Is notice payable to an employee who is unfit to work out their notice period?

The Fair Work Commission has found in a recent decision[1] that an employee whose employment was validly terminated because he was unfit for the inherent requirements of his role was nevertheless unfairly dismissed because he was not paid his contractual entitlement to 8 weeks’ pay in lieu of notice.

In a well-reasoned judgment but what ultimately seems a counter-intuitive result Deputy President Clancy found that the employer had a valid reason to terminate the employee’s employment for the following reasons:

1. he had been off work for more than 12 months;
2. at the time of the dismissal and in the four months following the dismissal the employee was certified as having no capacity for employment;
3. at no time had the employee been certified as having a capacity for suitable duties;
4. the employee had provided no medical evidence to suggest he was fit for the inherent requirements of his role or any modified role;
5. no prognosis had been provided by the employee’s treating practitioners as to when he might be able to return to work.

At the time of termination the employee had been in receipt of workers’ compensation benefits for more than 12 months and these payments continued following his termination.

In relation to notice of termination the termination letter provided to the employee stated: “You are not entitled to payment in lieu of notice. Allianz will continue to pay your weekly benefits and superannuation.”

The employee argued that he had been treated harshly and unreasonably by the employer not paying him in lieu of notice when his employment contract stated he was entitled to 8 weeks’ notice of termination.

The actual wording of the termination clause of the employment contract was not reproduced in the judgment, however, generally it is the employer who can elect to pay out a notice period in lieu if they don’t want the employee to work it out for whatever reason, rather than this being an entitlement if the employee can’t or chooses not to work out the notice period.

Usually, if an employee chooses not to work out their notice period they are not entitled to be paid for any part of the notice period not worked. Why should it be different if an employee can’t work out their notice period due to incapacity?

In this matter the employer submitted:

“as [the employee] was totally incapacitated, there was no question that he should be required to serve out the notice period as provided for under the terms of his employment contract, and as he would continue to receive the weekly compensation payments during the notice period, there was no loss of wages for which compensation by way of a lump sum payment in lieu of notice was due. On this basis, XL Express contends that pay in lieu of notice in addition to the weekly payments of compensation would constitute “double dipping” and would otherwise be an unfair impost on it.”

The Deputy President rejected this submission and found that regardless of the employee being absent on workers’ compensation at the time of his dismissal the employee had a contractual entitlement to notice of termination. He found that the employer’s failure to provide the employee with notice rendered his dismissal unfair.[2]

In calculating the compensation payable to the employee the Deputy President found that at the time of his dismissal he was receiving $2,080 gross per week in workers’ compensation payments. But for the termination the DP found that the employment would not have continued beyond the required 8 week notice period due to the employee’s incapacity. He was therefore entitled to compensation of 8 times $2,080 less what he actually earned during this period which was 8 x $2,080, “leaving zero compensation”[3]. However, in taking into account the employee’s length of service and “other matters” as he is entitled to do under s392(2)(g) of the Fair Work Act the DP considered it appropriate to award the employee 8 weeks’ pay at this ordinary rate of pay (being $2,616.83). The DP did not specifically address the employer’s submission that this amounted to double dipping as the employee would also have received workers’ compensation payments for this period. It seems a fairer result in light of his findings may have been to award 8 weeks compensation at the difference between his ordinary rate of pay and the workers’ compensation received.

Lessons for employers

Based upon this decision it would be prudent for any employer who terminates employment due to an employee’s incapacity to perform the inherent requirements of their role to pay out the employee’s notice period even when this appears to amount to double dipping or an additional financial impost after a prolonged absence from work.

Managing long term injured employees is an area fraught with legal issues and we are well equipped to help you work through them. If we can help please don’t hesitate to reach out.

[1] Michael Palibrk v XL Express XL (Personnel) Pty Ltd [2020] FWC 5557: https://www.fwc.gov.au/documents/decisionssigned/html/2020fwc5557.htm

[2] Ibid at [93]

[3] Ibid at [110]