Essential Elements for Writing a Termination Letter

Masha -

Terminating an employee due to poor performance or misconduct is a critical aspect of business management. However, the manner in which it is conducted significantly impacts outcomes. Mishandling terminations can expose your business to legal risks, including claims for unfair dismissal or discrimination. Effective performance management processes are crucial to addressing issues early, providing clear feedback, and documenting performance concerns to support a fair and compliant termination process.

Here we explain what the first steps to termination are, what pitfalls employers need to be wary of and what a termination letter should contain.

You're being made redundant: How to get to this point

Before making the decision to terminate an employee, employers should conduct a thorough performance review. Whether addressing unsatisfactory performance or behavioral issues, it's essential to clearly communicate expectations, provide constructive feedback, and document the performance review process. This approach not only ensures fairness but also strengthens the groundwork for any necessary disciplinary actions or termination discussions.

In cases of serious misconduct such as theft, fraud or assault, a lengthy dismissal process may be overlooked in favour of immediate termination.

Termination of employment

In cases of serious misconduct, or where the issues raised with an employee who is performing poorly or engaging in misconduct have not or cannot be resolved after the employee has had a reasonable opportunity to remedy the situation, an employer may decide that it is time to terminate employment.

Section 117 of the Fair Work Act 2009 (Cth) (FW Act) provides that notice must be in writing before termination takes effect (except in cases of serious misconduct, casual workers or an employment relationship terminated under a fixed-term contract).

It is good practice to state in this written correspondence (also known as a termination letter):

  • The period of notice to which the employee is entitled (either under the FW Act or, if longer, under their contract, collective agreement or enterprise agreement);
  • Specify whether the employee will be paid in lieu of all or part of their notice period;
  • Whether the employee will be required to work for the entire period; and
  • The date of termination of employment.

For employees dismissed by summary dismissal, it should be stated that the employment relationship will end immediately and without notice.

What is the reason?

The reasons for an employee's dismissal should always be clearly explained to the employee and they should have the opportunity to respond to the employer's concerns before a decision is made. The reason for termination is also one of the most important elements to include in a termination letter. Any ambiguity about the reason for termination may give rise to unfair dismissal or general protection claims.

Grounds for termination may include:

  • Repeated or persistent poor performance;
  • Misconduct, whether serious or not;
  • Breach of contract;
  • Inability to meet the inherent requirements of the role; or
  • Dismissal (employers should consider any consultation obligations that may apply if termination is for this reason).

Where the termination relates to an employee's ongoing poor conduct or performance, employers are strongly advised to include the following in the termination letter:

  • Details of any previous warnings given to the employee;
  • Relevant conversations that took place prior to termination; and
  • References to specific dates of meetings and discussions which may be helpful in establishing a timeline for future entitlements.

Setting out an employee's last pay

It is also good practice to set out in a termination letter the details of the employee's last pay. If employment ends, last pay may include:

  • Any wages or allowances still outstanding;
  • Any payments in lieu of notice (if applicable);
  • Any accrued but not yet taken entitlements to annual leave and long-term leave;
  • The balance of any time off in lieu (TOIL) that the employee has accrued but not yet taken;
  • Any severance pay or related entitlements if the employee has been made redundant and is entitled to it; and
  • Any bonuses or performance awards to which the employee is entitled.

Employers must comply with any requirements under contracts, collective agreements, works agreements or legislation to pay an employee's final remuneration within a specified period of time.

What else should be included in a termination letter?

To ensure a fair and compliant process and minimize the risk of potential claims, employers issuing a termination letter should ensure that:

  • The letter avoids any reference to any protected characteristics of an employee (e.g: age, gender, pregnancy or disability, etc.);
  • They keep a copy of the termination letter as a business record;
  • And they seek advice if they are unsure about any part of the termination process.

Where appropriate, the employer will also want to reiterate any obligations the employee may have, including the return of company property or obligations after the employment relationship has ended.

Properly managing employee termination is crucial for business integrity and legal compliance. Tools like IceHrm can assist in navigating these processes smoothly and professionally.