Serious misconduct: entitlements on termination?

Q&A

Serious misconduct: entitlements on termination?

If employees are dismissed for serious misconduct, what are their termination entitlements?

If employees are dismissed for serious misconduct, what are their termination entitlements?
 
This question was recently sent to our Ask an Expert service.
 
Q We have discovered that a senior member of management has embezzled a large amount of money from the company. The police have been called and he has been charged after an internal investigation and forensic audit was conducted. The company has terminated his employment with immediate effect.

The employee has been employed for about eight years with the company. While the company will attempt to recover the embezzled funds, is the employee entitled to any monies on termination, even if dismissed due to serious misconduct?
 
A Dismissal due to an employee’s ‘serious misconduct’ is a higher degree of misbehaviour than ‘misconduct’, and may result in the loss of certain entitlements usually payable on termination of employment. Generally, the entitlements relate to notice of termination of employment by the employer and termination payments relating to annual leave and long service leave. 

Notice of termination by the employer

Fair Work Act
 
In this case, the employer needs to consider two sources when dismissing the employee without notice due to serious misconduct – the Fair Work Act and the terms of the employee’s contract of employment.
 
The Fair Work Act (s117) provides a minimum period of notice (or payment in lieu) when an employee is terminated by an employer. However, certain categories of employee are excluded from this provision, including an employee whose employment was terminated because of serious misconduct. Consequently, the employee would be paid up to the time of dismissal, subject to the terms of the employee’s contract of employment.
 
Contract of employment
 
Under common law, notice of termination is not normally required to be given where the reason for termination is the employee’s serious misconduct. Some contracts contain a definition of ‘serious misconduct’. Take care that the employee's conduct comes within any description of serious misconduct contained in the contract before a decision is made not to provide notice in accordance with the contract. 

Leave entitlements

Annual leave
 
The National Employment Standards (s90(2)) provides that an employee is to be paid any accrued balance of annual leave on termination of employment, by either party. This means that if the employment ends (even where the reason is because of serious misconduct) and the employee has untaken paid annual leave, the employer must pay the employee the amount that would have been payable had the employee taken that period of leave.
 
Long service leave
 
Generally, the relevant state and territory legislation provides that an employee dismissed by the employer for serious misconduct is not entitled to pro rata long service leave upon dismissal. The exception to this general rule is the Long Service Leave Act 1992 [Vic], which provides pro rata payment on termination of employment regardless of the reason for termination.
 
Also, there may be an entitlement to payment of accrued long service leave on termination, where the employee has completed sufficient continuous service to qualify to take long service leave. For example, under the Long Service Leave Act 1955 [NSW], once an employee has completed 10 years’ continuous service with an employer, the employee is entitled to payment of accrued long service leave on termination, regardless of the reason for termination.

Reference should be made to the relevant state or territory long service leave legislation to determine whether an employee is entitled to be paid accrued long service leave after having completed the appropriate qualifying period of service. 

Superannuation guarantee

The definition of ordinary time earnings according to the Australian Taxation Office Superannuation Guarantee Ruling (SGR 2009/2) states that lump sum payments on termination, such as payment in lieu of unused annual leave or long service leave payments, are excluded from the definition of ordinary time earnings for the purpose of calculating the 9.5 per cent employer contribution under superannuation guarantee legislation.
 
The bottom line: Serious misconduct is a higher degree of misbehaviour than ‘misconduct’, and can result in the loss of certain entitlements usually payable on termination of employment.
 

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