Payment in lieu of notice period must be delivered before termination

Payment in Lieu of Notice Required Before Termination

In early 2022, a decision in the Federal Court unearthed an underutilised provision of the Fair Work Act, which requires employers to hand over payments in lieu of notice to outgoing employees before termination of employment. The practice of employers providing such payments after the date of termination is common. This decision confirms that such conduct is unlawful.

What is a notice period?

When an employee resigns, they will usually have to provide their employer with a period of notice. The duration of that notice will depend on either their award, an enterprise agreement or an employment contract.

Likewise, if the employer terminates an employee, they will also have to provide the employee with the relevant notice period. Sometimes, however, the employer will not require the employee to work the notice period, but rather, they will make a payment in lieu of that notice and advise that the employee is not required to return to the workplace.

Notably, casual employees (as opposed to permanent employees either full-time or part-time) are not usually required to provide notice, nor are they entitled to receive. It is also important to recognise that there may also be different notice periods for permanent employees applicable to termination of employment during a probationary period.

Notice periods and final pay are also protected under the National Employment Standards.

The Federal Court decision

Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481 (“Shum”) was an appeal from a successful adverse action claim in the Federal Circuit Court of Australia.

The aggrieved employee was abruptly terminated by her employer.  By email, she was notified that her termination was effective immediately and that she would receive payment in lieu of notice ‘in the next week’. This payment was ultimately made on 23 June 2017, some 4 days after the termination.

While there were broader legal issues at play, this article is concerned only with the approach to the payment of notice, which on appeal was found to have contravened s. 117 of the Fair Work Act. This reversed the trial judge’s decision that the termination process was compliant.

Section 117(2) of the Fair Work Act reads:

The employer must not terminate the employee’s employment unless:

(a) the time between giving the notice and the day of the termination is at least the …(the minimum period of notice) … or

(b) the employer has paid to the employee … payment in lieu of notice of at least the amount the employer would have been liable to pay to the employee … at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum period of notice.

Snaden J concluded that, by providing payment in lieu of notice four days after the date of termination, the employer contravened s. 117(2)(b). His Honour found that the provision clearly specifies that payment in lieu of notice is a precondition for lawful termination.

Notably, this excludes circumstances in which the employee continues to work for the duration of the notice period.

How was the employee compensated?

The former employee, who was self-represented, argued that payment of her notice period four days after finishing work meant that the date of her termination was in fact 23 June 2017, the day she received her payment.

This would have taken her period of continuous service with the employer beyond one year, entitling her to a longer minimum notice period, and therefore a larger termination payment.

Unfortunately for the employee, Snaden J did not agree.

The fact that the termination was carried out unlawfully did not, in his Honour’s view, change the date or effect of the termination. The employee was still terminated on 19 June 2017, albeit unlawfully. The only consequence of the contravention was the possibility of a penalty imposed on the employer and compensation paid to the employee.

As Snaden J explained:

“A dismissal effected contrary to the requirements of s 117(2) of the FW Act is not void or otherwise of no effect. It is simply effected in contravention of the requirements of that section. That reality potentially visits other consequences, including exposure to relief in the nature of civil penalties and compensation under pt 4-1 of the FW Act. But it does not follow that employment that is terminated in contravention of s 117(2) continues as though not terminated at all.”

Snaden J referred the question of potential compensation to the Federal Circuit and Family Court for rehearing. The amount of compensation, if any, received by the employee for the contravention was therefore a question for another day.

However, if Snaden J’s opinion is anything to go by, any penalty awarded is likely to be small because the effect of the delay on the employee was negligible:

“…given that [the employee] was paid in lieu of notice a short time after the dismissal took effect, it may be that her loss is minimal (if there is any at all) and/or that no occasion to impose a pecuniary penalty upon SMRC arises.”

In cases involving longer delays of payment in lieu of notice, penalties imposed upon employers and compensation awarded to outgoing employees could be significant.

Need advice regarding your termination of employment final pay?

This case is a decisive wake-up call to employers, that the often-overlooked requirement in s. 117(2)(b) will be enforced.

If you’ve been terminated or you’ve resigned and you believe your termination of employment final payment calculations, including your notice period, are not correct, you should speak with your Union or seek advice from an employment lawyer.

Contacting a Hall Payne employment lawyer

You can contact us by phone or email to arrange your consultation; either face-to-face at one of our offices, by telephone or by videoconference consultation.

Phone: 1800 659 114

  This article relates to Australian law; either at a State or Federal level.

The information contained on this site is for general guidance only. No person should act or refrain from acting on the basis of such information. Appropriate professional advice should be sought based upon your particular circumstances. For further information, please do not hesitate to contact Hall Payne Lawyers.

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