Resign or Be Terminated in Australia: What’s Better for Employers?

When performance, conduct or business needs change, you may find yourself weighing up a familiar question: is it better (for everyone) if an employee resigns, or should you proceed with termination?

There isn’t a one-size-fits-all answer. What matters is choosing the option that best manages legal risk, cost, timing and the impact on your team and brand.

In this guide, we’ll step through the legal and practical differences between resignation and termination in Australia, when each pathway makes sense, and the processes you should follow to stay compliant and fair. We’ll also cover the documents and decisions that protect your business through the exit process.

What’s The Real Question? Risk, Cost And Control

From an employer’s perspective, “resignation vs termination” is really about which pathway gives you the right balance of risk management, cost control and certainty.

Here’s how the options differ.

Resignation

• Voluntary and initiated by the employee. This can reduce the risk of an unfair dismissal claim, provided the resignation is genuinely voluntary and not coerced.
• Often calmer from a cultural perspective. A dignified exit may help preserve morale and future references.
• Less control over timing if the employee decides to leave immediately or won’t work their notice. You’ll still need to calculate final pay correctly.
• Legal risk if the resignation isn’t truly voluntary. Pressure, threats or “resign or be fired” ultimatums can point to constructive dismissal, exposing you to claims.

Termination

• Employer-driven and gives you more control over timing and messaging (for example, ending immediately with Payment In Lieu Of Notice).
• Requires a procedurally fair process. You should set out allegations, invite a response, consider the response, and document decisions carefully.
• Higher risk of an unfair dismissal or general protections claim if the process or reason isn’t sound, or if timing appears retaliatory.
• Potentially more upfront cost (e.g. notice, redundancy, accrued entitlements), but greater certainty about the exit date and transition plan.

When you frame it this way, the “better” option is the one that achieves a lawful, low-risk and respectful exit in your specific circumstances - without leaving you exposed to later disputes.

When Might A Resignation Be Appropriate?

A resignation can be an appropriate outcome where the employee independently decides to leave, or you mutually agree to end the relationship on agreed terms.

Genuine, Unprompted Resignations

If an employee resigns of their own accord, accept it in writing, confirm the last day of employment, and outline handover expectations. Make sure you do not pressure them or turn acceptance into a negotiation tied to other conditions.

Mutual Separation With Agreed Terms

Sometimes both parties want a clean, amicable end. In those cases, a mutual separation can be documented through an Employee Separation Agreement and, if appropriate, a release. This is common where you’re offering a financial incentive for an earlier exit, or when both parties prefer to avoid a lengthy performance or redundancy process.

To finalise the arrangement, many employers use a tailored Deed of Settlement that sets out the terms, waivers and confidentiality obligations. If you’re offering a lump sum, it’s common to frame it as an ex gratia amount; we discuss the implications further below.

Important Caveat: Avoid Coercion

Encouraging someone to resign with threats, pressure or ultimatums can be risky. If a resignation isn’t genuinely voluntary, Fair Work may treat it like a dismissal. Keep conversations respectful, allow time for the employee to consider options, and avoid language that suggests “resign or be terminated” without a fair process.

When Should You Proceed With Termination?

Termination is often the better path where your business needs clear control of timing, where conduct issues are serious, or where a genuine redundancy applies. In each case, process matters.

Performance Or Conduct (Non-Serious Misconduct)

• Provide clear performance expectations and warnings, with reasonable time to improve.
• Invite the employee to respond before making any decision, and consider their response.
• Record the process and reasons in writing. Good records are your best defence against claims.

For show-cause steps, many employers use a structured letter and meeting process similar to the approach outlined in this guide to Show Cause Letters.

Serious Misconduct

If there’s serious misconduct (for example, theft or violence), termination without notice may be available. Investigate promptly, give the employee an opportunity to respond, and ensure your decision is supported by evidence. Even in serious cases, procedural fairness is critical.

Redundancy

Where the role is genuinely no longer required due to operational changes, a redundancy may be appropriate. You’ll need to consult in line with any applicable award or enterprise agreement, consider redeployment, and pay any statutory redundancy entitlements. It’s wise to get targeted Redundancy Advice before announcing changes.

Timing And Pay Options

If you need the exit to take effect immediately, you can usually end employment now and make a Payment In Lieu Of Notice (subject to the contract and applicable laws). Some employers instead place an employee on garden leave, keeping the person employed and paid while they serve out their notice away from the workplace.

Legal Risks To Weigh Up (Regardless Of Path)

Whether you accept a resignation or proceed with termination, these legal issues should be front of mind.

Unfair Dismissal And Constructive Dismissal

Unfair dismissal claims focus on both the reason for the dismissal and whether the process was fair. A resignation can also be challenged as a dismissal if it was forced or the workplace became untenable. Careful, respectful communication and proper documentation are essential.

General Protections And Discrimination

Adverse action claims can arise if the employee is terminated (or pressured to resign) for a prohibited reason, such as exercising a workplace right or discriminatory grounds. Keep your decision-making anchored to clear, lawful reasons supported by evidence.

