What is ending an employment contract?
Ending an employment contract means that the agreement between an employer and an employee is coming to an end, and both parties are no longer bound by the terms of that agreement. This can happen for various reasons, including voluntary resignation by the employee, termination or dismissal by the employer, redundancy, or the expiration of a fixed-term contract.
Regardless of the reason, it's important to follow the correct procedures and comply with Australian employment laws to ensure a fair and lawful process.
Unfair dismissal
An employee can claim unfair dismissal if they believe their dismissal was harsh, unjust, or unreasonable. The Fair Work Commission (FWC) will consider factors such as whether there was a valid reason for the dismissal, if the employer followed a fair procedure, and whether the employee was given any warnings.
From 1 July 2026 the high income threshold is $190,100 and the unfair dismissal compensation cap is $95,050 (or 26 weeks' pay if less). Both are indexed every 1 July; check fwc.gov.au. Employees covered by an award or enterprise agreement can claim whatever they earn; the threshold mainly matters for award- and agreement-free employees. Employees can only claim after the minimum employment period (6 months, or 12 months with a small business employer), and claims must be lodged within 21 days of the dismissal.
To avoid unfair dismissal claims, employers should:
✅ Have a valid reason for dismissal which could include poor performance, misconduct, or redundancy.
✅ Follow a fair procedure which includes providing warnings, giving the employee an opportunity to respond to any allegations, and allowing them to have a support person present during any discussions about dismissal.
✅ For small businesses, follow the Small Business Fair Dismissal Code. If a small business employer (fewer than 15 employees) follows the Small Business Fair Dismissal Code, the dismissal is treated as fair if a claim is made. If a claim is lodged against your business, our Fair Work representation for employers service can help.
It's important to remember that unfair dismissal relates to the manner of the dismissal, while unlawful termination relates to the reason for the dismissal. Unlawful termination occurs when an employee is dismissed for a prohibited reason, such as discrimination or temporary absence due to illness.
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Ways an employment contract can end
An employment contract in Australia can end in several ways:
❌ Resignation when an employee voluntarily decides to leave their job.
❌ Termination when an employer decides to end the employment contract.
❌ Dismissal is a type of termination, often for serious misconduct.
❌ Redundancy when a job is no longer needed.
❌ Expiration of a fixed-term contract when a contract with a predetermined end date reaches its completion.
Resignation
When an employee resigns, they must give their employer written notice of their intention to leave. While an employee can give more notice than required, the employer does not have to accept it. The amount of notice required is usually outlined in the employment contract, award, or registered agreement.
If these documents don't specify a notice period, the employee must give "reasonable notice." What constitutes "reasonable notice" depends on factors such as the employee's seniority, the nature of their role, and industry practices.
Employer obligations
- Confirm receipt of the resignation and clarify the notice period.
- Encourage the employee to complete tasks and projects and facilitate a smooth transition of responsibilities.
- Ensure all outstanding wages, accrued leave, and other entitlements are paid accurately and on time. Employers can only deduct amounts owed by the employee from their final pay if the Fair Work Act allows it (for example, if the employee has authorised it in writing, or their award or agreement permits it).
- Maintain accurate records of the resignation, notice period, and final pay details.
Employee obligations
- Submit a formal resignation letter with a clear end date.
- Unless otherwise agreed, fulfil their duties during the notice period.
- Return any company assets, such as laptops, keys, and ID cards.
Employers can deduct wages from an employee's final pay if they don't give the correct amount of notice. However, this can only happen under specific circumstances, such as if the employee provides written consent or if it's permitted under their award or registered agreement.
Termination
Termination occurs when an employer decides to end the employment contract. To ensure a fair process, employers must have a valid reason, such as poor performance, misconduct, or redundancy. Employers must also follow a fair procedure and provide the employee with the required notice or payment in lieu of notice.
Employer obligations
- The reason for termination must be lawful and justifiable, related to the employee's capacity or conduct.
