Terminating employment in Australia and your legal obligations as an employer

When you decide to end an employee's employment, you take on a set of legal obligations you cannot meet after the fact. The reason for the dismissal must be lawful, the process must be fair, and the employee must receive the notice and money the law requires. Each of those obligations is enforceable in its own right, and each can be the basis of a claim that costs far more than the exit you were trying to manage.

The obligations come from the Fair Work Act 2009 (Cth), the National Employment Standards (NES), and any modern award, enterprise agreement or contract that covers the employee. This guide sets out who those obligations apply to, the five duties that matter when employment ends, what happens if you breach them, and a checklist you can work through before you act.

Does the Fair Work framework apply to your business?

Most private sector employers in Australia are national system employers, which means the Fair Work framework applies to you and your employees automatically. Before you plan any termination, work out which of the following thresholds and rules apply to the specific employee:

• Small business status: An employer is a small business employer if it employs fewer than 15 employees at the time of the dismissal, counting regular and systematic casuals and treating associated entities as one employer. Small businesses face lighter unfair dismissal exposure but still must comply with the NES.
• Minimum employment period: An employee must have completed 6 months' service (12 months for a small business employer) before they can bring an unfair dismissal claim. Service outside those periods does not remove your other obligations.
• High income threshold: An employee is only protected from unfair dismissal if they earn below the high income threshold, or are covered by a modern award or enterprise agreement regardless of earnings. The threshold is $175,000 for the year starting 1 July 2024 and is re-indexed each 1 July, so confirm the current amount.
• Award and agreement coverage: Most awards include consultation obligations and termination procedures. Where a contract or policy conflicts with the NES or an award, the NES and the award prevail.

Check these four points in writing before you do anything else. They decide which obligations apply and whether the employee can challenge the dismissal at all.

Have a lawful reason to end the employment

The first duty is to have a reason the law recognises. The Fair Work Commission will ask whether there was a valid reason for the dismissal related to the employee's capacity or conduct. The main lawful reasons are:

• Genuine redundancy: The job is no longer required to be performed by anyone because of changes in the operational requirements of the business. Under section 389 of the Fair Work Act, you must also have complied with any consultation obligation in the award or agreement, and the dismissal is not a genuine redundancy if it would have been reasonable to redeploy the employee within your business or an associated entity.
• Poor performance: The employee has not met reasonable standards after clear expectations, feedback, support and a genuine opportunity to improve.
• Misconduct: The employee has breached policy or conduct standards. For serious misconduct such as theft, fraud, assault or refusing a lawful and reasonable instruction, the Fair Work Regulations allow termination without notice, but the process still has to be fair.
• Incapacity: The employee cannot perform the inherent requirements of the role, for example due to illness or injury, after you have considered reasonable adjustments and alternatives.
• Resignation or agreement: The employment ends at the employee's initiative, or both sides agree to a negotiated exit.

The reason must be the real reason, and it must be defensible on the evidence. A reason that is a cover for something else is where most claims start.

Follow a procedurally fair process

A valid reason alone does not protect you. Under section 387 of the Fair Work Act, the Commission decides whether a dismissal was harsh, unjust or unreasonable by weighing a list of factors:

• whether there was a valid reason related to capacity or conduct;
• whether the employee was notified of that reason;
• whether the employee was given an opportunity to respond;
• whether you unreasonably refused a support person at discussions about dismissal;
• whether the employee had been warned about unsatisfactory performance before dismissal;
• the size of your business and whether dedicated HR expertise was available.

In practice, procedural fairness means you investigate before you decide, put the specific concerns to the employee in plain terms, allow them to respond with a support person present if they ask for one, and consider the response genuinely before making the decision. For performance matters, warnings and reasonable time to improve are usually essential.

Small business employers have a separate path. A dismissal that is consistent with the Small Business Fair Dismissal Code cannot be an unfair dismissal, so if you employ fewer than 15 people, work through the Code's steps and keep a record that you did.

Give notice or payment in lieu of notice

Unless the employee is dismissed for serious misconduct, you must give written notice of the day of termination under section 117 of the Fair Work Act, or pay the employee in lieu. The minimum notice under the NES is based on continuous service:

Employees over 45 with at least two years of continuous service get an extra week. An award, enterprise agreement or contract can require more notice, and payment in lieu must cover everything the employee would have earned during the notice period, including loadings, allowances, overtime and penalty rates. The Fair Work Ombudsman publishes the current table and examples.

If you choose payment in lieu of notice, the payment must be made before or on the day of termination. For serious misconduct, no notice is required, but you must still pay all accrued entitlements and the process must still be fair.

