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End of employment in Australia

Employment relationships can come to an end for a variety of different reasons — and there are specific rules that employers need to follow in each case. In Australia, employers need to know about the required notice periods for dismissing employees, severance pay and the rules around terminating an employee’s contract. It’s also important to have an understanding of what restrictions you can put on an employee’s actions to protect your business after they leave. Read this guide to learn what you need to know.

Notice period in Australia

In Australia, the minimum notice period you can give an employee is defined by the National Employment Standards (NES), which are part of the Fair Work Act 2009. The NES also provide details about when you have to pay severance pay, including how much you have to pay.

Minimum notice periods

Employers in Australia must provide employees with an end of employment letter when they want to terminate their employment. This letter must state the notice period and the final date of employment. The statutory notice period in Australia depends on how long they have been employed:

  • Less than 1 year of employment: 1 weeks’ notice
  • 1-3 years of employment: 2 weeks’ notice
  • 3-5 years of employment: 3 weeks’ notice
  • 5+ years of employment: 4 weeks’ notice

Employees over the age of 45 who have been employed for at least two years are entitled to an extra week of notice on top of the statutory notice period listed above.

Severance pay

If the employee has worked for your organisation for at least a year, you will likely have to pay them severance pay. Again, the amount due depends on how long they have been employed:

  • At least 1 year but less than 2 years: 4 weeks’ severance pay
  • At least 2 years but less than 3 years: 6 weeks’ severance pay
  • At least 3 years but less than 4 years: 7 weeks’ severance pay
  • At least 4 years but less than 5 years: 8 weeks’ severance pay
  • At least 5 years but less than 6 years: 10 weeks’ severance pay
  • At least 6 years but less than 7 years: 11 weeks’ severance pay
  • At least 7 years but less than 8 years: 13 weeks’ severance pay
  • At least 8 years but less than 9 years: 14 weeks’ severance pay
  • At least 9 years but less than 10 years: 16 weeks’ severance pay
  • 10+ years: 12 weeks’ severance pay

Severance pay is given based on a continuous period of service, and the pay rate is given for ordinary hours worked.

The impact of awards and agreements on notice periods in Australia

In Australia, most employees are covered by a modern award, an enterprise agreement, or another registered agreement. These set the minimum conditions that those employees must be granted, which can be more generous than those set out in the NES. An employee’s award or agreement may provide for more notice or additional severance pay.

Paying out notice

When you dismiss an employee, you can choose to pay them instead of asking them to work their notice period. This is called ‘pay in lieu of notice’..’ The amount you pay to the employee must be equal to the total amount they would have earned for working the notice period, including any incentive-based payments, bonuses, overtime, penalty rates and loadings.

Termination of employment in Australia

Termination of employment is when an employment contract comes to an end. This can happen for many reasons, including the employee resigning, being dismissed (fired) or being made redundant. Whatever the situation, it’s important to follow the rules that cover dismissal, notice, final pay and termination of employment in Australia, which are set by the NES. For example, there are certain rules that need to be followed when a job is made redundant, or a business is declared bankrupt. 

Termination of employment letters in Australia

Employers in Australia who want to dismiss an employee must generally give them written notice of their dismissal. The Fair Work Ombudsman has created a termination of employment letter template that Australian employees can use to dismiss their employees.

To use the template, you’ll need to fill in details about:

  • The steps you’ve taken to remedy the problem with the employee
  • Your reasons for dismissing the employee
  • The length of the notice period as defined by the NES
  • The data the employment will end

Unfair dismissal

Unfair dismissal is when an employee is dismissed from their job in a way that’s harsh, unjust or unreasonable. The Fair Work Commission is the body responsible for determining whether dismissals are unfair. As long as employees have worked for their employer for a minimum period, they can apply to the Commission if they feel they have been unfairly dismissed. This period is 12 months for small businesses (<15 employees) and 6 months for a larger business.

When deciding whether an employee has been unfairly dismissed, the Commission will consider things like:

  • Whether there was a valid reason for the dismissal, such as the employee’s conduct
  • Whether the employee was notified of the problem and given a chance to respond
  • Whether the employee has been previously warned about their behaviour or performance
  • The procedures the businesses followed when dismissing the employee

Unlawful termination

Unlawful termination is different from unfair dismissal because it involves an employer actually breaking the law instead of just being unfair. Examples of unlawful termination include employers dismissing an employee because of:

  • A protected attribute like their race, sex, sexual orientation, or gender identity
  • A temporary absence from work due to illness or injury
  • Trade union membership or participation in industrial activities

The Small Business Fair Dismissal Code

Under Australian employment law, there are different rules for small businesses that want to dismiss an employee. These are set out in the Small Business Fair Dismissal Code. A small business is defined as any business with a headcount of less than 15 employees. The idea of the Small Business Fair Dismissal Code is to protect small businesses from unfair dismissal claims, as long as they follow the guidelines set out in the code.

