or perform duties. It can be useful to protect client relationships, confidential information and team morale during the transition. Learn how garden leave operates and when you can rely on it (often linked to what your contract allows).

Option C: Payment In Lieu Of Notice

Instead of requiring notice to be worked, you can generally pay out the notice period and end employment immediately. This is efficient when you want a clean break, but you need to get the calculations right and keep records straight. Our guide to payment in lieu of notice sets out the key rules and employer obligations.

What If The Employee Won’t Work Their Notice?

Sometimes an employee resigns and then refuses to work their notice period. Your options depend on the contract, applicable award or agreement, and whether you’re willing to accept a shorter notice. For practical strategies and risk points, see our guide to an employee not working their notice period.

Redundancy Versus Misconduct: Get The Basis Right

Redundancy and misconduct are very different legal pathways, with different processes and entitlements. Confusing the two can lead to unnecessary risk.

Redundancy (Genuine)

A genuine redundancy occurs when you no longer need the job to be done by anyone due to changes in operational requirements, technology, restructure or business downturn. You must consult under any applicable award or enterprise agreement and consider redeployment opportunities.

If the redundancy is genuine, unfair dismissal claims are typically unavailable. However, redundancy pay may be owed (unless an exemption applies, such as small business redundancy concessions or limited service). If you’re working through the numbers, review how to calculate your redundancy payment and check whether your award or agreement changes the calculation.

Misconduct Or Performance

Where the role still exists but the issue is behaviour or capability, you need a procedurally fair disciplinary process that gives the employee a reasonable opportunity to respond. Avoid labelling a disciplinary termination as redundancy - that mismatch can be costly if challenged.

End Of Probation Or Fixed Term

Ending employment during probation still requires care. You should follow a fair process and respect minimum notice requirements, but the unfair dismissal risks are different before the minimum employment period. For fixed-term or maximum-term roles, look at what the contract actually says about expiry or early termination and follow it carefully.

What Documents And Policies Help You Terminate Fairly?

Clear, well-drafted documents make terminations simpler and safer. They set expectations upfront, guide your decision-making and evidence your process. Consider the following foundation pieces.

• Employment Contract: The contract should set out duties, policies, notice periods, garden leave rights, serious misconduct provisions, post-employment restraints and intellectual property protections. Consistent, modern terms help you act quickly and lawfully.
• Workplace Policies: Policies on performance and conduct, investigations, equal opportunity, bullying and harassment, IT use and confidentiality support a fair and consistent approach, and help employees understand your expectations.
• Performance Management Framework: A structured approach to setting expectations, documenting feedback and responding to underperformance reduces disputes and makes outcomes more defensible.
• Show Cause Letter Templates: Standard templates help you put allegations and evidence to an employee clearly, allow a response, and preserve procedural fairness.
• Termination Letter Templates: Clear letters confirm the reason (where appropriate), last day, notice or payout, return of property, and final pay details.
• Deed Of Release (Settlement): Where both parties agree to end employment (or to settle a dispute), a deed can confirm mutual obligations, waivers, return of property and confidentiality. See our guide to a Deed of Release and Settlement to understand what’s covered.

When you’re preparing to end employment, it’s helpful to have a practical toolkit ready. Our Employee Termination Documents Suite is designed for this exact scenario, supporting consistent, compliant steps from start to finish.

Practical Tips To Reduce Termination Risk

• Plan the process early: Map the steps, assign roles, gather evidence and set a timeline before you start meetings.
• Be consistent: Treat similar issues similarly across the business, aligned with your policies and past practice.
• Keep records: File notes of meetings, copies of letters, investigation materials and decision-making reasons.
• Check the instrument: Review any applicable award or enterprise agreement for consultation, notice, and disciplinary procedure requirements.
• Mind your communications: Keep discussions respectful and factual. Avoid language that could confuse the basis for termination.
• Pay what’s owed: Calculate final pay accurately (wages, accrued but untaken annual leave, leave loading if applicable, redundancy pay where due, and any other entitlements). Errors here often trigger disputes.
• Secure your business: Plan for return of property, revoke system access, and remind the employee about confidentiality and post-employment obligations.
• Assess reputational impacts: Consider how the message will be communicated internally and externally to maintain team trust and client relationships.

Common Scenarios And How To Handle Them

Serious Misconduct

Serious misconduct justifies summary dismissal (no notice) in many cases, but only after a fair investigation. You should provide the allegations in writing, give the employee a chance to respond, consider their response in good faith, and then make an evidence-based decision. Document each step and keep the termination letter clear and factual.

Underperformance Over Time

Underperformance is best addressed through a performance improvement plan (PIP), clear goals, reasonable timeframes and support. If the employee cannot meet expectations despite a fair process, termination may be justified. Your policies and contracts should support this framework.

Medical Incapacity

If an employee can’t perform the inherent requirements of their role due to illness or injury, you must consider medical evidence and reasonable adjustments. Tread carefully to avoid discrimination risks and ensure procedural fairness. For more detail, step through the considerations in termination on medical grounds.

Restructure And Genuine Redundancy

When reorganising your business, start with a robust planning paper that explains why roles are no longer required, who is affected, and how you’ll consult and assess redeployment. If redundancy pay applies, check timing, service periods and any exemptions with the calculation approach in how to calculate your redundancy payment.

Key Takeaways

• Termination is lawful when you have a valid reason and you follow a fair, well-documented process that aligns with the Fair Work system, contracts and policies.
• Investigate issues properly, use a formal process (including a show cause letter where appropriate), and consider the employee’s response before deciding.
• Decide early how you’ll manage the end: work out notice, use garden leave, or make a payment in lieu of notice with accurate calculations and clear paperwork.
• Don’t confuse redundancy with performance or conduct - follow the right pathway and, if redundancy is genuine, calculate entitlements using a compliant method like redundancy payment calculations.
• Know what the Fair Work Commission looks at under section 387 of the Fair Work Act to assess unfair dismissal risk.
• Strong foundations - clear Employment Contracts, consistent policies, and an Employee Termination Documents Suite - make fair terminations more manageable and defensible.

If you’d like a consultation on navigating 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.