Pay redundancy pay when it applies

If the dismissal is a genuine redundancy and the employee has at least 12 months' continuous service, you must pay redundancy pay under the NES unless you are a small business employer, which is generally exempt. The scale under section 119 of the Fair Work Act is 4 weeks' pay for one to two years of service, rising to 16 weeks for nine to ten years, paid at the employee's base rate of pay for ordinary hours. Awards and agreements can provide more.

Redundancy pay is not the whole job. To keep the redundancy genuine you must have consulted where the award or agreement requires it, considered redeployment, and kept records of the operational reasons for the restructure. If the role is still being done by someone, or redeployment was reasonable, the dismissal is not a genuine redundancy and the employee can claim unfair dismissal. Where you are considering making 15 or more employees redundant, you must notify Services Australia before the dismissals happen, and failure to do so can attract penalties.

Pay final entitlements on time

When employment ends, the employee's final pay must include wages for time worked, and any accrued annual leave must be paid out under section 90 of the Fair Work Act, including annual leave loading if it would have been paid while the leave was taken. Sick and carer's leave is not paid out on termination. Long service leave may also be payable depending on the state or territory legislation that applies and the employee's length of service.

Timing matters as much as content. Payment in lieu of notice must be made before or on the day of termination, and most awards require final pay within seven days of the last day of work. Where an award or agreement is silent, the Fair Work Act requires payment at least monthly. The Fair Work Ombudsman's final pay page sets out what must be included and when it is due.

If the employee asks for an Employment Separation Certificate, complete it so Services Australia can process their claim for income support. It is also good practice to confirm the return of company property, revoke system access, and confirm any ongoing confidentiality obligations.

What happens if you get it wrong

The consequences of a flawed termination come through the Fair Work Commission, which is cheaper and faster for employees to access than the courts:

• Unfair dismissal: An eligible employee must apply within 21 days of the dismissal. If the dismissal was harsh, unjust or unreasonable, the Commission can order reinstatement or compensation capped at the lesser of 26 weeks' pay and half the high income threshold. Process failures such as no warning, no opportunity to respond, or no consultation regularly turn otherwise defensible dismissals into compensation orders.
• General protections: Under sections 340, 342 and 351 of the Fair Work Act, you must not dismiss an employee because they exercised a workplace right, made a complaint, or because of a protected attribute such as age, sex, disability, pregnancy or carer's responsibilities. Dismissing an employee for a temporary absence due to illness or injury is also prohibited. In these claims the burden shifts: under section 361, the reason is presumed to be a prohibited one unless you prove otherwise.
• Enforcement action: Underpaying notice, redundancy or final pay breaches the NES, which is a civil remedy provision. The Fair Work Ombudsman can investigate and take enforcement action, including court proceedings for penalties, and employees can also recover unpaid amounts directly.

The pattern to recognise is that the reason and the process are judged together. A dismissal that is lawful in substance can still fail because the process was not fair, and a fair process cannot cure a prohibited reason.

Your termination compliance checklist

Before you hold the meeting, work through this list:

• Confirm coverage: service period, small business status, award or agreement, and whether the employee is below the high income threshold.
• Confirm the reason: write down the genuine, evidence-based reason for the termination and check it against the list of lawful reasons.
• Run the process: investigate, notify the employee of the concerns, allow a response with a support person, and warn about performance before dismissing for it.
• Consult on redundancy: follow the award or agreement consultation steps, consider redeployment, and document the operational rationale.
• Calculate the exit: notice or payment in lieu, redundancy pay if it applies, accrued annual leave with loading, and any long service leave.
• Pay on time: payment in lieu before or on the termination day, and final pay within the award's timeframe or as soon as practical.
• Close out: Employment Separation Certificate if requested, return of property, removal of system access, and a clear termination letter.

Where legal advice is usually needed

Most terminations can be handled in-house with discipline and good records, but some situations warrant advice before you act: terminations involving medical incapacity, whistleblowing, or allegations of discrimination; misconduct investigations where you want to stand an employee down while you investigate; large or multi-entity restructures where redeployment questions arise; and negotiated exits where a deed of release is being considered. A lawyer can pressure-test the reason, review the process against the section 387 factors, and draft the documents so the exit is defensible if it is challenged.

The consultation step most employers skip

If there is one step that separates defensible exits from unfair dismissal findings, it is consultation. For redundancies it is often a legal requirement under the award or agreement, and skipping it can make the redundancy not genuine, which opens the door to an unfair dismissal claim even though the role genuinely disappeared. For performance and misconduct matters, consultation in the form of clear warnings and a real opportunity to respond is what the Commission looks for first. Before you dismiss anyone, ask yourself what the employee has been told, in writing, and what chance they have had to respond. If the answer is nothing, the process is not ready, no matter how sound the underlying reason is.