Final Warning versus Termination

When does an employee’s behaviour warrant termination of their employment and when should they, instead, be issued with a final warning? This poser has landed many an employer in hot water, facing credible allegations of unfair dismissal or breach of contract.

Termination without Warning

Termination without warning can be made, legally, only in limited circumstances. Under the Fair Work Act 2009 a person earning under the high income threshold (presently $136,700) can be terminated only if they have committed serious misconduct.

Serious misconduct is defined in the Fair Work Regulations 2009 to have its ordinary meaning. It is further set out under the regulations to be ‘wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment.’ It is also described as ‘conduct that causes serious and imminent risk to health and safety of a person or the reputation, viability or profitability of the Employer’s business.’ At first glance this test may appear to be relatively easy to meet. However, many employers are too quick to complain that an employee’s behaviour, in, for example, repeatedly turning up very late to work, has been damaging to their profitability or reputation. The mistake that is commonly made is assuming that everything an employee does can be considered ‘intentional’ or ‘wilful’ when in fact this element can be very hard to prove.

One example of clear serious misconduct is where an employee intentionally causes work health and safety risks for themselves or others. In the matter of Singh v Fenner (Australia) Pty Ltd [2015] FWC 5583 a mill operator did just that by intentionally placing his hands close to the rotating drum of a machine in breach of the company’s safety rules. His employment was terminated for serious misconduct and he failed in an unfair dismissal claim because the Commission found: ‘Mr Singh’s actions were a serious breach of its safety protocols and requirements and placed him at risk of serious injury by potentially becoming entangled, entrapped or crushed by the machine.  It concluded he could no longer be trusted to act safely in the workplace and the significance of his actions warranted summary dismissal.’ It was found that a warning would not have been sufficient in this case, especially as it was clear that the employee knew the safety rules.

Other examples of serious misconduct could include intoxication in the workplace, stealing or other criminal acts related to work, setting up a competing business while still employed and intentionally damaging workplace property. Rather than rushing to make a decision an employer can place an employee on paid leave whilst investigating and deciding whether certain acts constitute serious misconduct. Importantly, to ensure the termination is lawful the employee must also be told of the valid reason and given an opportunity to respond with a support person present.

Employees that earn above the high income threshold may be lawfully terminated without notice only in accordance with their contract of employment and common law principles. A contract may include specific instances of when an employee can be terminated without warning, such as if convicted of a crime or seriously breaching workplace policy. Alternatively, many written contracts simply state that if an employee carries out ‘gross or serious misconduct’ such a termination may be made. In Mitchell-Innes v Willis Aus Group Services Pty Ltd (No 2) [2014] NSWDC it was found that ‘formulation of the test of gross misconduct is whether the misconduct is sufficiently serious as to manifest an unwillingness to be bound by or honour the obligation of the contract.’ Similar considerations will apply here to those which arise under the Fair Work Regulations, but subject to the provisions of the contract.

Final Warning

In situations where an employee’s behaviour does not warrant being labelled serious misconduct an employer may instead decide to issue a final warning.

Warnings can be issued for a variety of reasons including:

  • poor performance;
  • inappropriate workplace behaviour;
  • failure to follow instructions; and
  • breach of workplace policies.

In an unfair dismissal case involving a tram driver terminated for serious misconduct for deliberately driving slowly to delay the tram, the employer was found to have unfairly terminated the employee.

In Langdale v KDR Victoria Pty Ltd [2015] FWC 4613 the employer alleged that Mr Langdale had caused serious and imminent risk to the reputation and profitability of the company by ‘dragging the road’. The Commission did not agree that the employee’s acts were serious misconduct because it was held that there were other potential reasons for the delay beyond him deliberately causing them. Although the employee had previously been issued with a final warning about delays this was over a decade ago and so the Commission found that this could not have been used to justify termination of his employment, even if notice had been given to him. In this case the Commission held that the employer should have issued only a formal warning.

No strict legal obligation requires an employer to issue more than one warning before terminating employment. Despite this, depending on the circumstances and a workplace’s policies, it may not always be appropriate for a warning to be final. The sudden issuing of an underperformance warning to an employee who has been employed for a long period and who has never been subject to such a warning before could be viewed as too harsh. Further, depending on the severity of the issue, such as one instance of lateness, a final warning would, very likely, be considered inappropriate if brought into question in a dispute over termination.

Although employees earning over the high-income threshold may be issued with a final warning they can be lawfully terminated on notice for any performance issues or concerns, unless prohibited by a written contract. It is therefore not uncommon for termination on notice to occur without any warning as this gives employers the freedom and flexibility to shape their team as they see fit.

Weighing the Risk

The legal risks of an unfair dismissal claim or a breach of contract case are only one issue for employers to weigh when deciding what steps to take. A variety of other commercial and legal risks may, of course, also be relevant. Sometimes these other factors, such as loss of business or of other employees, may far outweigh the risks of an unfair dismissal or breach of contract claim due to terminating employment for serious misconduct. Employers should enter such situations, if they do arise, in full knowledge of all relevant risks and ready to negotiate a settlement.

Some important considerations to weigh up in this context include:

  • How much might the employee be awarded in compensation and entitlements (including possible long service leave pro-rata if the conduct is found not to be serious misconduct)?;
  • What are the likely legal costs for both sides in litigating the matter (although, significantly, the unfair dismissal jurisdiction is a non-costs area, meaning an employer is not required to pay the employee’s legal costs if they were to lose)?; and
  • What non-monetary benefits could be offered to the employee, such as a statement of service or an agreed resignation?

Employers should proceed carefully when considering whether to terminate employment without notice for serious misconduct or whether to issue a final warning. A little extra caution and consideration can avoid or successfully manage legally- fraught situations.