Does an employer have to give a reason when terminating employment during the probationary period?

Posted by on Jun 11, 2019

The Federal Circuit Court, in the recent penalty decision of Pacheco-Hernandez v Duty Free Stores Gold Coast Pty Ltd (No. 2) [2019] FCCA 1295, ordered the employer to pay a penalty of $20,000 after it dismissed a probationary employee for a prohibited reason. The penalty was additional to the approximately $10,000 that was awarded in the first proceeding as compensation to the employee. Defending such a proceeding would ordinarily cost an employer a much greater amount again in legal fees. In the first proceeding, the employer was found to have terminated the probationary employee’s employment for the reason that she had made complaints in relation to her employment, which is prohibited. The Court considered what was said in the termination meeting and found that the decision-maker did not give a reason for the termination, and when questioned by the probationary employee as to why her employment was being terminated, responded with words to the effect that she was not obliged to give a reason. While the decision-makers’ failure to give a reason was not unlawful in and of itself, if she had given a clear and specific reason, and tested that reason before proceeding with the termination, the result may well have been different.

Cases such as this one demonstrate how difficult dismissals can be for decision-makers and how careful they need to be in termination meetings. This is particularly the case if the termination is higher risk, such as when the dismissed employee can point to a particular attribute or past events, such as pregnancy, impairment, or that they previously made a complaint. Higher risk terminations require special care and having a second person present as a witness is prudent.

Do we need to give a reason when terminating the employment of a probationary employee? This is a question we are frequently asked by clients. Often an employer who is contemplating terminating someone’s employment will be thinking about the risk of an unfair dismissal claim. And in the case of a probationary employee, taking comfort from the fact this particular employee cannot successfully bring an unfair dismissal claim because they have not completed the minimum employment period. So the employer thinks, “I don’t have to demonstrate a valid reason, therefore I don’t have to give a reason.” Sometimes an employer will think that they are doing the employee a favour by not pointing out their deficiencies.

An unfair dismissal claim is not the only kind of claim that a dismissed probationary employee could bring. It is important to remember that an adverse action claim can be brought by a probationary employee. Discrimination claims, under state or federal anti-discrimination legislation, can also be made by probationary employees. This means that there can be Court scrutiny of your reason to terminate during probation. In the case of an adverse action claim, the onus is on the employer to prove, to the Court’s satisfaction, that the reason for the termination was a lawful reason.

There is not any section in the Fair Work Act 2009 (Cth) (the Act) which says “an employer must give a probationary employee a reason when terminating their employment.” Nevertheless, we recommend that you always give a reason for termination. Why do we say this?

Firstly, if you don’t give a reason, the employee could “fill the gap” with an unlawful reason. The poor performing probationary employee who complained about some minor issue, and was subsequently dismissed without being told the reason, is justified in wondering whether their complaint might have had something to do with it. Why would they not think that? They have not been given all of the information. It doesn’t matter if it’s not the truth. There are firms in Melbourne, who upon hearing this story, can quickly construct a claim that will cost the employer an arm and a leg to defend even if they “did nothing wrong.” Those firms know that you will probably end up settling for an amount that seemed outrageous at the start of the matter.

Secondly, if a claim is brought, you will be better able to defend it if the reason you give in the witness box is the same lawful reason you gave the employee at the time of termination, confirmed in the termination letter, and discussed with your colleague when making your decision. This and other evidence can be relied upon and consistency is key.

Lastly, it’s respectful to give an employee accurate and truthful information about why they are losing their job. Of course it can be a delicate balancing act. You do not want to crush someone’s confidence entirely, but not giving them any reason can also have a devastating effect.

Simply giving “a reason” is not enough though. Ensure you give a clear and specific reason, not just a generalised reason such as “not a good cultural fit” or “not a good fit for the team.” If the reason is poor performance, say that, and list the problems or at least give examples. And importantly, before taking any steps to terminate employment, sit down and ask yourself, what is the real reason we are terminating employment here? If you cannot articulate it clearly at this stage, it will be even harder to articulate at the Federal Court. When you have articulated the reason, test yourself. Is this reason lawful? Could this give rise to an adverse action claim? Is this discriminatory? Is this the only reason? Is there another reason, in addition to this one, why we are terminating? If you are not certain that your reason or reasons are lawful, test it with an informed colleague or get legal advice. When your process is to give a clear and specific reason for termination to all employees, regardless of whether they are probationary or not, you are more likely to test your reason and ask yourself the hard questions.

Magda Marciniak is a Special Counsel at Justitia. On 1 July 2019, she will be promoted to Partner. To view her current profile, click here.