Section 117 of the Fair Work Act and your notice of termination obligations

When you decide to end an employee's employment, Australian law does not let you simply call them into a meeting and tell them it is their last day. Section 117 of the Fair Work Act 2009 (Cth) (the FW Act) requires you to give written notice of the day of termination, and then either let the employee work out a minimum notice period or pay them in lieu of it. The obligation sits inside the National Employment Standards (the NES), the set of minimum entitlements that apply to almost every employment relationship in the country, and no contract, letter of offer or workplace policy can reduce it.

This guide sets out who the obligation applies to, how much notice you must give, how to deliver the notice properly, when payment in lieu is available, and what happens if you get it wrong. It is aimed at small and medium business owners who want to end employment lawfully without turning a difficult conversation into a costly dispute.

Who must give notice

The notice obligation applies to employers and employees in the national workplace relations system, which covers most private-sector employment in Australia. Practically, if you employ staff under a modern award, an enterprise agreement, or no industrial instrument at all, assume the NES applies to you.

The obligation covers:

• Full-time and part-time permanent employees, including employees dismissed while still in a probation period. The Fair Work Ombudsman's guidance is explicit that an employee is entitled to notice even if their employment ends during probation, so a probation clause in a contract does not remove the NES minimum.
• Fixed-term employees dismissed before their contract end date: The NES exclusion for fixed-term and task-based employees is aimed at employment ending naturally at the end of the agreed period. If you end a fixed-term contract early, NES notice entitlements can apply depending on the terms of the engagement, so this is a situation worth checking carefully.
• Employees being made redundant: Notice of termination applies to redundancy dismissals too. The rules that exempt small business employers and short-service employees from redundancy pay sit in section 121 of the FW Act and affect only the separate redundancy payment, not the notice obligation. A small business employer with fewer than 15 employees still owes notice, and so does an employer dismissing someone with less than 12 months service.

The obligation does not apply to:

• Genuine casual employees, who are excluded from the notice rules by section 123 of the FW Act. Even so, the Fair Work Ombudsman recommends confirming the end of the arrangement in writing as good practice.
• Fixed-term, task-based or seasonal employees at natural expiry of the agreed period, although section 123 contains an anti-avoidance rule that stops employers from structuring engagements mainly to dodge the NES.
• Employees dismissed for serious misconduct, discussed below.
• Apprentices and employees on certain training arrangements, and daily hire workers in the building and construction and meat industries in some seasonal situations.

The NES is a floor, not a ceiling. A modern award, enterprise agreement or employment contract may give a longer notice period, and if it does, you must follow the more generous entitlement. What no document can do is provide less than the NES minimum.

The written notice and how to deliver it

Section 117(1) of the FW Act requires the notice to be in writing and to state the day of the termination, which cannot be a day before the notice is given. A verbal conversation does not satisfy this rule, no matter how clearly the employee understood what was happening.

The Act's note to section 117 points to sections 28A and 29 of the Acts Interpretation Act 1901 (Cth) for how the notice may be given. The approved methods are:

• delivering the notice to the employee personally;
• leaving it at the employee's last known address; or
• sending it by pre-paid post to the employee's last known address.

The Fair Work Ombudsman also accepts electronic delivery, such as email, if the employee agrees to receiving notice that way. Given the cost of a dispute over whether notice was given, keep a copy of the notice and a record of how and when it was delivered. If you rely on email, it is safest to have the employee's agreement on file before you send it.

The notice period starts the day after you give the notice and runs through to the last day of employment. Public holidays inside the notice period do not extend it, and you cannot force an employee to take annual leave during the notice period.

How much notice: the minimum notice periods

Section 117(3) of the FW Act sets the minimum period of notice according to the employee's period of continuous service, measured at the end of the day the notice is given:

One extra week is added if the employee is over 45 years old and has completed at least 2 years of continuous service. This is the provision employers most often overlook, and it applies on top of whatever row of the table applies.

Worked example: A 50 year old employee with 4 years of continuous service is dismissed. The table gives 3 weeks for more than 3 and up to 5 years of service, and the over-45 rule adds a week, so the minimum notice is 4 weeks. If the employee earns $1,500 a week, payment in lieu would need to be at least $6,000 before loadings, allowances and other amounts are considered.

Working out continuous service

Continuous service is defined in section 22 of the FW Act. The key points for a small business owner are:

• Authorised unpaid leave counts toward service: The Fair Work Ombudsman gives the example of unpaid parental leave: an employee with 5 years and 3 months of employment including 12 months of unpaid parental leave has 5 years and 3 months of continuous service for notice purposes.
• Unauthorised absences do not count, but they do not break continuity: A period of unauthorised absence is excluded from the length of service, yet the employment is still treated as continuous, so the clock does not restart.
• Periods worked as a casual do not count: Section 117(4) of the FW Act excludes time served as a casual employee from continuous service for the notice rules. An employee who worked casually for 2 years and then converted to permanent does not get those 2 casual years counted.
• Transferred service can count: If employment transfers to a new employer in a genuine transfer of business or between associated entities, service with the first employer generally counts toward continuous service with the second.

If an employee's history is complicated, for example a mix of casual and permanent work, periods of unpaid leave, or transfers between related companies, it is worth having the calculation checked before you commit to a termination date.

