How Can an Employee Terminate an Employment Agreement?

Last revision: Last revision:1st October 2019

There are many reasons an employee in Australia may want to resign from their employment. The employee might have been offered a new job, or might be moving to a new location, taking up some study, retiring, or might simply not want to work for the employer any more.

Regardless of the reasons, there is a right way and a wrong way for an employee to terminate an Employment Agreement. Getting this wrong may cost the employee financially, and may have negative consequences for the employee's ongoing career prospects. It may also have negative impacts on the employer. Therefore, it is important that all employees follow a few simple steps to ensure a smooth process.

Think carefully about the decision

Obviously, choosing to resign is an important life decision. It warrants careful consideration by the employee before going ahead.

Beware that even 'heat of the moment' resignations may be accepted by the employer

It is common for employees to feel a whole range of emotions at work from time to time, including stress, frustration, anger and resentment. In the heat of the moment, during a particularly stressful or challenging period, it is also common for employees to consider quitting.

In a recent Australian case, an employee found himself in a heated argument with his manager at midday one Friday. In the heat of the moment, the employee shouted at the manager "you can keep your ****ing job", "I resign", before packing up his possessions and leaving the premises.

The next Monday morning, to the manager's surprise, the employee turned up for work. The manager reminded the employee that he had resigned, and asked the employee to leave the premises. The employee disputed this, and lodged an unfair dismissal claim with the Fair Work Commission.

The Fair Work Commission eventually concluded that in some circumstances, it may not be reasonable to immediately accept a resignation where there are 'special circumstances'. It also found that so called 'special circumstances' might exist where there are words said in anger, or as a result of undue pressure. If there are 'special circumstances', then the employer should allow a reasonable period of time to pass, and may need to enquire with the employee as to whether they actually intended to resign.

However, the Fair Work Commission also found that in this case, although the heated argument between the employee and the manager may have amounted to 'special circumstances', the employee had been given enough time to cool off and reconsider the resignation (from Friday midday, through the weekend until Monday morning), and had not withdrawn his resignation.

The Fair Work Commission also found that given the employee's conduct during the meeting, and in the time that followed it, the employer was entitled to accept the employee's resignation. It concluded that the employee had resigned (rather than being fired) and therefore as a consequence, the employee's unfair dismissal claim failed.

A lesson to take from this case is that employees should be very careful with resignations made in heated circumstances. Even if they later change their mind and try to withdraw the resignation, they may not be able to.

Consider whether there is an alternative to resigning

In many cases, employees who are dissatisfied with their current employment situation find that rather than resigning, they are able to negotiate some kind of change with their employer, such as being placed in a new role for the same organisation, or receiving an increase in salary. Many employers are willing to cooperate with these sorts of requests, particularly for highly valued employees. We have a Raise Request Letter which may be used by employees who want to ask for an increase in salary.

There may be no going back once an employee terminates their Employment Agreement, particularly if the employer has taken steps to replace the employee (for example, by hiring somebody new to take the role).

In addition, it is worth considering consequences for such matters as the employee's long service leave. If the employee terminates their employment, then they may lose any long service leave entitlements which have been accruing. If they stay with the employer, even though they change roles, their long service leave might continue to accrue.

Therefore, taking some time to consider whether there is a way to stay with the employer, albeit under different conditions of employment, may prove to be a win-win solution.

Of course, in many circumstances, this simply is not possible or desirable, and if this is the case, then the employee may consider the steps set out below.

Check your Employment Agreement, industrial award, and/or the National Employment Standards for your minimum notice period

Most employees in Australia are required to provide a minimum amount of notice to their employer that they are resigning. This minimum notice period will usually be set out in the Employment Agreement (or employment contract), in any relevant industrial award, or in the National Employment Standards.

If the employee does not provide the minimum amount of notice, then the employer may be entitled to withhold an equivalent amount from the employee's final pay, to cover this notice period. For example, if the employee is required to give two weeks' notice, but fails to do this, then the employer may be able to withhold two weeks' salary from the employee's final pay.

