Wrongful Termination In Australia: Protecting Employees And Businesses

Ending employment is one of the hardest parts of running a business - and one of the most stressful experiences for employees. When a dismissal is not handled properly, both sides face real risks, from legal claims to reputational damage.

The good news? Australian law sets out clear rules for lawful termination. If you understand the framework and put the right processes and documents in place, you can navigate separations fairly and confidently.

In this guide, we’ll unpack what “wrongful termination” means in Australia, when a dismissal is unlawful or unfair, the steps to follow for a fair process, and how both employees and employers can protect their rights. We’ll also point you to helpful documents and next steps so you can act with certainty.

What Does “Wrongful Termination” Mean In Australia?

In Australia, people often use “wrongful termination” as a catch-all for dismissals that breach the law. Legally, two main regimes govern dismissals:

• Unfair dismissal under the Fair Work Act - where a dismissal is “harsh, unjust or unreasonable.”
• Unlawful termination/adverse action - where a dismissal is for a prohibited reason (for example, because of race, sex, disability, age, union membership or exercising a workplace right like taking leave or making a complaint).

There’s a third category too: breach of contract. If an employer doesn’t follow the notice, procedure or obligations set out in the contract or applicable industrial instrument, a dismissal can give rise to damages claims.

Practically, a “wrongful termination” allegation might involve any of these (or a combination). That’s why it’s important to look at all three: fairness, lawfulness and contract compliance.

When Is A Dismissal “Unfair” Or “Unlawful”?

The Fair Work Commission (FWC) decides unfair dismissal claims. It looks at whether the dismissal was harsh, unjust or unreasonable, including whether there was a valid reason and a fair process. For an overview of the key factors the FWC considers, see section 387 of the Fair Work Act.

To be eligible for unfair dismissal, employees generally need a minimum employment period (6 months, or 12 months if the employer is a small business with fewer than 15 employees) and must earn less than the high-income threshold if not covered by an award or enterprise agreement.

Unlawful termination (also called “general protections” adverse action) focuses on reasons for dismissal. Employers can’t dismiss someone for prohibited reasons, such as protected attributes under anti-discrimination law, or because the person exercised a workplace right (like taking personal leave, making a complaint, or requesting flexible work).

Common Scenarios That Raise Red Flags

• Performance-based dismissal without warnings: Terminating for performance without clear feedback, reasonable support, or an opportunity to improve often looks harsh or unjust.
• Misconduct dismissal without investigation: Failing to run a procedurally fair investigation - including putting allegations to the employee and considering their response - undermines the validity of the decision.
• Dismissal during illness, injury or parental leave: This may be unlawful if linked to the employee exercising a workplace right or a protected attribute (for example, disability). Care is essential around termination on medical grounds.
• Retaliation for complaints or union activity: Dismissing someone because they raised concerns or are involved with a union can amount to adverse action.
• Rushed terminations in probation: Probation allows a simpler exit, but employers should still use a clear process. For guidance, see termination during probation.

What Does A Fair And Lawful Dismissal Process Look Like?

Every situation is different, but a fair process generally includes these steps. Following them not only reduces legal risk - it’s also respectful and transparent for everyone involved.

1) Identify The Valid Reason

Be clear whether the reason is performance, conduct, capacity (including prolonged incapacity), or redundancy. Different reasons call for different processes and documentation. For example, a genuine redundancy requires consultation and there are specific considerations under section 389 (genuine redundancy).

2) Plan An Investigation (For Conduct Or Serious Issues)

Where allegations are involved, outline the issues, gather evidence, and give the employee a chance to respond. In some cases, you might consider a temporary stand down or suspension on pay while you investigate. For guidance on process and risks, see standing down pending investigation.

3) Communicate Clearly And Invite A Response

Provide the concerns in writing (with examples) and allow reasonable time to respond. A show cause letter is a helpful tool to outline the issues and possible outcomes (including termination), and to invite the employee’s explanation or mitigating factors.

