TERMINATION OF EMPLOYMENT

NAVIGATING THE PROCEDURAL REQUIREMENTS UNDER THE FAIR WORK ACT AND THE HEALTH SERVICES MODERN AWARD

Terminating an employee can be a difficult and often emotional part of operating a business.

The stress of termination can be compounded by the prescriptive procedural requirements around termination of employment contained in the Fair Work Act 2009 (Cth) (Act) and the Health Services Modern Award (Award), which applies to employees of a pharmacy business.

This article aims to summarise the procedural requirements for termination under the Act and the Award and considers two common termination scenarios: firstly, where termination occurs due to business reasons (i.e. the sale of your business, or downscaling) and secondly, where an employee is terminated for performance reasons.

Step 1: Consultation 

Applies to: 
Scenario 1: business reasons (sale of business or downscaling)
Scenario 2: performance (non-serious misconduct)

Doesn’t Apply to:
Scenario 2: performance (serious misconduct)

Under section 55 of the Act, the national employment standards (contained in the Act, including the minimum procedural standards for termination) and any additional obligations under the Award operate concurrently.

This is relevant to termination because the Award imposes a duty on employers to consult their employees if the employer has made a definite decision to introduce major work changes that affect the employee (including among other changes, a change to the workforce that may result in termination).

The Act also provides a second duty of consultation for employers with less than 15 staff under the Small Business Code. This duty is applies where a small business employee faces a serious prospect of dismissal, and is substantially similar to the requirement imposed by the Award.

The duty to consult is relevant to both dismissals for performance reasons (but not serious misconduct, discussed below), and for other business reasons. The consultation obligation applies to all employees (even casuals).

The requirement to consult means that at a minimum an employer must:

• discuss the considered change, and its likely effect on the employee; and
• provide a written record of the discussion of the considered change and its effects (in cases of termination for performance issues this would be satisfied by a warning notice).

The employee may elect to have a representative present in discussions about changes – this person is typically not a lawyer (under the Small Business Code the representative cannot be a lawyer) but may include a union representative.

Step 2: Notice

Applies to:
Scenario 1: business reasons (sale of business or downscaling)
Scenario 2: performance (non-serious misconduct)

Doesn’t apply to:
Scenario 2: performance (serious misconduct)
Termination of Casual Employees

Giving formal notice of termination

Following from consultation, an employer must formally document an employee’s termination in all cases for performance reasons or otherwise), except for casual employees who are not entitled to formal notice (however, note that casuals are entitled to consultation, per Step 1).

Typically, it is still good practice to provide casual employees with written notice of the date on which their employment terminates, in order to clearly establish the date of termination if a dispute were to arise later.

Section 117 of the Act requires that termination be made in writing, stating the day on which termination will take effect (which cannot be a time before the notice is given).

The time between giving the notice and the date of termination is called the ‘notice period’ and is defined in the Act on the basis of an employee’s length of service.

The notice period is not applicable to termination in cases of serious misconduct (see below).

The length of notice required to be given can be calculated as follows:

In addition an employee is entitled to 1 week’s additional notice if they are over 45 years old and have completed two years of continuous service.

Following the notice of termination

Following a notice of termination, an employee is entitled to work through their period of notice until the termination date.

Pharmacy employees are also entitled to 1 full day’s paid time off during the notice period to search for a new job.

Employers may sometimes choose to terminate an employee immediately (typically for non-serious misconduct) and pay the employee an amount equal to what they would have earned in the notice period. This is sometimes preferable in circumstances where a termination could result in disruption in the workplace or where the parties wish to quickly move on.

In circumstances where a quick sale of business is contemplated it may not be possible to give an employee their full notice entitlement. In these cases, the employer must pay out the notice period to the employee – for this reason, when contemplating a sale of business you should consider whether your employees will be terminated, and what notice they are entitled to as a priority to ensure that notice payments do not eat into your settlement price.

Step 3: Leave Entitlements

Applies to:
all terminations (full and part time employees)

Doesn’t apply to:
Casual Employees

When terminating an employee under any circumstances the employer must pay out that employee’s accrued annual leave entitlements from the date of termination. Employees are not entitled to be paid out for accrued personal (i.e. sick) leave. A casual employee receives leave loading and does not receive leave entitlements.

