The most common means of ending a contract of employment is by an employee giving notice, in other words resigning. A reason is not required. Once notice has been given and accepted it cannot be withdrawn unless both parties agree to the withdrawal of the notice.

The contract of employment may stipulate the amount of notice required. If the contract does not specify the period of notice, the courts require that reasonable notice be given. What is reasonable depends on a number of factors, including the status of the worker, the length of service, the customs and practices of the particular industry and how the wages are paid (that is, whether weekly or fortnightly). However, even reasonable notice cannot be used to bring to an end a contract of employment made for a fixed time (such as three years).

Legislation requires that employers provide a certain minimum notice period when terminating the employment of one of their workers. The Fair Work Act 2009 (Cth) [s 117] sets out the minimum notice periods (for national system employees). These are the same as those set out in the Fair Work Act 1994 (SA).

Where an award an award or agreement does not state what notice must be given, the following times are required [Fair Work Act 1994 (SA) sch 8]:

If the employee is over 45 years of age and has completed at least two years continuous service, an extra week of notice must be added to these periods of minimum notice.

Under the federal Fair Work Act 2009 (Cth), continuous service does not include periods of employment as a casual [s 117(4)]. For further information about what is to be disregarded in determining the period of continuous service under the South Australian Fair Work Act 1994 (SA), see the Fair Work (General) Regulations 2009 (SA) [reg 11].

An enterprise agreement or award may also state the period of notice that must be given (such as 2 weeks or one month). Where these are more generous than the statutory minimum, they will prevail. By strictly following the requirements of the agreement or award, the contract will be brought to an end at the end of the notice period. If the agreement or award provides for the payment of wages instead of giving notice, the contract of employment comes to an end when the payment is accepted. However, if this is not expressly provided for, the termination of the employment contract will not necessarily be affected by giving the employee wages instead of notice.

An employer or an employee can terminate a contract for breach of the contract, provided the breach is of sufficient gravity or relates to a major term of the contract.

An employer sometimes penalises an employee's misconduct or inefficiency by withholding bonuses, denying promotion or putting the employee on a short list in case of redundancy. If such a sanction reduces the employee's contractual rights, the employer is liable for breach of contract. For instance, being suspended for a period without pay derogates from an employee's contractual right to be paid and, unless it is authorised by the contract itself, is in breach of the contract. However, a provision in a contract that provides for a deduction from, or forfeiture of, wages is also invalid under the general law, unless the amount is a genuine pre-estimate of certain damage that might result from some future breach by the employee.

Sometimes, an employer may attempt to alter an employee's working conditions, classification or grading, rate of pay or other employment terms. The effect of this on the contract of employment varies according to the circumstances, but the most likely results are:

In practice it is hard to distinguish between these situations but, since both the unfair dismissal legislation and claims for wrongful dismissal at common law require proof of dismissal as a condition for proceeding, the question is important. Although minor changes can always be enforced (and some variations, such as improvements in working conditions or increases in wages to keep in line with inflation are obviously not breaches of contract), major changes will probably be categorised by the courts as a repudiation by the employer, giving the employee the right to accept the repudiation and be classed as dismissed.

The courts are generally reluctant to assume that a variation is made with an employee's consent (that is, by mutual agreement) as they are aware that employers sometimes make use of their employees' need to work to persuade them to accept lower wages or conditions as a means of avoiding the consequences of dismissal. This makes up a significant part of the doctrine of constructive dismissal - the other part being where an employer forces an employee out - for example by saying 'resign or I'll sack you'.

An employer can summarily dismiss an employee who commits a serious breach of a major term of the contract. Attitudes have changed as to what are the proper standards of behaviour of employees towards employers, and so the old court decisions are of little help today. The relative importance of the terms of a contract is usually determined by the importance the parties see them as having.

The following principles are generally applied when considering whether the employee's conduct would justify summary dismissal, but they are by no means the only ones:

If an employer summarily dismisses an employee in circumstances not warranting summary dismissal it may still be a defence to the employer to establish that, although he or she did not know of it at the time of the dismissal, grounds existed which did provide sufficient basis to exercise summary dismissal.

National system employees redundancy entitlements

Redundancy is when you lose your job because it no longer exists.

Right to redundancy pay is for all employees in businesses with 15 employees or more, for small business employees (14 employees or fewer), redundancy pay is generally not available, it is only if it is covered in the award, contract or agreement.

