Views & Opinions

​“The contract is not enough”: having a valid reason for dismissal

5 October 2016

​“The contract is not enough”: having a valid reason for dismissal

Michael Starkey, Associate


You’re at the end of your tether. For months on end, one of your employees, Steve, has failed to treat his colleagues with respect, failed to organise his time and concentrate on his work while at work, and failed to ensure his work complies with regulatory requirements.

You take a look at Steve’s contract. It allows you to terminate his employment without specifying a reason, as long as you provide him with four weeks’ notice. “Too easy”, you think. You call Steve to a meeting and tell him the company is paying him his notice period and letting him go today. You give him no further explanation, and tell him you don’t have to. Steve can’t believe it, but cleans out his desk, and leaves the office. Later that day, you discover pornographic material on the company phone and laptop Steve left behind. You feel even happier with your decision.

Six months later, it’s you who can’t believe it. Steve has won his claim for unfair dismissal. Among other things, the Fair Work Commission’s judgment says there was no valid reason for the termination of Steve’s employment. Now, your company has to pay him $10,000 in compensation. You wonder… “Where did I go wrong?”

The case

The scenario above is based on a recent case (“Croft”) which demonstrates that employers should not act on a termination with notice provision in a contract to terminate employment “carte blanche”, without providing a reason. This is because such provisions need to be considered in the context of Australia’s broader workplace relations system, which provides employees with access to statutory remedies if their employment is terminated in certain ways or in particular circumstances.

As was held in Croft: “a dismissal without identified reason but reliant upon a purported contractual entitlement to dismiss without reason, provided that notice or payment in lieu of notice was made, would plainly subvert the statutory unfair dismissal laws [which require a valid reason for dismissal related to an employee’s performance or conduct]… In the Australian jurisdiction there is no lawful foundation upon which employment can be created at will.”

Key takeaways

  • In Croft, the employer’s concerns about the employee’s conduct and performance could have been valid reasons for termination, if they had been explicitly relied on, in the right circumstances. However, employers who have concerns about an employee’s performance or conduct should ensure that the employee knows about these concerns (and has an opportunity to remedy them) well in advance of any resulting termination of employment.
  • Further, employers should clearly state the reason an employee’s employment is being terminated in the termination letter. Well drafted termination letters can serve as useful evidence in the event of any claim (whether for unfair dismissal or another cause of action, such as a general protections claim).
  • Interestingly, while Croft reaffirms the established position that misconduct that comes to light after a termination can be relied on as a reason for termination, it was held that, in this instance, the employer was unable to justify the dismissal based on its discovery of pornographic material on the employee’s company laptop and phone. This was partly because there was no policy regulating employees’ use of company equipment, again reinforcing the value of properly implemented policy documentation.
Posted in Investigations & Dispute Resolutions and tagged .
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