Termination

A Best Practice Guide to Terminations

Many of my clients tell me that they just want to terminate the employment of a troublesome employee and they do not want the hassle of a long drawn out process they believe is required to ensure the employee cannot bring an unfair dismissal claim. I often hear the refrain that it is “impossible to terminate employees in Australia”.

Now I do understand the business imperatives that require quick action in circumstances where an employee is consistently underperforming or is just not a suitable employee. The simplest answer to this issues is to ensure that all employees are properly managed from the day they are hired. Actually, it should start before commencement, as choosing the right employee carefully goes a long way in preventing the issue from arising at all. If employers did this properly, I promise I would be out of business. Lucky for me, most employers in Australia do not realise that if they deal with performance or conduct issue when they first become apparent, and give the employee concerned proper and constructive feedback and an opportunity to improve, they would not need my advice when deciding to terminate, because they would have already taken steps to address the issue, and that is what the warnings and process we outline below is all about.

The parting of ways in an employment context, whether amicable or otherwise, is an inevitable and often unwelcome part of the duties of HR professionals and managers generally. If the termination procedure is not managed appropriately and carefully, employers can be subject to numerous post-termination claims, including unfair dismissal, adverse action, discrimination and harassment, workers’ compensation and breach of contract – among others.

Even if the termination is by mutual agreement or the employee resigns, the employer should ensure they have proper termination procedures in place so as to best protect the employer’s goodwill and property. This includes procedures to remind employees of post-termination restraints, confidentiality obligations and a mechanism to ensure the return of company property.

Despite the fact that unfair dismissal laws may only apply to a subset of employees, it is useful for a number of compelling business reasons to treat all employees properly and to follow the same guidelines for those who would be unable to bring an unfair dismissal claim. In any event, given the ability for employees of any status, including the most senior employees to bring a claim for breach of the General Protection provisions of the Fair Work Act 2009 (Cth), it is imperative, prior to any dismissal of an employee, that the employer follow the following broad steps:

  1. determine the real reasons being relied upon for the termination, and ensure that those reasons are supportable and would be considered valid. Valid reasons include for example, misconduct, poor performance, redundancy, and inability to perform the role;
  2. Issues of unsatisfactory conduct (other than serious misconduct) or poor performance generally necessitate that the employee be given warnings regarding the poor performance and a reasonable opportunity to demonstrate improvement. This usually also requires that the employer provide the employee with reasonable assistance to meet its performance expectations. Despite the widely held belief that an employee must get 3 written warnings before a dismissal can be effected, there is no legislative or other requirement for minimum warnings prior to dismissal. What is required is that the employee has been properly informed that their performance of conduct is not satisfactory, has been informed as to what needs to be improved, and has received sufficient opportunity to improve. If there is still no or insufficient improvement a final warning or in some cases dismissal may be justified. Before a dismissal occurs the employee should be made aware that failure to improve may result in termination of employment. Most often employers fail to make this explicit.
  3. Once an employer has provided and employee with an appropriate opportunity to address the conduct or performance concerns and has failed to do so, an employer is able to move to dismissal.
  4. Before dismissing an employee, it is important to ensure that all the relevant paperwork is ready, including the letter of termination, calculation of final pay and severance payment if it is a case of redundancy.
  5. Before having the termination meeting with the relevant employee it is prudent to endure steps have been taken to secure company property and assess the risks posed by the departing employee. If the employee is subject to restraints, a letter reminding the employee of their obligations should also be prepared.
  6. When meeting an employee to inform them their employment is to be terminated, in circumstances of poor performance, poor conduct or redundancy, the employee should be informed prior to the meeting that they are able to bring a support person to the meeting if they wish. The employer should also ensure that they clearly articulate the reasons for dismissal and give the employee a proper opportunity to respond.
  7. In circumstances of redundancy, there may be additional obligations on the employer to seek alternative positions for the employee or redeployment opportunities. A failure to do so may result in the employee having an unfair dismissal claim. Employers who are making employees redundant may also be subject to additional obligations regarding consultation.

As is often the case, an employer may have a completely valid reason for the termination, but the process and communication strategy to the employee is flawed. This may give rise to procedural deficiencies which can expose an employer to judicial criticism, penalties, potential reinstatement of a problematic worker and orders for compensation against the company or its directors.