4) Consider Alternatives, Support and Warnings

Where performance is the issue, a Performance Improvement Plan and support (coaching, training, clear targets) shows reasonableness. If a role is redundant, consider redeployment options and comply with any consultation obligations under the applicable award or agreement.

5) Make A Decision And Document It

Once you’ve considered the employee’s response, make a decision that aligns with your policies, contract and any industrial instrument. Keep records of the process, reasons and evidence.

6) Manage Notice, Pay And Exit

Give the required notice (or pay in lieu), ensure final pay and entitlements are correct, and handle company property, systems access and confidentiality. Where appropriate, consider garden leave to protect business interests during the notice period.

Notice, Final Pay And Exit Documents: What’s Required?

The National Employment Standards (NES), the applicable award or enterprise agreement, and the employee’s contract work together to determine notice and final pay. Get these wrong and disputes can escalate quickly.

• Notice: Provide the correct notice period, or consider payment in lieu of notice if permitted by the contract. Some awards require additional steps, so check the instrument first.
• Final Pay: Include accrued but untaken annual leave and any other entitlements under the award/enterprise agreement and contract. Long service leave rules vary by state or territory.
• Documentation: A termination letter should confirm the reason (if appropriate), the last day, notice or payment details, and any post-employment obligations (confidentiality, return of property, restraints).
• Separation Terms: In more complex exits, an Employee Separation Agreement (often paired with a Deed of Release) can settle claims and set clear conditions (for example, non-disparagement and handover expectations).

Having a consistent suite of templates - from performance warnings to termination letters - reduces the risk of missed steps. If you need a full toolkit, consider an Employee Termination Documents Suite tailored to your business and awards.

Consequences And Remedies: What’s At Stake?

Understanding the potential outcomes helps both employers and employees make informed decisions.

• Unfair Dismissal: The FWC can order reinstatement or compensation (capped at the lower of 26 weeks’ pay or half the high-income threshold), and may adjust remedies if an employer failed to follow a fair process.
• General Protections/Unlawful Termination: Remedies can include compensation for economic and non-economic loss and, in some cases, penalties against the employer and individuals who were knowingly involved.
• Breach Of Contract: Employees may seek damages for notice shortfalls and other contractual breaches. Employers might also enforce contractual obligations (like confidentiality or restraints) if those terms are valid and reasonable.

Most disputes settle. A clear, well-documented process - and, where appropriate, a well-drafted Deed of Release - gives both sides certainty and closure.

Key Protections And Practical Tips For Employers

Fair and lawful terminations don’t happen by accident. They’re the result of sound foundations and repeatable processes.

Use Clear Employment Contracts And Policies

Set expectations from day one. A tailored Employment Contract and practical workplace policies (covering performance, conduct, leave and investigations) make decision-making easier, more consistent and defensible.

Apply A Consistent, Documented Process

Keep contemporaneous notes of meetings, warnings, Performance Improvement Plans, and investigations. Use a show cause process for serious issues. Consistency helps demonstrate procedural fairness.

Handle Redundancies Carefully

Confirm that the role is no longer required, consult in line with the award or enterprise agreement, and consider redeployment. For situations involving illness or leave entitlements, be cautious about timing and process (for example, see redundancy and sick leave).

Consider Alternatives To Immediate Termination

Depending on the circumstances, alternatives such as training, redeployment, garden leave or negotiated exits may be appropriate and less risky. Where you propose a mutual exit, formalise it in writing (often via a Deed in a separation agreement) with clarity on payments, references and confidentiality.

Double-Check Notice, Leave And Final Pay

Audit final pay calculations and timing. If operationally necessary, you can rely on payment in lieu where permitted by the contract, but make sure you meet all award and NES obligations.

Get Advice On High-Risk Terminations

Terminations involving allegations, medical incapacity, protected attributes or workplace rights are higher risk. It’s sensible to seek advice early, especially before issuing a show cause letter or making a final decision.

