Termination of employment in Australia: a lawful termination guide

Ending an employment contract can be a minefield. Balancing notice periods, pay and entitlements, whilst treating the employee respectfully, ensuring that business needs are still met, and achieving legal compliance, requires care and expertise. But termination of employment doesn’t need to be challenging if you go into it equipped with the right information. 

Termination of an employment contract happens when either the employee or the employer decides to end the working relationship. There are several different types of termination:  

• Resignation: The employee chooses to leave the business – for example, to move to a new employer, to retire, or to care for a family member. 
• Dismissal with notice: The employer terminates the contract, but the employee is still paid for their notice period – often used in cases of underperformance.
• Summary dismissal: The employer terminates the employment contract with immediate effect, usually due to serious misconduct on the part of the employee.
• Redundancy: A role is eliminated by the employer as the employee is no longer needed.
• Contract end: A fixed term contract has run its course, or the work involved in a variable term contract has been completed.

Being fired, dismissed, sacked, or made redundant are all terms used to describe an employer terminating an employment contract. Resignation is the only contract termination initiated by the worker. Redundancy is a no-fault dismissal, whereas being fired or sacked imply wrongdoing or underperformance on the part of the employee. 

Minimum notice periods vary. Casual staff, fixed term contractors, seasonal workers, and daily or weekly hires in certain industries are not entitled to notice, and nor are employees fired for gross misconduct. 

Other employees are likely to need notice of termination of employment under the National Employment Standards. It must be given in writing and include confirmation of the last day of their employment. They can work through the notice period, or receive pay in lieu. 

Minimum notice periods are based on the length of continuous service an employee has with the organisation on the day they’re given notice. NES minimum notice periods are: 

• One week for service of a year or less.
• Two weeks for service of over a year but less than three years.
• Three weeks for service of over three years but less than five years.
• Four weeks for service of over five years.
• An additional week for employees over 45 years of age, who have at least two years’ service.

The National Employment Standard is the minimum notice period required – awards, agreements, or employment contracts may stipulate longer periods. In those cases, the employee only needs to work the minimum notice period, although they may choose to work the full period. If they only work the minimum, the employer does not need to pay the extra. 

While an employee can take annual leave during their notice period, if the employer agrees, the employer cannot force leave on them. The notice period is not extended by annual leave and public holidays. 

Termination of employment during probation is possible, but it is still necessary to comply with legal requirements. For example, probationary staff are entitled to a notice period, and they must be paid for all hours worked including unused annual leave. 

Best practice dictates that employers must keep thorough records of the performance or poor conduct issues that led to the termination, to avoid unfair dismissal claims and to prove that the termination is not discriminatory. 

To stay legally compliant, termination of employment must be for one of the following reasons: 

• Poor performance: The employee must be given a reasonable opportunity to improve.
• Serious or gross misconduct: Such as drunkenness, theft, or safety violations.
• Redundancy: For example, due to a merger, downsizing, or insolvency.
• Failing probation: The employee is proven unsuitable during their first six months.
• Capacity: The employee cannot carry out their responsibilities due to physical or medical limitations.

The following reasons are not legally permissible for termination: 

• Protected characteristics: Such as race, colour, gender, sexual orientation, age, disability, religion, political opinion, and more. 
• Temporary absence: Due to illness or injury, parental leave, or participation in a voluntary emergency management activity.
• Membership of a trade union: Non-membership, participation in industrial activities, or seeking office as an employee representative are also invalid reasons.
• Filing a complaint: Whistleblowing or participating in legal proceedings against the employer are not just cause for dismissal.

Non-genuine redundancies, harsh, unjust or unreasonable terminations, and non-compliance with the Small Business Fair Dismissal Code are not unlawful reasons for termination, but they do count as unfair dismissal. 

Lawful termination includes notice, pay, and entitlements. To be clear on the terminology, unfair dismissal means the termination is harsh, unjust, unreasonable, or not a genuine redundancy. Unlawful dismissal, on the other hand, means that the termination was made for a reason prohibited by the Fair Work Act – such as discrimination or exercising a workplace right. 

Termination for reasons of redundancy must comply with the Fair Work Act rules for a genuine redundancy. That means the job no longer needs to be done by anyone due to changes in the business, and the employer has followed the consultation requirements in the award or enterprise agreement. If both of those conditions are true, the employee cannot claim unfair dismissal. 

The employer must also look for suitable work elsewhere within the business, or an associated entity, for employees facing redundancy. 

The cost of getting a termination wrong can be significant. The median compensation for unfair dismissal is between five and seven weeks’ pay, with the maximum award being the lower of either half the employee’s annual wage, or the compensation cap, which is currently $95,050 for 2026 – 2027. When large-scale redundancies are in progress, that can really add up, especially when redundancies are often a result of existing financial pressures. 