- Follow a fair process, including providing written notice, allowing the employee to respond, and considering any mitigating circumstances.
- Provide the required notice period or payment in lieu of notice, as per the National Employment Standards (NES) or the employment contract.
- Ensure accurate and timely payment of all outstanding wages and entitlements.
- Maintain clear documentation throughout the termination process, including performance reviews, warnings, and the termination letter.
Employee rights
- Receive the required notice period or payment in lieu of notice.
- Receive all outstanding wages and entitlements, including accrued leave and potential redundancy pay .
- If the employee believes the dismissal was unfair, they can lodge a claim with the FWC.
Employers can ask employees to sign a declaration that releases them from obligations related to their dismissal, as long as they have made full payment of all outstanding entitlements .
Dismissal
Dismissal is a type of termination, often used when an employer lets an employee go due to serious misconduct. Serious misconduct can include theft, fraud, assault, or any other conduct that poses a serious risk to the workplace or the employer's business.
In cases of serious misconduct, an employer may be able to summarily dismiss an employee without notice or warning. However, even if an employer doesn't know of grounds for summary dismissal at the time, it can still be a defence if those grounds existed. It's important to ensure that any dismissal is lawful and procedurally fair.
Redundancy
Redundancy occurs when a job is no longer needed, potentially due to restructuring, downsizing, or technological advancements. Under most awards, if an employee leaves during their redundancy notice period, they are still entitled to the same redundancy pay they would have received if they had worked until the end of the notice period.
Employer obligations
- Ensure the redundancy is genuine and not a disguised dismissal.
- Consult with affected employees about the redundancy, providing information and exploring redeployment options.
- Provide the required notice period or payment in lieu of notice, along with all outstanding wages and entitlements, including potential redundancy pay.
- In certain circumstances, an employer can apply to the FWC to have the amount of redundancy pay reduced, for example, if the employer finds alternative employment for the employee or if they cannot afford the full amount.
Employee rights
- Receive redundancy pay based on their length of service, if eligible (employees of small business employers with fewer than 15 employees are generally not entitled to NES redundancy pay).
- Receive the required notice period or payment in lieu of notice.
- If the employee believes the redundancy is not genuine, they can lodge an unfair dismissal claim within 21 days.
Fixed-term contract expiration
A fixed-term contract ends automatically on the agreed-upon end date. Generally, no notice or redundancy pay is required for fixed-term contracts unless specified in the contract or applicable award.
From 6 December 2023, employers must give every employee engaged under a new fixed-term contract a copy of the Fixed Term Contract Information Statement (FTCIS). The FTCIS provides information about fixed-term contracts, including the rules about when they can be used.
Since 6 December 2023, a fixed-term contract generally can't run for more than 2 years (including extensions), or be extended or renewed more than once, unless an exception applies. If a contract breaches these limits, the end date has no effect and the employee is treated as ongoing.
There are also anti-avoidance protections in place to prevent employers from using fixed-term contracts to avoid providing employees with ongoing employment. These protections prevent employers from ending employment and re-employing the employee on another fixed-term contract for the same or similar work to avoid providing them with the benefits of ongoing employment.
Notice periods
Generally, when ending employment, the employer must provide the employee with written notice of their last day of employment . However, if an employee is dismissed during their probationary period, they are still entitled to notice or payment in lieu of notice based on their length of service.
The NES sets out minimum notice periods for terminating employment:
| Period of continuous service | Minimum notice period |
|---|---|
| 1 year or less | 1 week |
| More than 1 year - 3 years | 2 weeks |
| More than 3 years - 5 years | 3 weeks |
| More than 5 years | 4 weeks |
Employees over 45 years old with at least 2 years of service are entitled to an extra week of notice. These are minimum requirements, and awards, agreements, or contracts may specify longer notice periods.
An employer can choose to let the employee work through their notice period, pay it out (also known as pay in lieu of notice), or use a combination of both. An employee can take annual leave during a notice period if the employer agrees, but an employer can't force an employee to take leave as part of the notice period.