What Should Employees Do If They Think They Were Wrongfully Dismissed?

If you’re an employee who believes your dismissal was unfair or unlawful, acting quickly is important because strict time limits apply.

• Note Key Dates: Unfair dismissal applications typically must be lodged within 21 days of the dismissal taking effect. General protections also have tight timeframes.
• Gather Documents: Collect your contract, policies, warnings, correspondence and pay records. These will help you assess your options.
• Understand The Pathway: Consider whether your situation is more about fairness (harsh, unjust or unreasonable) or prohibited reasons (adverse action). The best pathway depends on the facts.
• Consider Outcomes: Remedies may include compensation, a negotiated settlement, or in some cases reinstatement. Reasonable settlement terms often address references, non-disparagement and timing of payments.

If you’re uncertain about your eligibility or the right application type, a brief consult can help you weigh your options and strategy.

Essential Legal Documents That Help You Get It Right

Having the right contracts and templates in place gives you a clear roadmap and reduces risk at every step of the employment lifecycle.

• Employment Contract: Sets out duties, pay, notice, misconduct processes, confidentiality and post-employment restraints - your first line of clarity for both sides.
• Performance And Conduct Policies: Explain expectations and procedures for feedback, warnings and investigations, which supports procedural fairness.
• Show Cause Letter Template: Frames allegations, attaches evidence and invites a response before decisions are made, supporting natural justice.
• Termination Letter: Confirms the decision, reasons (where appropriate), last day, and details on notice or payment in lieu.
• Separation Agreement (Deed of Release): Used to settle claims and set practical terms (handover, confidentiality, non-disparagement, references) - see Employee Separation Agreements.
• Restraint And Confidentiality Clauses: Protect client relationships and sensitive information after exit if drafted narrowly and reasonably for your industry.

If you’re building or updating your toolkit, a comprehensive Employee Termination Documents Suite can save time and ensure consistency across HR processes.

Frequently Asked Questions

Can I Dismiss During Probation Without Risk?

Probation can simplify termination because the unfair dismissal regime usually doesn’t apply until after the minimum employment period. However, discrimination and adverse action rules still apply, and it’s best practice to follow a short, fair process. For more, see termination during probation.

Do I Have To Pay Out Notice If There’s Serious Misconduct?

For proven serious misconduct, employment can usually end without notice. Be cautious - you need a robust investigation and clear evidence. If you’re not confident the conduct meets the serious misconduct threshold, consider notice or payment in lieu of notice instead.

What If The Employee Is Off Sick Or On Parental Leave?

Terminations connected to protected attributes (like disability) or exercising workplace rights (like taking personal or parental leave) are high risk and may be unlawful. If medical incapacity is an issue, take special care with capability assessments, reasonable adjustments and timing. Start with guidance on termination on medical grounds.

How Does Redundancy Fit Into This?

A genuine redundancy isn’t an unfair dismissal, but the test is strict: the role must no longer be required, proper consultation is needed, and redeployment must be considered. See section 389 and ensure your process and letters reflect the real operational change.

Key Takeaways

• “Wrongful termination” in Australia commonly refers to unfair dismissal, unlawful (adverse action) termination, and breach of contract - assess all three when planning an exit.
• A fair process matters as much as the reason: investigate, put concerns in writing, invite a response, and document decisions.
• Get notice, final pay and documentation right, and consider tools like garden leave, a show cause letter and a separation agreement to manage risk.
• High-risk situations include dismissals involving medical issues, protected attributes, or workplace rights - seek advice early.
• Strong foundations - a clear Employment Contract, sensible policies and consistent templates - make lawful, fair terminations simpler and safer.
• Employees who believe they’ve been wrongfully dismissed should act quickly due to strict time limits and gather documents to assess their best pathway.

If you’d like a consultation about wrongful termination processes or defending a claim, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.