By Dr David Collits and Abraham Ash, Australian Business Lawyers & Advisors

Employers frequently ask if and how they can terminate the employment of an employee who has been off work for illness or injury on workers’ compensation. Typically, the issue will arise when the employee has been in receipt of workers’ compensation for a lengthy period and there is no prospect of the employee returning to work. The employee no longer appears to be able to perform the inherent requirements of the position he/she was contracted to perform.

What can an employer do? 

Inertia might tempt the employer simply to let the employee remain on the books. However, apart from the administrative discrepancy of having the employee remain employed, depending on the State or Territory, the employee may accrue annual, long service and/or sick leave while on workers’ compensation if the employment continues. The leave, which may be significant, will need to be paid out on the eventual ending of the employment relationship.

Prohibitions on termination 

Before jumping to terminate employment, the employer must ensure the law is not breached.

In general terms, the Fair Work Act 2009 (Cth) makes it unlawful for an employer to dismiss an employee because he/she is temporarily absent due to illness or injury. However, the prohibition on dismissing an employee temporarily absent for illness or injury does not apply when the employee:

a)    has been absent for more than three months or for total absences of more than three months out of 12; and

b)    is not on paid personal/carer’s leave for the duration of absence.

That is, an employer can dismiss an employee because of long-term (i.e. more than three months, or three months out of 12) absence from work due to illness or injury, so long as the employee is not on paid personal/carer’s leave during the absence.  

Importantly, an employee’s absence on workers’ compensation is not paid personal/carer’s leave. If otherwise lawful, an employer can therefore dismiss a long-term absent employee on workers’ compensation under the Fair Work Act.

Employers should also keep in mind that workers’ compensation legislation prohibits an employer from dismissing an employee on workers’ compensation for certain minimum periods after the injury. For example, in New South Wales, it is generally an offence to dismiss a worker within six months of a workplace place injury because the worker is no longer fit for employment due to the injury. 

That is, an employer must wait out the minimum period prescribed in workers’ compensation legislation before moving to dismiss the employee.

Disability discrimination 

Under the Commonwealth Disability Discrimination Act 1992, it is also unlawful for an employer to dismiss an employee because of that person’s disability. A workplace injury under workers’ compensation law is likely to be classified as a disability for these purposes. 

Significantly, there is an exception to this rule: if the workplace injury means that the employee cannot carry out the inherent requirements of the particular work he/she is required to do and cannot make reasonable adjustments for the employee, the employer can dismiss the employee. An adjustment will not be reasonable if it creates an unjustifiable hardship on the employer. 

The process to follow

Vital to whether an employer can terminate an employee on long-term workers’ compensation is therefore whether the employee can perform the inherent requirements of the position for which he/she was contracted. Not only does it constitute a defence under the Disability Discrimination Act, but the inability to perform the inherent requirements of the position provides a valid reason for the dismissal of the employee. 

An employer with a valid reason to dismiss an employee has gone a long way to prevent a successful unfair dismissal application being brought against it down the track. 

To guard against the risk of unfair dismissal, however, an employer should also follow a fair process when deciding to dismiss the employee who has been on workers’ compensation for a long period. The employer will need to gather cogent evidence that the employee is no longer able to perform the inherent requirements of the position due his/her medical condition. 

Invariably, the best form of medical evidence is that provided in a medical report by an independent medical practitioner, who has examined the employee. It is risky for an employer simply to rely on the mere fact of the employee’s absence or certificates of capacity showing the employee to have no or reduced fitness to perform his/her work. It can also potentially be unlawful for an employer to rely on evidence provided by its workers’ compensation insurer.

Accordingly, best practice for an employer is first to direct the employee to attend an independent medical examination by a doctor. The employer can choose the doctor, who will professionally and for a fee examine the employee. A prudent employer will also provide the doctor with a letter outlining the background to the injury. The employer will ask for answers to specific questions regarding the employee’s fitness to perform the inherent requirements of his/her position. 

Once the report has been returned and on the assumption that it demonstrates that the employee is unable to return to his/her pre-injury position, the employer can then commence a show cause process. This involves providing the employee with a letter outlining the results of the report and asking the employee to show cause as to why his/her employment should not end on the basis that the employee can no longer perform the inherent requirements of the position. The letter should give the employee ample opportunity to provide a response. 

Assuming the employee’s response, once received, does not provide an adequate reason that the employment should not be terminated, the employer can then proceed to do so. 

Managing the process correctly is critical and calling the Workplace Advice Line to confirm how you are handling the situation may save you financially down the track. 

Dr David Collits is a Senior Associate and Abraham Ash, a Director at  Australian Business Lawyers & Advisors.