Of course, the employee can provide more than the minimum notice period, and many employees choose to do this. Doing so may help the employer to prepare more effectively for the employee's departure (for example, by advertising for, interviewing and recruiting a replacement), and can earn the employee some additional goodwill with the employer. This may come in handy for the employee when the employer is called upon to provide a reference, or in some other unforeseen ways later in the employee's career.

If in doubt, one month's notice is common for full time employees, and two weeks' notice is common for casual employees.

Prepare a letter of resignation

The Employment Agreement may also say how the employee may resign (for example, by requiring the employee to provide a letter of resignation). In many cases however, resignations can be verbal (meaning no written record is required). Nevertheless, it is far more professional to also provide a Letter of Resignation.

A written letter of resignation can avoid any confusion or ambiguity. It will allow the employee to clearly specify certain key details regarding their resignation, including such matters as their last day of work, whether they are proposing to work throughout their notice period (or whether they are going to forfeit part of their final pay). Reasons for the resignation may also be included (for example, if the employee has found other work, or has family matters to attend to). However, it is important that a Letter of Resignation is courteous and respectful, and some things may be better left unsaid (for example, if the employee is leaving because they don't like their manager).

We have a template Letter of Resignation which can be used for this purpose.

Organise a meeting with the employer

At this point, the employee can organise to meet with the employer (for example, by meeting a relevant person such as a manager).

When the employee attends the meeting, a copy of the Letter of Resignation (which was prepared in the previous step) can be provided to the employer. The employee can also explain their reasons for resignation to the employer.

It is common for the employer to ask questions of the employee. For example, the employer might enquire about the reasons for the resignation. The employee should think about these questions in advance, so that they are ready to answer them if and when the employer asks them.

It can also be a good idea for the employee to emphasise some positive things about their time with the employer, such as some skills they have gained.

Again, it is important to be respectful and courteous, so that the employee can leave on good terms. This may benefit the employee if and when the employer is contacted for an employment reference, or it may have unforeseen consequences for the employee's career at some future time.

Ask for a reference

Even if the employee already has a new job lined up, it can be a good idea to ask the employer for a reference or recommendation. This may be useful down the track when the employee is again looking for work.

Many employees seek a number of references – for example, from their manager, as well as other relevant people such as coworkers or clients.

References may be provided in writing and/or over the phone. It can be a good idea to seek written references where possible, which can be reused in future when memories may have faded.

We have a template Employment Reference Letter which may be used for this purpose.

Be available to assist with the transition

After taking all of the above steps, employees may feel like they already have one foot out the door. It may be tempting for employees to coast through the final few weeks.

However, this is likely to be a challenging time for the employer as they are having to scramble to prepare for the employee's absence.

The manner in which the employee handles this period is likely to be remembered by the employer and may flavour any references that the employer is called upon to provide in future.

For these reasons, and because it is the right thing to do, it is a good idea for employees to make themselves available to assist with any transition to their replacement. For example, the employee may need to assist with training their replacement, or briefing their replacement on relevant matters.

Consider any benefits which you might be owed

Most employers are on top of this and do not need to be reminded by the employee.

However, there are a number of benefits which the employee might be owed, and if so, the employee can expect to receive them with their final pay. These could include such benefits as unused annual leave or long service leave, or unpaid commissions or other bonuses.

The employee's entitlements may be set out in the Employment Agreement, industrial award, and/or the National Employment Standards. The Fair Work Ombudsman also provides information about employee entitlements.

If the employee believes that the employer is not paying them their entitlements, then the employee may consider seeking legal advice.

In conclusion

For most employees, there comes a time when, for one reason or another, they need to terminate their employment. When doing so, there are a number of matters to consider, which may have significant consequences for both the employee and their employer.

This guide outlines a number of simple steps which employees may take in order to make this process as smooth as possible.

As always, if the parties have any concerns about this situation, then they should consider seeking legal advice.

Templates and examples to download in Word and PDF formats

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