Notice Periods

For many of our clients, notice periods can be a source of confusion and frustration. In this article we consider a range of scenarios when an employee resigns. If the employment is ended by the employer, it is pretty straight-forward: the employer usually must pay out any notice period in the industrial instrument that is not worked by the employee, unless the shortening of the notice period was initiated by the employee.

Different notice periods, different industrial instruments

As a preface, notice periods are governed by the applicable industrial instrument and usually only apply to permanent employees - full-time or part-time:

Table of notice periods for each service duration, as per the National Employment Standards (NES)

1. The National Employment Standards (NES) - these are the minimum notice periods that apply to either an employee or employer when ending the employment relationship.

   Note: An employee who has worked 2+ continuous years for the employer, and if 45+ years old is entitled to an additional one week of notice.
   

2. Awards - any notice periods stipulated in an Award take precedence over the NES - e.g. the Professional Employees Award stipulates 1 month of notice for all employees regardless of tenure, or 5 weeks if over 45 years old and working with the employer for more than 5 years.
   

3. The Employment Agreement (common law contract) which can stipulate more than the NES - e.g. 4 weeks after the probationary period is completed; or six months for a senior executive.
   

4. By agreement - another period (longer or shorter) can be agreed at the time of resignation.

   1. If shorter, the other party may be liable for equivalent compensation:

      1. If the employer wants to shorten the notice (even if the employee resigned), they have to pay out the employee for the full notice period stipulated in the industrial instrument.

      2. if the employee wants to shorten the notice period, the employer may be able to withhold money from their final pay (only from wages, not from unused leave payments) for the equivalent period to the shortened notice. It's important, though, to check the Award, as some may set a maximum you can withhold - e.g. the Professional Employees Award stipulates that employers can withhold up to only 1 week of pay and only if the employee is over 18 years of age. Many employers, at the request of the employee, release the employee after a handover period, without penalty.

   2. If longer, the employee and the employer can agree to the period - e.g. 3 months instead of 1 month. In this case, we strongly recommend that a written agreement is reached before the extended notice period can start.

When an employee resigns

1. When someone resigns from their employment, the employer does not have any way to refuse the resignation, it must be accepted whether they like it or not.

2. The employer can choose to make a counter-offer to try to encourage the employee to rescind their resignation and stay. However, in our experience, while money may be the stated reason for leaving, and may be a contributing factor, it is usually not the real reason why the employee is leaving. Unless the employer can uncover what this is, in 6 months, the employee will be gone.

3. An employee can take personal leave and annual leave during their notice period.

4. The employee does not have to provide an additional 1 week notice if they are 45 years old and meet the service requirements.

5. The employee is entitled to be paid out their unused annual leave (+ annual leave loading - check the industrial instrument); however, they are not entitled to be paid out any unused personal leave.

Real life examples

Real life example 1: An employee submits an application for 5 weeks of annual leave, which is approved. The employee waits until the Friday before their annual leave is due to commence and then submits their resignation. Their entire notice period is covered by their pre-approved leave; and as a result, their is no 'working' notice period. The employer (our client) will not have a chance to capture and handover critical business knowledge. The employer requests that the employee work at least one week of their 4 weeks' notice period to facilitate a handover. The employer explains that had they realised the employee was intending to resign and not work out their notice period, then they would not have approved their leave.. The employee agrees to the handover, and then does not show up to work, instead, they submit a personal (carer's) leave application and medical certificate. The certificate was provisioned by an online medical provider. The employer encourages the employee to come to work following the carer's leave period; otherwise they may withhold pay. If the employee attends for the handover, the employer will pay them out the rest of their notice (rather than as annual leave) and provide a statement of service. The employee completes a 3-day handover 2 weeks after handing in their resignation.

Lesson: in your leave policy, have a requirement for employees to work a minimum of 1 week of their notice period unless otherwise agreed. While this may not be enforceable in the end, it will create the right expectations for any employee choosing to resign.

Real life example 2:

A key employee submits their resignation. The (small) employer (our client) had not anticipated that the employee was planning on leaving anytime soon and had no succession plan in place. Feeling pressured and panicked about this key person leaving their business, they offer them a $20K payrise + access to generous KPI-linked incentives if they stay. The employee agrees to stay. Four months later, they submit their resignation again, and this time they won't be swayed. This career opportunity is one they don't want to miss. The employer had not taken any steps in the interim to capture business knowledge, train a successor or otherwise change how they engaged with the employee before their first resignation. The exit interview revealed that the real reason the employee was leaving was that they felt 'stuck' and that the only way to improve their career prospects was to leave. The payrise had helped them secure a better-paying job than the one they had accepted the first time.

Lesson: having regular conversations with your employees about their career aspirations and flight risk help alleviate the possibility of a resignation blind-side. Counter-offers should only be used with the expectation that they are a short-term fix, buying you time to capture critical business knowledge of key personnel and to train and develop a successor.

Real life example 3:

An employer (our client) schedules a performance meeting with one of its employees to discuss their conduct and teamwork. The intent of the meeting is to place the employee on a performance improvement plan (PIP). Before the employer can get to that part of the conversation, the employee advises that it will be best for them to resign. The employee provide 90 days (3 months') notice, despite their Employment Agreement only requiring 4 weeks. The employer accepts this extended notice period and confirms in writing, along with expectations for their conduct during this period. The employee's conduct continues to be an issue over the first 4 weeks of their notice. The employer arranges to meet with the employee to discuss their conduct, but the employee refuses to agree that there is anything amiss with their conduct. The employer advises that it will be best if they finish the notice period as per the Employment Agreement (4 weeks). The employee submits an unfair dismissal claim with the Fair Work Commission on the basis that the employer ended their employment and did not pay out the extended notice period.

Lesson: MTPI have added an extended notice period clause to our template Employment Agreement. For employers, when agreeing to an extended notice period, we strongly recommend that a written agreement is reached that clearly states the longer duration, any performance, conduct or other requirements that need to be met during the period and what will happen if either party decides to shorten the notice period for any reason (e.g. will the employer have to pay out any of the extended notice, or will the employee have to forego any pay). This Agreement would need to be signed by both parties before the extended notice period can commence.

To protect your organisation, you should prioritise checking your industrial instruments relating to notice periods, update your leave policy and check your Employment Agreement template. Not effectively managing notice periods can cost your organisation time, money and reputation.