Payment in lieu of notice

Instead of having the employee work through the notice period, section 117(2) of the FW Act lets you pay them out. The payment must be at least the amount you would have been liable to pay at the full rate of pay for the hours the employee would have worked had employment continued to the end of the minimum notice period.

The Fair Work Ombudsman's guidance on what that amount includes is broad: incentive-based payments and bonuses, loadings, monetary allowances, overtime and penalty rates, and any other separately identifiable amounts. A payment in lieu that covers only base salary is likely to underpay the entitlement.

Where you pay in lieu, employment ends on the day the payment is made and the employee stops accruing leave and other entitlements from that point. You still need the written notice stating the day of termination, because the written-notice requirement in section 117(1) applies to every termination, including one where notice is paid out.

When notice is not required

Section 123 of the FW Act lists the situations where the notice rules do not apply. The ones most relevant to a small business are:

• Genuine casual employees, whose engagement ends without notice obligations, although the Ombudsman still recommends written confirmation.
• Serious misconduct: If an employee deliberately behaves in a way that is inconsistent with continuing their employment, you can dismiss them without notice. The Fair Work Ombudsman lists theft, fraud, assault or sexual harassment, causing serious and imminent risk to another person's health, jeopardising the profits of the business, and refusing to follow a lawful and reasonable instruction as examples. Dismissal for serious misconduct does not remove the obligation to pay what is already owed: wages for time worked, accrued annual leave and, in some cases, long service leave.
• Fixed-term, task-based or seasonal employees whose employment ends at the natural end of the agreed period, subject to the anti-avoidance rule.

Two cautions apply to the serious misconduct exception. First, the label is not a shortcut. If you dismiss without notice on a misconduct ground that does not hold up, the shortfall in notice can still be claimed. Second, notice is a separate question from unfair dismissal. Summary dismissal without a fair process, such as giving the employee a chance to respond to the allegations, can expose you to an unfair dismissal application even where the conduct was serious. When misconduct is alleged, take advice before acting on the spot.

What happens if you get it wrong

A failure to give the required notice is a contravention of the NES. Section 44 of the FW Act makes it unlawful for an employer to contravene a provision of the NES, and section 44 is a civil remedy provision, meaning an employee, an employee organisation or a Fair Work inspector can apply to a court for orders.

The practical exposure has two parts:

• Compensation: An employee who was dismissed without the notice they were owed can recover the amount they should have received for the notice period, usually the wages they lost.
• Penalties: The maximum penalty for a contravention of section 44 is 60 penalty units, or 600 penalty units for a serious contravention where the employer knew or was reckless about the breach. Penalty units are currently $364 under the indexation rules, so the maximum is about $21,840 for an individual and five times that, about $109,200, for a company. Courts set the actual penalty having regard to the circumstances, but these ceilings are significant for a small business.

The Fair Work Ombudsman can investigate terminations on its own initiative or after receiving a report, and it can issue compliance notices and take court action. Notice shortfalls often surface through the Ombudsman's broader audits of wages and records, so the exposure is not limited to an employee who happens to know their rights.

A practical compliance checklist

Before you terminate anyone, run through this list:

• Confirm the rules that apply to this employee: Check the employment contract, any applicable modern award or enterprise agreement, and whether an exception such as casual employment or serious misconduct applies.
• Calculate continuous service correctly: Include authorised unpaid leave, exclude casual periods, and check whether transferred service counts.
• Apply the notice table, plus the extra week for employees over 45 with at least 2 years of continuous service.
• Check for a more generous entitlement in the contract, award or enterprise agreement, and follow the higher one.
• Decide between working notice and payment in lieu, and if paying out, calculate the full amount including loadings, allowances, overtime and penalty rates.
• Prepare a written notice stating the day of termination, and make sure that day is not before the notice is given.
• Deliver the notice by an approved method: in person, left at the last known address, pre-paid post, or electronically with the employee's agreement. Keep a copy and a record of delivery.
• Pay all final entitlements on time, including wages, accrued annual leave and any redundancy pay that applies, and keep your calculations on file.

When to get a lawyer involved

Notice calculations look simple until they are not. A lawyer is worth engaging where:

• the employee has mixed service, for example casual time followed by permanent employment, unpaid leave periods, or transfers between related entities;
• the contract, award or enterprise agreement has notice terms that interact with the NES minimums;
• you are considering dismissal for serious misconduct without notice, where both the notice question and unfair dismissal risk need assessment;
• the dismissal is a redundancy and the redundancy pay rules in section 119 of the FW Act, and the small business and short-service exclusions in section 121, need to be worked through; or
• the Fair Work Ombudsman has contacted you about a termination or you have received a claim.

A practitioner can verify the service calculation, check the applicable instruments, draft a compliant termination letter and supporting documents, and advise on process so that a difficult decision does not become a claim. Many businesses only seek advice after a dispute letter arrives, when the cost of fixing the problem is far higher than the cost of getting the process right.

Why the written day of termination matters most

Of all the details in section 117, the one that costs employers most is the absence of a written notice naming the day. Every other rule in the section hangs off that piece of paper: the notice period is measured from the day after it is given, the over-45 extra week is calculated at the end of the day it is given, and payment in lieu replaces the notice period that would otherwise run from it. A verbal dismissal, or an email the employee never agreed to receive, leaves the entire calculation in dispute. Before you hold that termination meeting, decide on the last day of employment, put it in writing, and deliver it by a method you can prove. It is a small step, and it is the one that keeps every other part of the process defensible.