Terminating a troublesome or underperforming employee is a necessary part of any business. However the way in which you terminate an employee and write the termination letter can greatly impact the future of your business.

Unfair dismissals, general protections and discrimination claims cost both time and money. This is why it is important to know how to draft a termination letter. Below we examine some of the most important areas to keep in mind!

Reason for termination

The first thing to remember when drafting a termination letter is to include the reason for termination. A termination letter must clearly communicates the legitimate reason for their dismissal. Any ambiguity around the reason for termination may lead to a potential unfair dismissal claim. Some reasons for termination include poor performance, misconduct, failure to pass probation or redundancy.

When the dismissal relates to the employee’s conduct or performance, it is a good idea to provide details of past warnings given and other discussions occurring prior to termination. Referring to dates of relevant meetings and discussions helps to set up a timeline of events, which can be helpful in the event of a future claim.

Notice and termination date

Your letter will also need to outline the period of notice which the employee is entitled to. You will also need to include whether the employee will be paid in lieu of their notice period or is required to work out their notice period.

The minimum period of notice is set out in the Fair Work Act 2009 (Cth) and based on the employee’s length of service as outlined in the table below. Please note that this table does not apply in some circumstances including if the employee is a casual or if the termination is for serious misconduct.

Employee’s period of continuous service with the employer at the end of the day the notice is given Period
Not more than 1 year 1 week
More than 1 year but not more than 3 years 2 weeks
More than 3 years but not more than 5 years 3 weeks
More than 5 years 4 weeks

Businesses must also keep in mind that an employee over 45 and who has been with the business for 2 years or more is entitled to an additional week notice on top of the table above.

However, an employment contract, modern award or enterprise agreement may provide a greater period of notice in which case this higher period must be complied with. If you are unsure about how much notice you must provide, seek advice.

Whether you decide to pay in lieu of notice or require the employee to work out the notice period, the letter must also confirm the exact termination date. The termination date is important for the purpose of access to unfair dismissal and also the accrual of entitlements.

Final pay

It is best practice for the termination letter to outline details of the employee’s final pay. This includes entitlements such as annual leave, long service leave, any outstanding wages owed and if applicable, the amount of notice to be paid in lieu.

Other considerations

We recommend that you confirm the employee’s obligation to return any company property, such as keys, laptops or even a company car. Outlining this within the termination letter makes it clear what exactly the employee is required to do and when.

There are some things that should never be included in a termination letter in order to minimise your risk of a claim after the dismissal. Specifically, any reference to protected attributes such as pregnancy, age, gender or disability. Whilst these may not have been the reason for termination including these within a termination letter can put your business at risk.

Need a termination letter right away? Claim your free template! Drafted by leading workplace specialists and complaint with Fair Work standards to avoid claims against your business.