An employee can also take sick leave during a notice period if they give notice of the leave as soon as possible and provide evidence if the employer asks for it (for example, a medical certificate). Public holidays are included in the notice period and don't extend it.
In some cases, an employer may direct an employee to take "gardening leave" for the notice period. Gardening leave is a period where the employee is paid but not required to work during their notice period. This is often used in situations where the employer wants to prevent the employee from accessing confidential information or influencing other employees.
Final Pay
When an employment contract ends, employees are entitled to their final pay, which includes:
✅ Outstanding wages, including penalty rates and allowances.
✅ Accrued but unused annual leave.
✅ Any applicable loading on annual leave.
✅ Payment in lieu of notice, if applicable.
✅ Redundancy pay, if applicable.
✅ Long service leave, if applicable.
Most awards require final pay to be paid within 7 days of the employment ending. Employers can only deduct amounts owed by the employee from their final pay if the Fair Work Act allows it (for example, if the employee has authorised it in writing, or their award or agreement permits it).
While sick and carer's leave is generally not paid out when employment ends, there might be exceptions under specific enterprise agreements.
Employees can also ask for an Employment Separation Certificate (a Services Australia form they may need for income support), and many awards require you to give a departing employee, on request, a written statement of their period of employment and the classification or type of work performed.
Termination letters and conversations
When terminating an employee, it's essential to handle the situation with sensitivity and professionalism. The National Employment Standards require written notice of the termination day, so business owners should provide a clear and concise termination letter outlining the reasons for termination, notice period, final pay details, and other relevant information.
It is also important to conduct a termination meeting in a private and respectful manner, allowing the employee to ask questions and express their views.
Handling difficult termination conversations
Terminating an employee can be a challenging experience for both the employer and the employee. It's important to be prepared for difficult conversations and handle them with empathy and professionalism .
Here are some tips for handling difficult termination conversations
Before the meeting, carefully consider what you will say and how you will say it. Be clear and concise in your explanation of the reasons for termination.
Conduct the meeting in a private and comfortable setting where the employee can feel safe to express their emotions.
Acknowledge that this is a difficult situation for the employee and listen to their concerns.
Stick to the facts and avoid making the conversation personal.
Employees may react in various ways, from anger to sadness. Be prepared for these reactions and respond calmly and professionally.
Keep a record of the meeting, including the date, time, attendees, and key points discussed.
Exit Interviews
When an employee leaves a business, conducting an exit interview can be a valuable way to gather feedback and identify areas for improvement. Exit interviews can provide insights into the employee's experience, reasons for leaving, and suggestions for improving the workplace.
Final thoughts
Ending an employment contract requires careful consideration of legal obligations and best practices. By understanding the different ways a contract can end, following fair procedures, and communicating effectively, business owners can ensure they handle terminations lawfully and with respect for their employees.
Proactive planning, legal compliance, and compassionate communication are essential when ending employment contracts.
If you need further assistance with ending an employment contract or other HR matters, call our 24/7 HR advice line on 1300 144 002 for expert advice and support tailored to your business needs.
Need advice on this?
Talk it through with an Employment Compass HR adviser before you act.
Frequently asked questions
However, it's crucial to have documented evidence to support the reason and to ensure the termination process is fair and lawful.
However, in cases of serious misconduct, you may be able to summarily dismiss an employee without notice.
Employees over 45 years old with at least 2 years of service are entitled to an extra week of notice.
In some cases, you can apply to the Fair Work Commission to reduce redundancy pay.
From 6 December 2023, new rules apply to fixed-term contracts, including limitations on their use and the requirement to provide the Fixed Term Contract Information Statement (FTCIS).
Focus on the facts, avoid personal attacks, and be prepared for different reactions. Document the conversation thoroughly.
General information only
This content is general information about Australian employment law, current at the date it was last reviewed. It does not take your circumstances into account and is not legal advice. For advice about your situation, call Employment Compass on 1300 144 002.
Last reviewed: October 2026