Post-termination restraints

Post-termination restraints are restrictions that employers can put on employees’ actions after they stop working for you. Generally, this is to stop former employees from:

  • Poaching your customers
  • Poaching your employees
  • Setting up a business in competition with yours

As an employer, you may be able to restrict your former employees from doing these things, as long as they would represent genuine harm to your business. However, you need to ensure you’re compliant with the relevant employment legislation and any post-termination restraint clause included in your employment contracts.

What is a post-termination restraint clause?

A post-termination restraint clause is a clause you can include in your employment contracts that aims to limit employees’ activities after they leave your organisation. This might include things like:

  • Non-competes
  • Employee non-solicits
  • Customer non-solicits

The clause should clearly state the post-termination restraint period and the geographic area it covers. For example, former employees might be restricted from creating a competing business within 100km of your place of business, for a period of one year after the termination of their employment with you.

Enforcing post-termination restraints

If a former employee breaks their post-termination restraint clause, the first step you should take is to contact them to notify them of the existence of the clause and ask them to stop whatever activity you deem to have breached it.

If this is unsuccessful, you can take legal action against your former employee. This might involve seeking monetary compensation for damages caused by the breach or applying for an injunction to stop the former employee from continuing their business activity.

However, Australian courts generally want to avoid hampering anyone’s ability to earn a living, so they will typically only enforce post-termination restraints in very narrow circumstances. Courts are more likely to enforce a post-termination restraint when:

  • There is clear evidence that the former employee has breached the provisions
  • There is clear evidence of harm or potential harm to your business

Generally, employee non-solicits and customer non-solicits are easier to enforce than other types of post-termination restraints, such as those that seek to stop former employees from conducting or working in a competing business.

Waivers

A waiver is when an individual voluntarily gives up some of the rights they are entitled to. In Australia, employees can waive out of some of their contractual rights. However, they cannot waive or contract out of statutory entitlements. That means that they are always entitled to the rights afforded to them by the NES or the award or enterprise agreement that applies to them, even if they have signed a waiver.

There are various laws and regulations governing the enforceability of settlement agreements in Australia. Generally, employees can sign settlement agreements that waive rights they have already acquired, such as entitlements to unpaid wages or other accrued benefits. However, they generally can’t waive future rights. That means they can’t agree to a settlement agreement that waives the right to future entitlements or claims under employment laws, like a future unfair dismissal or discrimination claim.

Under the Fair Work Act 2009, any agreement that attempts to exclude, limit or modify the NES is unenforceable. Certain settlement agreements, like those in the context of unfair dismissal, must be approve by the Fair Work Commission to ensure they are fair and compliant. In some cases, employees are required to seek independent advice before signing a settlement agreement.

Transfer of undertakings

A transfer of undertakings is when an employee is transferred from one employer to another. This might happen when a business has bought another business, or when an employee is being transferred between two associated entities. Transfer of undertaking regulations in Australia are provided by the Fair Work Act 2009. Employees in Australia cannot be transferred from one employer to another without their consent.

Transfer of undertakings between associated entities

When employees transfer between two associated entities, their service with the first employer counts as service with the new employer, as long as they are hired by the second employer within three months of being terminated by the first one.

Associated entities are businesses that are connected to each other in some way. For example, it might be that:

  • One business owns or controls the other business
  • One business has a large investment in and significant influence over the other
  • A third company controls both of the businesses

The full definition of associated entities in Australia is provided in Section 50AAA of the Corporations Act.

Transfer of undertakings between non-associated entities

In some circumstances, employees can also be transferred between non-associated entities. For the rules concerning transfers of undertaking to apply, the employee must:

  • Have had their employment with the old employer terminated
  • Have been employed by the new employer within three months of this termination
  • Have been hired by the new employer to perform the same or substantially similar duties as the ones they performed for the old employer

There also needs to be a connection between the two employers. Here are a few examples of connections which could make a transfer of undertakings possible:

  • Transfer of assets: When one employer transfers certain assets to another, it’s possible to transfer employees whose work is related to these assets at the same time. This would count as a transfer of undertakings.
  • Outsourcing arrangements: When an employer decides to outsource a service, the outsourcing company could hire employees who previously provided the service to the first employer directly as an employee.
  • Ending outsourcing arrangements: Equally, if an employee decides to stop outsourcing a service and instead hire the former employees of the outsourcing company directly, this could be counted as a transfer of undertakings.

Employee rights

Employees who have their employment transferred between two employers have certain rights in Australian employment law. In particular, employees will still be covered by any collective bargaining agreements that covered them before the transfer. The employee’s service is also considered to be continuous, and any leave benefits they have accrued should also transfer with them.

Avoid risk and missed opportunities with our end-to-end employment solutions

There are many different ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in Australia — or you could end up facing legal issues.

Our solutions ensure your business is protected from risk when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible .

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