In Victoria (and other states) additional long service leave accrues under separate, state based law. The employer will have to pay out any amount of long service leave accrued and payable on the date of termination. In Victoria, the minimum period of service to be eligible for payment of long service leave is seven years’ continuous service.

Employers should be aware that long term casuals (with regular, systematic hours) will accrue long service leave entitlements over time, and may need to be paid out on termination.

Step 4A: Redundancy (Business Reasons)

Applies to:
Scenario 1: business reasons (full and part time employees)

Doesn’t apply to:
Scenario 2: performance (serious/non-serious misconduct),
Casuals, Small Business employees

When Redundancy is payable

An employer is obliged to pay an employee redundancy pay when the employee is terminated because their role is no longer required by any person (i.e. their position is redundant).

Commonly, an employee is made redundant when:

• due to business factors, duties are consolidated into a smaller workforce; or
• an employer decides to sell their business and the purchaser does not require the services of the employee

The amount of redundancy payable is calculated by reference to the employee’s period of service (similar to notice entitlements) using the following table:

Making an employee redundant is not as simple as deciding that the person’s role is no longer required to be performed. Under the Act, a redundancy must be a ‘genuine case of redundancy’ to avoid any claim by the employee that the termination was an unfair dismissal.

There are many decisions of the Fair Work Commission and the Courts about what circumstances amount to a case of genuine redundancy. As a general guideline, an employer should follow the following steps when making an employee redundant:

• Comply with the notice and consultation obligations relating to termination generally
• Take reasonable steps to redeploy the employee within the employer’s business or associated business

What is reasonable is a question of fact in the circumstances, and will be dictated by the business’ needs – for example, in a sale of business there may be no reasonable redeployment steps if the vendor of a pharmacy is leaving the industry completely.

When Redundancy isn’t payable 

It is important to note that redundancy isn’t payable in all scenarios. Specifically, redundancy is not payable where:

• the employee is a casual employee
• the employee is terminated for any performance reason (i.e. not redundancy)
• if the employer is a small business employer (section 23 of the Act defines a small business employer as having less than 15 total employees, including regular casuals and employees in associated entities – i.e. a second pharmacy)
• if the employer offers the employee an alternative role in the business, which is rejected –
  • in this scenario an application must be made by the employer to the Fair Work Commission for an order that no redundancy is payable before the employer is relieved of the obligation to pay redundancy pay
• In a sale of business – the purchaser agrees to recognise the employee’s service and engages the employee;
• In a sale of business – the purchaser agrees to recognise the employee’s service and offers to engage the employee on terms no worse than their original terms of employment, but the employee rejects the offer
  • in this scenario an application must also be made by the employer to the Fair Work Commission for an order that no redundancy is payable before the employer is relieved of the obligation to pay redundancy pay

Step 4B: Immediate Termination (Serious Misconduct)

Applies to:
Scenario 2: termination for serious misconduct

Despite the above provisions, an employer may terminate an employee immediately for serious misconduct under the Act.

An employee that is terminated for serious misconduct is not entitled to consultation, a notice period, redundancy pay or any other benefits under the Act or Award. Because of this, the standard of conduct required to be ‘serious misconduct’ is particularly high.

Typically, immediate dismissal is appropriate for the following types of conduct:

• Theft, fraud or vandalism committed against the employer or in the employer’s service
• Physical or very threatening verbal abuse to an employer or employee
• Breaches of OH&S laws and policies that result in serious injury or the prospects of serious injury
• Inappropriate sexual conduct towards the employer or colleagues (this may include at events where alcohol is provided by the employer, such as Christmas parties if the employee is aware that they are at a work function)
• Repeated offences that may not be grounds for summary dismissal alone, but taken together (after warnings, for example) amount to serious misconduct
• Bullying (either a single serious incident, or taken from an employee’s conduct as a whole)
• Conduct which represents an immediate and continuing threat to the workplace

Summary dismissal may not be available for cases of negligence – in a recent decision of the Fair Work Commission – John v The Star Pty Limited