A genuine redundancy is when:

If the redundancy is not genuine, then you may have a case for unfair dismissal.

Unless covered by an industry specific redundancy scheme, or greater entitlements in an award, contract or agreement, redundancy pay is covered by the National Employment Standards (NES) [Fair Work Act 2009 (Cth) ss 119-122].

Continuous service includes all approved paid leave; however any approved unpaid leave is deducted from the calculation of service.

The Fair Work Ombudsman’s Notice and Redundancy Calculator may assist in determining the redundancy pay period.

Casual employees are not generally entitled to redundancy pay [s 123(1)(c) Fair Work Act 2009 (Cth)]. However, be aware that some workers are called casual, when they are actually permanent (working regular hours with an advance commitment to ongoing employment). Also, if a casual employee becomes a permanent employee, their continuous service starts from when they became permanent [see ss 117(4), 119(3)].

Transfer of business over the time an employee was working at the business may affect entitlements. Service for the prior business will only be discounted if the new business is not an associated entity (a business that is related to the original business) and it gave the employees written notice when it took over that their prior service would not count. See the Fair Work Ombudsman’s Employee entitlements on a transfer of business page for more information.

Notice of dismissal or redundancy

An employer must provide an employee written notice or payment in lieu of notice of their dismissal or redundancy, even if it is a small business (apart from casuals, employees at the end of a fixed term contract or employees dismissed for serious and wilful misconduct). This is in addition to any redundancy entitlements.

Unless the same or greater entitlements are provided for in an award, contract or agreement, notice pay on termination is covered by the National Employment Standards (NES) [ss117 -118 Fair Work Act 2009 (Cth)].

Notice under the NES

Other entitlements such as accrued annual leave and long service leave also have to be paid on redundancy.

For redundancy due to insolvency or bankruptcy of the employer see: Upon the sale or winding up of a business.

The effect of the appointment of a receiver or administrator on employees can be complex. The question whether a contract is or is not terminated in these circumstances is important as the date of, and reason for, termination can have significant consequences.

Voluntary administration is now the most common form of insolvency administration whereby an administrator is appointed by a company to determine whether the company should be wound up, sold or restructured. If a receiver is appointed by order of a court (as in bankruptcy), the employees' contracts will probably be automatically terminated, unless the order contemplates the continuation of the business and empowers the receiver to continue to pay the salaries of the current employees.

Automatic termination may also follow the appointment of a receiver to act on behalf of debenture holders, although there are exceptions here also. It has been held that, in principle, there is no good reason why the appointment out of court of a receiver who is an agent of the company, or the appointment by debenture holders of a receiver and manager to act as the agent of the company, should necessarily terminate (end) a contract of employment, except where the company sells the business, or new contracts are agreed to by the employees, or the function, role and objects of the receiver would be inconsistent with the continuation of the employment.

If an employer is declared bankrupt or is 'wound up' then an employee's entitlement to unpaid wages will be governed by the Corporations Act 2001 (Cth) (if the employer is a company) or by the Bankruptcy Act 1966 (Cth), if a person. These set out the order of priority of payment of debts owed by the employer. In both cases wages come after payment of the expenses of the winding up of the company or administering the estate of the bankrupt and after the payment of secured creditors such as banks. Unpaid wages come before leave payments, followed by retrenchment payments. In practice, wages are a priority only over unsecured creditors.

Protection of employee entitlements

The Fair Entitlements Guarantee (FEG) is a legislated Federal government scheme which is available for employees when their employers have become bankrupt or have gone into liquidation after 5 December 2012. Through the scheme some outstanding employee entitlements are available such as redundancy pay, unpaid wages and unpaid annual leave.

For employees whose companies went into liquidation before 5 December 2012 the former government General Employee Entitlements Support Scheme (GEERS) is available and also enables some employee entitlements to be paid.

There are differences between the two schemes and what can be claimed. Information about both schemes, including how to apply under the schemes, is available on the government's website www.employment.gov.au, see the FEG, and GEERS pages of that site.

When a business is sold

When a business is sold, there is no obligation on the new owner to take on the existing employees. The seller usually terminates all employees and pays them for any outstanding entitlements, for example in relation to annual leave or long service leave. If there is a continuity of employment, the employee's entitlements to leave continue with the new employer. It is therefore preferable that the new owner takes over the existing responsibilities in relation to the employees, and an allowance in the purchase price be negotiated between the parties to cover existing obligations.

For further information see Transfer of Business