When terminations are referred to the Fair Work Commission, they will assess why the employee was terminated (there must be a lawful reason) and also how the employee was terminated (it must not be harsh, unjust, or unreasonable). 

Follow these steps to ensure your process is fair and compliant: 

1. Confirm the termination 

If the termination is for performance reasons, the employee should be informed of the issues in a clear, actionable manner and be given time to rectify them. Ensure all performance discussions are clearly documented. 

Follow organisational policy with regards to verbal / written warnings and performance improvement plans, and allow the employee the chance to respond and bring a support person to formal meetings. 

In the case of serious or gross misconduct, this step is not necessary.

When an employee resigns voluntarily, the business should request a formal written notice of resignation specifying the final day the employee expects to work. 

For employees leaving due to redundancy, consultations are a legal requirement. That includes notifying employees about the proposed changes, providing relevant information in writing, holding discussions about the changes and their effects, and considering any suggestions from affected employees or their representatives. 

2. Give notice

Give written notice of the termination of employment, including confirmation of the employee’s final working day. Sample termination letters are provided below.

Calculate notice periods based on NES minimums, award or enterprise agreements, or employment contracts. Clarify whether the employee is expected to work through their notice period or will be offered pay in lieu of notice. 

3. Calculate final pay and entitlements 

Final pay calculations should include pay in lieu of notice, accrued annual leave, unpaid wages, and redundancy payments. 

You can also inform employees about their severance package at this stage. Bear in mind that employees are entitled to negotiate their package.  

4. Consider sensitive information 

For employees holding commercially sensitive information, the termination must be even more carefully planned. The organisation will need to consider removing access to buildings and IT systems, retrieve devices such as mobile phones and laptops, and consider pay in lieu of notice and garden leave. Refer also to their employment contract, which may include an NDA or non-compete clause. 

5. Offer outplacement services

Offering outplacement on termination of employment isn’t just a nice-to-have service. As well as helping your displaced employees into new roles, outplacement can ensure that the termination is carried out lawfully, it protects the company’s reputation, maintains morale among retained staff, and reinforces an organisation’s people-first credentials. 

6. Finalise the departure

Offer references to departing employees where appropriate and conduct exit interviews. If departing employees request an employment separation certificate, also known as a Form SU001, it must be submitted within 14 days. 

Dear Jason, 

Re: Termination of employment contract

Following your meeting on 30th September 2026, when you met with Joe Brown to discuss your performance, you were asked to increase the number of appointments booked per day to at least five, before 15th October 2026. You were also issued with a formal warning. 

On 18th October, you met with Joe again, when you were informed that your performance had not improved to the standard required and were issued with a final warning letter. The letter stated that your employment contract would be terminated if your performance did not improve by 29th October 2026. 

Having met with Joe and reviewed your booking record yesterday, we have decided to terminate your employment due to targets being consistently missed. 

As you have been with us for two years, your notice period is two weeks and your employment will therefore end on 15th November 2026. You are expected to work until that date and will be paid your outstanding pay and accrued entitlements until then. 

Yours sincerely, 

Emma Wild, Head of HR

Private and confidential

Dear Debbie, 

Re: Redundancy

As you are aware, Acme Corp recently merged with Coyote Enterprises. That has resulted in certain operational changes to the business, and this letter sets out how those changes will affect you. 

Regrettably, within the new structure your role as a Customer Helpline Manager no longer exists. This decision is solely operational and in no way reflects on your performance. We have looked at alternative positions for you within the new organisation but currently do not have any suitable vacancies. 

Based on your 12 years with Acme Corp your notice period is four weeks, meaning your employment will end on 15th November 2026. You will be paid your outstanding pay and accrued entitlements until your final day of employment. You will also be paid redundancy pay of $5,000 in line with National Employment Standards. This may mean there is a waiting period for Centrelink payments. 

To support you through this period, we have enrolled you on the Careerminds outplacement programme. You will be able to work with a career coach to develop a resume, LinkedIn profile, and job search strategy, and access both interview coaching and career coaching. 

We appreciate your contribution to Acme Corp and wish you well for the future. 

Yours sincerely, 

Sarah Phillips, HR Director

Private and confidential

Termination of employment in Australia must be both fair and lawful. Establishing watertight procedures not only minimises legal claims, it also positions you as a people-first employer – giving you a competitive edge when it comes to recruitment and retention. 

When terminations rear their heads, it helps to have an expert in your corner. Careerminds specialises in outplacement, supporting your terminated employees back into meaningful work whilst protecting your reputation and ensuring fair process.