Understanding the Legal Risks of Terminating Executives
Ending the employment of senior executives or high-income employees involves serious legal and financial risks. Even when there are valid reasons for termination, employers may face unfair dismissal claims, adverse action claims, or reputational damage if the process is not handled properly.
This guide explains the legal risks under the Fair Work Act 2009 and outlines how to manage senior terminations lawfully and effectively.
1. Unfair Dismissal Claims – When They Apply
Executives earning above the high-income threshold (currently $175,000, excluding bonuses, allowances, and super) are generally not eligible to bring unfair dismissal claims.
However, exceptions apply where:
- The employee is covered by a modern award or enterprise agreement; or
- Their earnings fall below the threshold.
- But even if an unfair dismissal claim isn’t available, executives may still pursue more serious claims, like adverse action.
2. Adverse Action Claims – A Greater Risk
Adverse action claims are often used by senior executives and present a significant risk. These claims can be made when a person believes they were dismissed or treated badly because they exercised a workplace right.
Workplace rights include:
- Taking or requesting leave (e.g. sick leave, parental leave)
- Making a complaint about workplace conditions
- Participating in workplace processes or legal proceedings
Adverse action claims are risky because of the reverse onus of proof — employers must prove the dismissal was not for a prohibited reason.
3. Consequences of Adverse Action Claims
Adverse action claims can lead to:
- Uncapped compensation for distress, loss of income, and hurt (click for more info)
- High legal costs defending the claim
- Reputational damage to the employer
- Fines and regulatory attention
These risks exist even if the business had valid performance or conduct reasons for dismissal.
4. How to Minimise the Risks of Executive Termination
To reduce the legal risks when terminating an executive, employers should:
- Follow fair process: Give reasons, allow the person to respond, and consider that response.
- Document everything: Keep clear records of meetings, performance discussions, and decisions.
- Give written reasons: This shows transparency and protects against false claims.
- Comply with contracts and policies: Always follow the terms set out in the employment agreement and HR policies.
- Avoid timing that suggests retaliation: Don’t terminate someone soon after they’ve raised concerns or exercised a workplace right.
5. Case Examples
Flavel v Railpro Services Pty Ltd [2013] FCCA 1189
Dismissal was unlawful because it followed the employee’s refusal to perform duties on health grounds — a protected workplace right.
Barclay v Bendigo TAFE [2012] HCA 32
The employer successfully defended a claim by showing the dismissal was due to misconduct, not the employee’s union role.
Lai v Symantec Australia Pty Ltd [2013] FCCA 625
Redundancy during maternity leave was upheld because the employer proved it was a genuine restructure, not discrimination.
Short v Ambulance Victoria [2015] FCAFC 55
Dismissal of an employee with mental health complaints was lawful, as it related to misconduct and not the exercise of workplace rights.
Conclusion
Terminating senior executives in Australia is complex. Even if unfair dismissal laws don’t apply, adverse action claims can still be brought, and they carry significant risks.
To protect your business:
- Apply fair and transparent processes
- Keep detailed records
- Make sure decisions are based on valid, lawful reasons
This can help prevent legal claims and protect your company’s reputation.
Disclaimer
This information is general in nature and does not constitute legal advice. For specific advice regarding executive terminations or employment law matters, consult a Employment Relations Specialist or employment lawyer. Case references and legal standards have been sourced from the Fair Work Commission and relevant court decisions.