Overall, in circumstances where the employer seeks to terminate the employment of an employee, an employee should be provided ‘procedural fairness’ in the termination process, a long-standing industrial concept that denotes that employees must be told specifically what the issues are and be given an opportunity to respond before a final decision is made about their employment. In addition, in cases of genuine redundancy, employers ought to consider their consultation and redeployment obligations as well as any other obligations arising under a workplace policy.

Some helpful best practices that can be followed to reduce legal risk in this respect include:

  1. being familiar with and applying workplace policies and other industrial instruments such as an enterprise agreement, HR manual or Codes of Conduct correctly;
  2. ensuring that the employee is told in specific language the issues and concerns with their employment, preferably in writing;
  3. that the employee is given clear guidance and direction to improve conduct and unsatisfactory performance to the expected standard – in other words, the issues are discussed;
  4. the employer acts reasonably and in good faith toward the employee;
  5. that adequate training and resources are made available to the employee to support improvement;
  6. if an employee’s job is at risk, that they are informed of that matter and given warnings;
  7. if a serious conduct issue comes to light, that the employee is given a reasonable opportunity to respond prior to any final decision being made;
  8. that the employee is given the opportunity to bring a support person to any disciplinary process; and
  9. that the employee is generally given ‘a fair go all round’.

Another important consideration from a risk management perspective is to keep meticulous records of meetings and conversations, and clearly document any steps agreed with an employee particularly in the context of performance management. In circumstances where an employee has a pre-existing or ongoing work issue, or unrelated circumstances such as a disability, it is important that the reasons for the dismissal given to the employee are not connected to that matter, and that the reasons for termination are clearly articulated as the burden of proof will shift to the employer to show that the dismissal was not motivated by any ancillary unlawful or discriminatory grounds.

Assuming that a fair process has been followed and the reasons for dismissal are defensible, it is important that once the termination has occurred an employer satisfies their obligations to pay entitlements due to the employee such as notice (or payment in lieu), severance benefits, accrued leave entitlements, superannuation, tax and any incentive payments that have crystallised to the employee. It is also important at the time of separation to remind exiting employees of their surviving obligations after termination such as to maintain confidential information and comply with any restraint of trade or other restrictive covenants.

A recent decision of the Fair Work Commission, is an illustrative case, that highlights the benefit of a commendable termination process. In Rooney v Pickles Auctions [2016] FWC 858, the company terminated the employment of its vehicle detailer on the basis of habitual lateness and poor work attendance.

On the date of termination, the employer convened a meeting with the employee to inquire about why he came into work late that day and failed to notify earlier. After hearing from the employee that he slept through his alarm, the company then informed him that his job was in jeopardy and adjourned the meeting to consult with management personnel and review necessary files, work history documents and warnings (both written and verbal) regarding the employee’s continued lateness.

Later that day, the company reconvened the meeting to dismiss the employee and handed him a letter that set out the reasons for the termination, and referred to his warnings and the several opportunities provided to him to improve his attendance. The company paid the employee his accrued leave entitlements, plus four weeks’ notice. Having heard evidence from the employer as to the steps it took in proceeding with the dismissal, Commissioner Cambridge observed that the evidence clearly established that the termination for repeated poor and late attendance was justified and also praised the employer’s approach in dealing with the matter, describing it as “measured and considered”.

A business must have the right to terminate the employment of staff that do not add value to it. However, the manner in which this occurs can have a significant negative impact on both the business and the remaining employees. This does not however have to be the outcome. A carefully considered and principled approach to the issue can lead to a parting of the ways that is positive for both the employee and the employer concerned.

The decision to dismiss an employee is a contentious area of the employment relationship that requires an understanding of a wide range of legislative and other obligations imposed on an employer. The decision, outside of pure legal risk management, is an important practical one in terms of its demonstration effect on staff and the business. Knowing the legal risks is essential as every employee has a different set of circumstances to manage. Our legal professionals can help in providing training, coaching, advice and assistance in planning and executing a lawful termination.

This alert is not intended, and should not be treated as, legal advice. If you have an employment law issue, please do not hesitate to contact us for specialist advice or assistance.

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