Letter of Termination of Employment

What is a Letter of Termination of Employment?

A General Letter of Termination of Employment is designed for use by an employer that wishes to terminate an employee's employment due to poor performance or conduct. It is intended to be a final letter to the employee, formally notifying them that the employment is being terminated.

If an employee is being terminated due to redundancy, use a Letter of Termination for Redundancy.

What is the difference between a Letter of Termination for Redundancy and a General Termination Letter?

A Letter of Termination for Redundancy is only for use if the employee is genuinely being made redundant. It is not for use in any other circumstances.

Redundancy occurs when the employee's job no longer needs to be done by anyone. The job, rather than the employee, becomes redundant. Redundancy does not occur as a result of the employee's conduct or job performance.

For example, if an employee has a job as a payroll officer, but the employer implements some new payroll software, then the employer may no longer need the employee, so it may be a genuine redundancy.

On the other hand, a Letter of Termination of Employment is for use when the employee is being terminated for another reason (not a redundancy) - such as due to their misconduct or underperformance. For example, if the employee is regularly missing shifts at work, or abusing coworkers, then a Letter of Termination of Employment may be used.

Is it mandatory to have a Letter of Termination?

Employers must give an employee written notice before ending their employment. A Letter of Termination provides a useful and straightforward structure to help employers comply with this obligation.

When can employment be lawfully terminated?

Under Australian law, there are various ways that employment can lawfully be terminated. This includes:

• Resignation: The employee resigns, in accordance with any procedure set out in their Employment Agreement. The employee could use a Letter of Resignation for this.
• A fixed-term employment contract comes to an end: For example, when the employee was first hired, their contract stated that they were being hired for a fixed term of 4 months, and that period has ended.
• Mutual agreement: The employee and the employer reach a mutual agreement that the employment will end. This might involve some kind of negotiated payout or settlement. The parties may use a Deed of Release to record their agreement and to confirm that neither of them will take any legal action against the other.
• Redundancy: The employer has undergone some operational changes (such as downsizing, a change in market conditions, restructuring, or outsourcing) so they no longer need anyone to do the employee's job. If this is occurring, then the employer may use a Letter of Termination for Redundancy.
• Poor performance: The employee has repeatedly failed to meet the employer's reasonable performance standards, after being given the chance to improve. The employer should provide warnings (such as an Employee General Warning Letter and an Employee Final Warning Letter).
• Misconduct: The employee engages in behaviour that breaches workplace policies, standards, or lawful instructions. Minor misconduct such as rudeness, lateness or using work equipment for personal purposes may require the employer to provide warnings (such as an Employee General Warning Letter and an Employee Final Warning Letter), as well as an opportunity to rectify the behaviour, before terminating the employee. For serious misconduct such as theft, fraud, assault or sexual harassment then the employer may be entitled to terminate them immediately.

What must an employer do before terminating an employee's employment?

There are various rules that employers should be mindful of when terminating an employee, relating to things like dismissal, notice and final pay.

• Generally

The employer may first need to check for any particular procedures that the employer is required to follow, and any minimum notice periods. Minimum standards for employment are set in the National Employment Standards. However, if there is an applicable industrial instrument (such as an award or a registered agreement), then this may set additional requirements. In addition, a contract of employment or a workplace policy might also set additional requirements. In any case, the employer will need to comply with whatever requirements are most favourable to the employee. The National Employment Standards are only the minimum standards.

Further information about what an employer must do before terminating an employee can be obtained from the website of the Fair Work Ombudsman. Small businesses may also need to consult the Small Business Fair Dismissal Code. It is important that the employer understands its obligations in relation to this matter. If an employer breaches some of these obligations (for example, by terminating an employee prematurely), then the employer could face penalties for unfair dismissal, and may be unable to remove the employee.

