How to dismiss an employee - The seven key steps
Terminating someone’s employment can be a challenging task for business owners and managers. A dismissal of an employee is not only personally difficult, but it can create potential legal implications if not done correctly.
In our experience, one of the major concerns for employers is the prospect of litigation following an employee dismissal. Unfortunately, there is no way to stop employees from bringing claims if they are aggrieved by a dismissal, even if those claims lack merit. For employees, claims arising from a dismissal may be brought under the unfair dismissal or general protections provisions of the Fair Work Act 2009 (Cth), as a breach of contract under the common law, or in some cases as a contravention of either commonwealth or state discrimination legislation.
However, if the employer follows some key principles when effecting the dismissal, it is easy to reduce the chances of claims being brought, and also greatly reduce those claims from having any prospects of success.
1. Consider the reason for the dismissal
It is important carefully identify, and then consider, the reason for dismissal. In the case of all employees, it is unlawful to dismiss on grounds that are discriminatory, or otherwise ‘prohibited’ grounds. In order for a reason to be unlawful in this way, the discriminatory or prohibited reason needs only to be part of the reason. Some of the attributes that are protected under Australian law include the employee’s race, colour, sex, sexual orientation, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin. It is also unlawful for an employee to be dismissed because they exercised a workplace right, or because of their connection to a union, or participation in industrial activities.
Further, for an employee covered by unfair dismissal legislation the reason for dismissal also needs to be ‘valid’. A dismissal which is not for a ‘valid’ reason is likely to be held by the Fair Work Commission to be ‘harsh, unjust or unreasonable’ in the meaning given by the Fair Work Act. A ‘valid’ reason is one which is ‘sound, defensible or well founded’. A decision to dismiss someone because they support the wrong football team, or because they watch the Bachelorette (however sensible this might seem when making the decision) will not be a valid reason.
The valid reason can either relate to either an employee’s:
- conduct: something the employee has done; or
- capacity: the employee’s ability to do the job for which they were employed.
When considering if there was a valid reason for dismissal relating to conduct, the Fair Work Commission will determine on the balance of probabilities whether the conduct that the employee allegedly engaged in actually occurred. Conduct that commonly has been held to be a valid reason for dismissal includes:
- where an employee lies to their employer, and this lie causes the employer to lose faith and confidence in their employee;
- inappropriate behaviour such as inappropriate touching of colleagues, bullying, harassment, etc; or
- breaching an employment contract, or workplace code or policy.
A further threshold to consider is whether misconduct is ‘serious misconduct’. Serious misconduct is conduct which may entitle the employer to summarily dismiss the employee without notice, as the conduct is completely inconsistent with the continuation of the contract of employment. Serious misconduct is defined in the Fair Work Regulations and includes theft, fraud, assault, intoxication at work and refusing a lawful and reasonable direction. Employers should be aware however that, although a valid reason may exist, the Fair Work Commission may still find a summary dismissal unfair because it was a disproportionate response to the conduct.
There can be a valid reason for dismissal where an employee does not have the ability to do the job as required by the employer.
Examples of where an employee’s capacity has been held to be a valid reason for dismissal includes:
- continual underperformance;
- physical incapacity resulting in the employee being unable to perform the inherent requirements of the job; or
- being unable to hold a security clearance or check (such as a Working with Children Check) when this is necessary for the position.
When an employee does not have access to an unfair dismissal remedy (such as high income executives earning over the high income threshold, or employees who have not completed the qualifying period) there is no requirement for a ‘valid’ reason. It is only required that the reason not be discriminatory. Terminating the employment, on notice, of this class of employees, for reasons such as ‘It did not work out’, is perfectly lawful. Although it is preferable not to refer to concepts such as ‘cultural fit’.
2. Provide the employee with notice of the reason for the possible dismissal
For an employee with access to an unfair dismissal remedy, it is essential that employer notifies them of the concerns that they have relating to the employee’s capacity or conduct. Ideally, employees should be notified in writing of the specific reasons that their job is at risk. This may either be the performance or capacity concerns, or may be some specific allegations relating to misconduct.
3. Give the employee a genuine opportunity to respond
After the employee is notified, they should be given an opportunity to respond to these concerns (or any allegations if related to misconduct). The employee must essentially be given an opportunity by the employer to change the employer’s mind that the employee should be dismissed.
It is vital the employee has a genuine opportunity to respond prior to making the decision to dismiss. It is not enough to merely go through the motions. Even if there is ultimately a valid reason to terminate the employment, a failure to provide this opportunity to an employee may render a dismissal ‘unreasonable’.
