Lawyers often don’t get involved with their clients’ employment arrangements until the situation has broken down irretrievably. As such, we are often asked by clients to help them prepare termination letters to employees who they have decided to move on.
What we have discovered is that good termination letters follow a formula to ensure they cover all the information the employee needs about the end of their employment, but does not inadvertently land you in hot water. In this article, we share that formula with you to give you a leg-up for the next time you need to give someone notice.
Formal notice of termination
The first sentence or two of the letter should confirm the purpose of the letter is to put the employee on notice of the termination of their employment. We always advise employers to avoid flowery or emotional language such as ‘regretfully’ or ‘unfortunately’. Although it might seem very blunt, the more sparse and factual the letter, the less issue the employee is likely to have with it. It is also important that the employee gets the message very clearly from the outset.
Reasons for termination
The letter should record the main reason or reasons for the decision to terminate the employee. These are typically linked to ongoing poor performance or bad behaviour, or the redundancy of their position. The reasons should generally be kept broad and with neutral wording. However, sometimes it will be appropriate to give specific examples, or refer to previous warnings or offers of redeployment. The important thing is that the reasons for termination are clear to the employee, and you must be able to back them up if disputed.
Warnings and opportunities to rectify
The termination letter must provide details of the written warnings given and other discussions that you have had with the employee prior to the decision to terminate. Basically, this is a record of the opportunities you have provided to the employee to rectify their performance or conduct before termination. You should view this part of the letter as evidence that may become relevant to an unfair dismissal application, so it is worthwhile taking your time to properly record what has happened in the lead up to termination.
The Fair Work Ombudsman (FWO) service provides some very helpful template termination letters that are available to download for free. The FWO’s template termination letter suggests that you summarise the lead up meetings and warnings letters regarding the performance or conduct issues. If this was your internal process, then the FWO’s recommended template is a very good way to go about recording the warnings an employee was given.
However, for some employers (especially small business employers), the warnings and coaching feedback may not have been quite as structured. If this was the case for you, you should still ensure that you record the times that the employee was made aware that they were not performing satisfactorily (which may have been by emails, discussions, performance reviews, etc). Be sure to record when the employee was first notified of the issues, to highlight that the employee has been given ample opportunity to remedy the issues.
Notice period and termination date
The termination letter then needs to state the notice period to which the employee is entitled. This will be the more generous of what the law requires (i.e. under the National Employment Standards or relevant Award) and what the employment contract provides. Employees will typically be entitled to between 1 and 6 weeks’ notice, which is a large range so it is important to check and get this right for the relevant employee. You should also bear in mind that older employees (aged over 45) are generally entitled to an additional week’s notice.
Generally, you have three options regarding the notice period:
• You can require the employee to work for the duration of their notice period;
• You can have termination take effect at the end of the notice period, but put the employee on ‘garden leave’ or ‘gardening leave’ in the meantime (so they do not have to attend work); or
• You can terminate the employee immediately, and pay them in lieu of notice.
Many employers prefer not to have an employee attending work during the notice period for fear they may sabotage their work or bring down workplace morale. If this is the case, you can either put the employee on gardening leave or terminate their employment immediately and pay them in lieu.
Gardening leave is when the employee’s employment does not end until the end of the notice period, but they are not required to attend work in the meantime. This can help to prevent an employee competing with your business or soliciting your clients if the employee is not subject to any post-employment restraint. Alternatively, it can also help to defer the termination date if the employee is subject to a restraint that commences on termination. Gardening leave is not permitted in all scenarios, so it is important to ensure that the contract terms or other implied employment terms allows it. Gardening leave tends to be more prevalent in executive contracts with long termination periods or a fixed term.
Depending on what notice period the employee requires and what approach you decide to take, you need to confirm the exact termination date. This is the date that termination will take effect. You will then calculate all accrued entitlements and notice period pay to that date.
Final pay and accrued entitlements
Although it is not strictly required, we recommend to clients that they include in the termination letter a short calculation table that shows the outstanding pay and accrued entitlements up to the last day of employment. The calculation is likely to include ordinary pay up to the last day of work, accrued untaken annual leave, and possibly accrued vested long service leave, together with super. Including the calculation in the termination letter avoids questions or arguments over what is payable to the employee. It also provides a helpful reference for the employer, as they have already crunched the numbers. If it is not possible to provide this information at the time of termination, then you should note in the termination letter that this information will be prepared promptly and then provided to the employee.
You should also advise the employee when they can expect to receive the final payment or payments. Employees who are required to work throughout their notice period will typically receive their pay via normal payroll. But employees who are receiving payment in lieu of notice will want to know when they can expect to receive the payment. And all employees will want to know when their accrued entitlements will be paid across to them.
Requirements for finishing up work
There are bound to be some practical aspects of the employee finishing up work that need to be addressed. The return of work equipment and documents, handover of files, redirection of emails and handing in of keys are just some of the logistical issues surrounding termination.
Depending on the nature and seniority of the employee’s role, you may also want to set some expectations around transition of work and put in place a handover plan. For senior or key role employee, it may also be necessary to control how the employee’s exit will be announced (both internally and externally).
While you should avoid overloading the termination letter, it is worth recording any important handover and exit requirements.
Information for the employee going forward
The last paragraph of the termination letter should include information to assist the employee going forward.
You should include a statement to the effect that some termination payments may result in waiting periods for Centrelink payments. You should also include the contact details for the FWO service if the employee wants to seek advice about their employment terms and entitlements. The FWO termination letter template includes wording you can use for both.
Lastly, you should include the contact details of the person within your organisation that the employee can contact if they want to discuss the termination letter or any issues relating to their termination. The contact person should be a senior person who is authorised to answer the employee’s questions and help resolve any issues.
Summary
The termination letter is usually “Exhibit A” to any unfair dismissal application, so it is important to get it right. Following our formula, and using the helpful templates provided by the FWO, will help you stay on the right track.
As always, it is important to be aware that this termination letter formula will not suit all situations. The formula will need to be adapted for employees who are being summarily (i.e. instantly) dismissed, or for employees who are being made redundant. Also, if your situation is particularly difficult it pays to get legal advice regarding the termination letter.
We are experienced in advising on all aspects of employment law. If you would like help call us on (02) 9199 8597 or email wehelp@jfmlaw.com.au
The information contained in this post is current at the date of editing – 29 September 2023.
