Dismissal and Termination Guide for Australian Businesses

Understanding dismissal and termination

Navigating the end of an employment relationship can be a complex and sensitive process, both for businesses and employees. Whether it's due to performance concerns, redundancy, or an employee's decision to move on, understanding the legal requirements and best practices can support your business and the employee.

This guide aims to provide Australian business owners with a clear overview of dismissal and termination, empowering them to make informed decisions while upholding fairness and compliance.

Legal grounds for dismissal

Letting go of an employee is never an easy decision, and ensuring you have valid reasons is crucial to avoid costly legal disputes such as unfair dismissal claims. In Australia, the Fair Work Act requires a valid reason for dismissal related to the employee's capacity or conduct (which covers performance and misconduct), or a genuine redundancy. In practice, there are four common grounds:

‍Capacity‍

If an employee demonstrably lacks the skills or abilities to perform the essential duties of their role, despite reasonable support and training, dismissal may be justified. However, a thorough assessment and documentation of their struggles are required before considering dismissal. Employers should also explore options like providing additional training, restructuring their role, or offering alternative positions within the company.‍

Performance‍

Consistently underperforming and failing to meet clear expectations, even after receiving performance improvement plans and opportunities to rectify them, can be grounds for dismissal. However, ensure the expectations are fair, achievable, and clearly communicated in writing. Document performance issues carefully throughout the process and offer the employee support and guidance to improve.‍

Misconduct‍

Breaching workplace policies or engaging in unprofessional behaviour can lead to warnings or dismissal, and serious misconduct like theft or harassment can warrant immediate dismissal. Conduct a thorough workplace investigation to gather evidence and ensure procedural fairness before taking any action. The seriousness of the misconduct and the potential impact on the workplace will determine the disciplinary response.‍

Redundancy‍

If your business undergoes restructuring or technological advancements render an employee's role obsolete, redundancy may be unavoidable. This process must follow specific legal guidelines and consultation with the affected employee. Explore redeployment opportunities within the company before resorting to redundancy, and provide notice and redundancy pay as required by the National Employment Standards (small business employers with fewer than 15 employees are generally exempt from redundancy pay).

There may be exceptional circumstances where dismissal wouldn't be considered fair, even if it falls under one of these categories. For example, if the employee's inability to perform stemmed from a disability or illness, dismissal might be deemed discriminatory.

While adhering to the four outlined reasons for dismissal significantly minimises the risk of an unfair dismissal claim, there are exceptions. If an employee engages in serious, repeated, or gross misconduct, dismissal without notice might be justified. However, the severity of the misconduct and its impact on the workplace must be demonstrably significant for immediate dismissal to be deemed fair.

Resignation vs. dismissal

When an employee's journey with your company comes to an end, understanding the key differences between resignation and termination is crucial. It dictates the steps involved, notice periods, and potential implications.

When an employee chooses to leave, they initiate the process by submitting a formal resignation. A resignation letter expresses their intent to end their employment and typically specifies a last working date. The required notice period for resignation is usually outlined in the employment contract, ranging from one to four weeks. During this period, the employee fulfils their remaining duties and completes any necessary handover procedures.

Whereas dismissal occurs when the employer decides to end the employee's employment. This can happen for various reasons, including performance issues, redundancy, misconduct, or incapacity. Like resignation, dismissal also involves a notice period, typically stipulated in the contract or award, and never less than the National Employment Standards minimum (1 to 4 weeks depending on length of service, plus 1 week if the employee is over 45 with at least 2 years' service). During this notice period, the employee's employment continues, and they may be required to complete specific tasks or attend meetings while their access to company systems and resources may be restricted.

An employer who fails to provide adequate notice when terminating an employee may be liable for paying out the remaining notice period in lieu of work. On the other hand, an employee who breaches their contractual notice period without a valid reason might face deductions from their final pay, if their award or agreement allows it.

Managing notice periods

Notice periods outlined in employment contracts, awards and registered agreements are straightforward when separations are amicable. However, things get trickier when the departure is unplanned or emotionally charged.

Considerations arise when an employee is terminated and their continued presence could disrupt the workplace. When this happens, employers might opt to pay out the remaining notice period in lieu of them working it. This allows for a smoother transition and minimises potential conflict. However, this decision solely lies with the employer and employees cannot demand a payment in lieu of notice unless it is initiated by the employer.

Terminating or accepting the resignation of a key employee presents additional challenges when the employee has access to sensitive information or is crucial to daily operations. Careful planning and strategic actions are crucial to minimise disruption and knowledge loss. This might involve phased handovers, knowledge transfer sessions, or restraint (non-compete) clauses depending on the specific circumstances. Note: the Government plans to ban non-compete clauses for employees earning under the high income threshold ($190,100 in 2026–27); an exposure draft Bill was released in September 2026 and is not yet law.

Remember, both dismissal and resignation have clear legal guidelines and potential penalties for non-compliance. Always prioritise following the correct procedures and gathering all necessary facts before taking any action. Don't hesitate to seek guidance from HR professionals to navigate complex situations and ensure you're acting within the law, and if a claim is made, our Fair Work representation for employers service can help.

If you need further advice on managing employee exits, their entitlements and final payments, Employment Compass can provide assistance. Call our 24/7 HR advice line on 1300 144 002 for more information.

What are valid reasons for an employer to dismiss an employee in Australia?

Employers must have a legitimate reason for dismissal, such as lack of capacity, poor performance, misconduct, or redundancy. Employers must ensure the reason for dismissal is fair and legally justified to avoid unfair dismissal claims.

What should an employer consider before terminating an employee for performance issues?

Before dismissing an employee for performance issues, employers should clearly communicate the performance problems to the employee and provide an opportunity for improvement, typically through a structured performance management process.

How is redundancy handled differently from other forms of termination?

Redundancy occurs when an employee’s role is no longer required due to business changes. It must be a genuine redundancy and not a pretext for dismissal. The process often involves consultation with the employee and may include redundancy pay.

What is the difference between resignation and termination?

Resignation is when an employee voluntarily decides to end their employment, while termination is when the employer ends the employment relationship. Both processes have different legal and procedural implications, including notice periods.

How much notice is required when an employee resigns or is terminated?

The required notice period for both resignation and termination is typically outlined in the employment contract. It varies depending on factors like the employee's role and tenure, and it can't be less than the minimum in the National Employment Standards or the employee's award.

Can an employer pay out the notice period instead of having the employee work through it?

Yes, in certain situations when an employee's presence may be disruptive, an employer may choose to pay out the notice period instead of having the employee work through it.

What should employers do to handle the termination of key workers?

Terminating key workers, especially those with access to sensitive information, requires careful planning to minimise potential harm to the business. Strategies may include a structured handover process and ensuring all legal obligations are met.