• Poor performance or general misconduct

In the case of poor performance, or misconduct that does not amount to serious misconduct, employers generally need to give the employee warnings, and the opportunity to improve. Therefore, many employers choose to use the following process:

1. Have a first meeting with the employee, to discuss the performance issues, provide a strategy for improvement (such as deadlines for improvement, and quantifiable goals for the employee). Provide a Letter of Warning to the employee.

2. If performance has not improved by the due date, have a second meeting with the employee to advise that performance has still not improved. Provide a second Letter of Warning to the employee.

3. If performance still does not improve, have a third meeting with the employee. Advise the employee that if their performance does not improve by a particular date, their employment may be terminated. Provide a Final Warning Letter to the employee, confirming these details.

4. If performance still does not improve, have a fourth meeting with the employee to terminate employment, and provide a copy of this Letter of Termination.

• Redundancy

If the employee is being terminated due to a redundancy, then there are specific processes to follow (see the Letter of Termination for Redundancy for more information).

• Serious misconduct

If the employee is being terminated due to serious misconduct, then the employer may be able to terminate them without warning. However the employer should be careful to ensure that the conduct does actually amount to serious misconduct under Australian law, or else the employee may be entitled to claim unfair dismissal. The Fair Work Ombudsman provides further information, or if in doubt, the employer should seek legal advice.

What has to be done once the Letter is ready?

Once the Letter of Termination of Employment is ready, the employer may sign and date it.

Most employers choose to meet with the employee to provide the Letter of Termination to them in person. The employer may organise a meeting with the employee, and at that meeting, provide a copy of this letter to the employee. The employer should also keep a copy for their own records.

Alternatively, if the letter is being sent to the employee by mail, it is recommended that the employer uses registered post so that they have a record that it has actually been received by the employee. In some cases the letter may be sent electronically (such as by email), for example if the employee consents to receiving electronic communications, and the notice is readily accessible by the employee. Regardless of how the letter is delivered, the employer should make sure to keep a copy of the letter, as well as a record of the fact that it has been received by the employee.

The employer will also need to make sure to honour any other obligations towards the employee, such as a minimum notice period and final pay (discussed below).

How much notice must be given to the employee before terminating their employment?

Under Australian law, employees are entitled to a notice period when they are terminated for poor performance or misconduct (unless it is serious misconduct). The length of the notice period varies depending on how long the employee has been employed, and how old they are. Under Australian law, the minimum notice periods, based on the employee's period of service are as follows:

Employees who are over 45 years old and have worked for the employer for at least 2 years are entitled to an extra week of notice, on top of the notice period set out in the table above.

In addition, an employment contract, employment award, enterprise agreement or registered agreement could set out longer notice periods. They can not be any less than the minimum notice periods set out above.

What must be paid to the employee when their contract is being terminated?

When the employment is terminated, the employee must ensure that all final entitlements are paid to the employee. Regardless of the reason for their termination, most employees are entitled to:

• Outstanding wages or salary for all time worked up until their last day of work.
• Payment of any accrued annual leave to be paid out.
• Any accrued long service leave to be paid out.
• Payment in lieu of notice - if the employer chooses that the employee should not work through the notice period.
• Any unpaid allowances such as a travel allowance.
• Any unpaid comissions or bonuses.

What must a Letter of Termination of Employment contain?

In order to prepare a Letter of Termination, the employer will need to provide information about:

• the full names of the employer and the employee,
• the reason for the termination,
• the last day of work for the employee,
• any final pay that the employee may receive, and
• any other entitlements that the employee may receive.

Which laws are applicable to a Letter of Termination of Employment?

The Fair Work Act 2009 (Cth) and the National Employment Standards (NES) apply to most employment situations in Australia. Further information is available from the Fair Work Ombudsman.

However, in addition, many employment situations are also governed by modern awards or enterprise agreements. If such an award or agreement applies, then that will set out some additional minimum standards with which the employer must comply.

In addition, general principles of contract law, as provided by the common law, will apply to any employment contract.

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