How to fire an employee without burning your business


Terminating an employee is never easy. On a personal level, it’s an often awkward and uncomfortable process (particularly for small-business owners).

Though, perhaps of greater concern, is the potential exposure to claims for unfair dismissal, general protections or discrimination if you fail to adequately dot your i’s and cross your t’s.

Why are you terminating?

Employers need to be wary not to adopt a one-size-fits-all approach to terminations. Instead, as a starting point, it is crucial to consider the reason for termination in order to map out the appropriate process.

Putting aside redundancies, terminations primarily arise in two main scenarios:

  1. Poor performance; or
  2. Serious misconduct.

Each should be treated differently, as each brings unique risks and issues.

Terminating for performance reasons? Don’t jump to the dump

When terminating for performance reasons, employers should ensure they have taken steps to assist the employee to improve their performance. That might include regular check-ins with the employee (without micromanaging) and ensuring they have provided adequate training.

Ultimately, it may become necessary to impose a performance improvement plan (PIP).

When a PIP is carefully drafted, including specific and measurable indicators for performance improvement, and realistic timeframes, it can form part of your paper trail to eventually demonstrate that termination of employment is warranted. Better yet, the employees’ performance may improve as a result, and termination may not be necessary!

Once the employer has established that employment is no longer tenable for performance reasons, it is important to follow a procedurally fair process.

The employer should first issue the employee with a letter clearly outlining the protracted performance issues and directing the employee to attend a meeting to ‘show cause’ as to why their employment should not be terminated as a result.

It is best practice to allow the employee to attend that meeting with a witness or support person. Refusing to allow an employee a support person is a factor the Fair Work Commission must consider when determining whether a dismissal constitutes an ‘unfair dismissal’.

Following the ‘show cause’ meeting, the employer should genuinely consider any reasons the employee raised in an attempt to justify their poor performance.

If the employment is determined to be untenable, the employer should then direct the employee to a further ‘outcome’ meeting (again, with a support person) at which time the termination decision can be communicated and should then be confirmed in writing.

The employer should advise whether the employee will be required to work out their notice period and, if not, that they will be paid in lieu.

It is useful to ensure your contracts of employment contain an express provision allowing for payment in lieu of notice.

Terminating for misconduct or serious misconduct? Get your facts straight

When terminating as a result of misconduct or serious misconduct, it is vital to first ensure the allegations that would form the basis of termination are investigated and substantiated.

Of course, misconduct can take many forms: theft, intoxication at work, and protracted failure to follow reasonable and lawful directions, to name a few.

To take one example, if an employee has been accused of sexual harassment, before considering disciplinary action, employers must first commence an investigation into the complaint. Depending on the size of the business and complexity of the issues involved, it may be appropriate to engage an independent investigator external to the business, to conduct the investigation into the complaint.

The alleged perpetrator (as well as any complainant) should be kept informed of the investigation process, and the alleged perpetrator should be advised from the outset that if the relevant allegations are substantiated that may result in disciplinary action including termination of employment.

Suspension clauses are another useful inclusion in employment contracts, allowing employers an express right to suspend the alleged perpetrator (on pay) during an investigation.

In the event that an investigation ultimately substantiates allegations that warrant summary termination of employment, as is the case with performance-related termination, it is important to follow a procedurally fair termination process including a ‘show cause’ meeting, before communicating the termination decision, and then confirming termination in writing.

Employers will need to also determine whether the misconduct is sufficiently serious to be serious misconduct warranting summary termination (that is, termination without the provision or payment of notice).

The Fair Work Regulations 2009 (Cth) though not exhaustive, provide some examples of serious misconduct. Those include:

  • Theft;
  • Fraud;
  • Assault;
  • Conduct that causes serious or imminent risk to health or safety; or
  • Conduct that causes a serious or imminent risk to the employer’s reputation, viability or profitability.

Ultimately, employers will need to ensure the relevant contract of employment or enterprise agreement expressly allows termination without notice, and heed warning that summary termination should be reserved for the most serious misconduct.

Miscellaneous considerations

While a carefully mapped out, procedurally fair process is the key to mitigating the risk of legal claims, it is also important to bear in mind the following tips.

  • Your process must accord with any processes set out in your company’s policies, contracts or enterprise agreement.
  • The termination must not be predicated on any discriminatory basis.
  • Risks may be exacerbated where an employee has long service or is older than 45 years of age.
  • In most circumstances, you must not terminate an employees’ employment while they are on sick leave.
  • Some modern awards mandate payment of final pay within seven days of termination.

Disclaimer: this article is intended only as a general overview of legal issues currently of interest. It is not intended as legal advice and should only be used for information purposes only.

NOW READ: Calls for unfair dismissal overhaul to stop small businesses paying workers “go-away money”

NOW READ: What is a “valid reason” to fire an employee? Lessons from unfair dismissal claims


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