4. How to communicate the dismissal to the employee?
Despite many suggestions in the new ‘information’ age that it is no longer necessary to meet with employees face to face, it is our advice that this should always occur. The Fair Work Commission has made it clear that there are significant legal risks of communicating a dismissal by written or electronic means, unless the employee has been given ample opportunities to meet face to face and refuses to meet. Further, in our experience from a practical context, providing a courteous and open forum to communicate the employer’s decision, greatly decreases the potential for employees to be ‘aggrieved’ enough by the outcome to consider challenging the dismissal legally.
A dismissal does not have to be effected in an adversarial or combative manner. Often, having a respectful conversation, which allows the employee to preserve their dignity, can be the best protection against the issue escalating unnecessarily. Even if the employee becomes abusive or emotional, the employer/manager is well advised to remain as calm as possible.
It is also recommended that employers provide the employee with an opportunity to have a support person present. Contrary to common belief, the Fair Work Act does not create a positive obligation to provide this. The employer only must not ‘unreasonably deny’ the employee a support person. In our experience, however, the best practice is to actively provide an employee an opportunity to have a support person present during a termination or disciplinary meeting. While an employer does not have to unreasonably delay the meeting for the employee to find a support person, if a reasonable request is made, the request should not be refused.
The employer is entitled to impose conditions on who the support person is (for example not a lawyer) and also require a confidentiality agreement to be signed by the support person. The support person is not an advocate for the employee and in most cases should not actively take part in the meeting. If they do repeatedly interrupt or intervene, it is appropriate to ask the support person to leave.
5. If the reason for dismissal is unsatisfactory performance has the employee had a warning?
If the employee has access to an unfair dismissal remedy, and the valid reason for dismissal relates to unsatisfactory performance, employees should be warned that their performance is below the required standard. It should be in writing, and should clearly indicate what improvements are required, and set out that dismissal may occur if those requirements are not met. This message needs to be explicit, to have any legal value. A suggestion, or implication, of possible dismissal is not enough.
While it is not necessary for a formal performance improvement plan to be implemented, it is important that the employee be given a reasonable time frame to improve for a warning to have the required effect legally. The specific time required may vary from case to case depending on the nature of the job, but much less than one month between warning and dismissal is probably too brief in most cases. Therefore, if an employee is underperforming, progress to the warning stage earlier rather than later, to prevent the process from dragging on. If an employee does not engage at all with the performance improvement process, an employer can in many cases take steps to terminate the employment more quickly.
If the employee does not improve, the employee should be informed of this in a formal meeting where they are given an opportunity to respond. Following this, a decision on whether to provide them further time and support or dismiss them may be considered (see 2 and 3: Notification and opportunity to respond).
6. Is the dismissal ‘Harsh’ in the circumstances?
Employers should be aware that the following factors may support a finding that the dismissal was ‘harsh’ for the purposes of unfair dismissal:
- there will be a significant personal or economic impact on the employee, such as if the employee is unlikely or unable to find alternative employment;
- the employee had a long length of service, especially where that service was unblemished or of a high quality; and/or
- an employee is dismissed for conduct when other employees engaged in comparable conduct and faced lighter penalties.
Once these factors are considered, it may be necessary to assess whether the consequences of dismissal is actually disproportionate to the gravity of the misconduct or performance concern, and to consider whether another option (such as final warning) may be more appropriate. In our experience, it is only in extreme cases where this consideration becomes relevant, and seeking external advice may be desirable before making the decision alone particularly where an employee has a very long period of service.
7. What Notice is Required?
Consider how much notice is required. Only in ‘serious misconduct’ cases is instant dismissal legally justified. The minimum notice period will either be dictated by section 117 of the Fair Work Act 2009 (Cth), and will in part depend on the employee’s age and length of service, or will be defined by the contract of employment – whichever is the longer.
Consider whether actual notice should be worked out by the employee, or whether it should be paid to them as a financial payment in lieu of notice. In many instances, for the protection of the employer’s various interests, it may be commercially preferable to remove the employee straight away, and payment in lieu of notice may be more desirable in this event.
There is no doubting that dismissing an employee is not a pleasant experience, but it is a reality of running a business. There are times when an employer will have to make the tough decision to dismiss, knowing there is a risk of a claim being made. Often, this is the best commercial decision, in spite of the risks, as keeping the employee in the workforce is overall more dangerous than facing a claim.
A careful regard to the seven steps identified above, will significantly reduce the prospects of a successful claim being made by a former employee. When in doubt however, seek the assistance of an employment lawyer, to make sure that any of the potential risks are reduced to the minimum possible.