Notice, Final Pay And Superannuation

Employees must receive the correct notice (worked, garden leave or paid in lieu), plus accrued entitlements. If you’re paying out notice, check whether super applies under your arrangements; this overview of Payment In Lieu Of Notice and Superannuation explains the key issues. Be accurate and prompt - underpayments or delays can escalate a situation quickly.

Contract Terms, Restraints And Confidentiality

Your Employment Contract drives the details: notice periods, workplace policies, return of property, confidentiality and any post-employment restraints. Confirm these obligations in your exit letter and remind the employee of ongoing duties.

Separation Certificates And References

Centrelink requires a separation certificate in some circumstances, and many employees will ask for one. Ensure compliance with your obligations, and be consistent in any references you provide. This summary of Employer Separation Certificates outlines what to include.

Mutual Separation, Ex Gratia And Releases

If you’re offering an ex gratia amount for a smoother exit, make sure the written agreement reflects the deal, contains a release, and addresses confidentiality and non-disparagement. Use a robust separation agreement or a deed to finalise terms. If in doubt, get advice before anything is signed.

Step-By-Step: Managing An Exit The Right Way

Here’s a practical workflow you can adapt for either pathway.

1) Identify The Issue And Gather Facts

Clarify whether the concern is performance, conduct, capacity or changing business needs. Gather documents, witness statements and relevant policies. Stay objective.

2) Review Contracts, Awards And Policies

Check the contract for notice periods, disciplinary processes and any award or enterprise agreement obligations. Consider whether a probation clause applies; the process can be simpler where employment is still within a probation period, as discussed in this guide to Termination During Probation.

3) Decide The Pathway (Resignation, Mutual Separation Or Termination)

Consider risk, timing and workforce impact. If you’re contemplating a mutual exit, prepare a draft separation agreement or deed and plan the conversation carefully.

4) Follow A Fair Process

For performance or conduct matters, outline issues in writing, invite a meeting, allow a support person, and genuinely consider the response before deciding. This is where a clear show-cause step helps you maintain procedural fairness.

5) Confirm The Outcome In Writing

Whether accepting a resignation or confirming termination, issue a letter that sets out the last day of employment, notice arrangements (worked, garden leave or paid in lieu), and obligations regarding confidentiality and property.

6) Calculate Final Pay Accurately

Final pay should include accrued but untaken annual leave, any applicable redundancy pay, and notice (if relevant). Use a consistent method and timetable - this resource on Calculating Final Pay is a helpful checklist. If you need to end immediately, consider a compliant Payment In Lieu Of Notice rather than informal arrangements.

7) Manage Property, Access And Handover

Arrange the return of devices, keys and files. Disable system access promptly but respectfully. Do not withhold wages as leverage for property return - that creates legal risk, as covered in this guide to Withholding Pay.

8) Communicate Internally

Share a simple, respectful message with the team. Focus on continuity and support. Avoid sharing details that aren’t necessary.

9) Keep Records

Maintain records of meetings, letters, evidence and calculations. Good documentation is your best defence if a claim arises later.

Tools That Help

Many employers rely on an Employee Termination Documents Suite to standardise letters, checklists and acknowledgements. If you need certainty on timing, this guide to Calculating Employee Notice Periods will help you get the numbers right.

FAQs For Employers

Can We Ask Someone To Resign?

You can explore whether the employee wants to resign, but avoid pressure or ultimatums. If the resignation isn’t voluntary, it may be treated as a dismissal. Consider offering time to think and, if needed, a mutual separation documented with a release.

What If The Employee Resigns During An Investigation?

You can accept the resignation and close the investigation. If the allegations are serious, you may still need to complete certain steps internally (for record-keeping or health and safety). Confirm in writing that the employment is ending by resignation and set out the last day and final pay.

Do We Have To Pay Notice If They Resign?

Employees usually owe notice to you under their contract. If they don’t work their notice and you don’t agree to waive it, you may be able to make a deduction or offset as allowed by law and the contract. In all cases, ensure final pay is calculated correctly and issued on time.

Can We Offer A Payment For Resignation?

Yes, many employers offer an ex gratia amount as part of a mutual separation. Document it carefully in a separation agreement or deed with appropriate releases, confidentiality and non-disparagement. Consider tax implications and whether superannuation applies based on how you structure the payment.

Is It Safer To Terminate Immediately And Pay In Lieu?

Paying in lieu offers more control and reduces workplace disruption, but it must be permitted by the contract and managed properly. Confirm whether super applies and ensure the letter clearly sets out the termination date and payment terms.

Key Takeaways

• “Better” means lower risk, fairer process and clearer outcomes - sometimes that’s a genuine resignation, sometimes it’s a well-managed termination.
• Resignations must be voluntary; coercion creates constructive dismissal risk. Mutual separation is best documented in a tailored agreement or deed.
• If you terminate, follow a fair process: set out issues, invite a response, consider it, then decide and document.
• Plan timing and costs. Use garden leave or Payment In Lieu Of Notice where appropriate, and calculate final pay accurately and on time.
• Your Employment Contract, policies and award obligations drive the details. Keep records and communicate respectfully throughout.
• Getting targeted advice early - on redundancy, notice, super and releases - reduces the risk of unfair dismissal or adverse action claims.

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