Managed Exits and No-Fault Terminations

05 June 2024

With job cuts on the rise and increased financial pressure on businesses and staff, it is no surprise that there is much lower tolerance for poor performance and bad behaviour.

Many employers prefer to avoid drawn out disciplinary processes because there seems to be no such thing as a ‘clean’ dismissal for poor performance or misconduct, and in the end some form of grievance or dispute is likely to arise. The same can be said of redundancy situations.

As a result, often there are managed exits with a financial settlement to end matters, where the employee resigns in return for a payment and/or other benefits, all incorporated into a full and final, confidential settlement agreement. Such arrangements allow everyone to move on, with the employee having financial assistance to help them make the transition to other employment.

ACT Small Business spokesperson Laura Trask has introduced a new member’s bill to the ballot. The Employment Relations (Termination of Employment by Agreement) Amendment Bill would allow employers to open protected negotiations for the termination of an employment contract if, for example, the demands of the business mean that it is imperative to dismiss the employee.

The Bill allows for the employer to seek to terminate the contract by mutual consent, with pre-termination negotiations not being admissible in any future proceedings relating to the employment relationship unless certain exceptions apply. Similar legislation exists in the United Kingdom and other countries.

The problem is that negotiating such arrangements can consume a lot of time; and the costs can be significant depending on the bargaining power of the respective parties, probably in the range of 3 months’ pay or more. As we have said previously, it would be better to have a statutory compensation or notice period scale.

For many senior roles, the parties agree in advance the terms of a no-fault termination provision. This means if the employer wants to end the relationship there is an agreed financial package to be provided.  Sometimes the employee also has the same rights if they want to exit.

Note here that such provisions can’t take away the employee’s right to personal grievance.  As a result, the package needs to be pitched such that if the employee does decide to take a grievance it is unlikely they will get more than what the agreement provides, plus there is the added benefit of avoiding months of delay to get to the Authority to argue the case, with no certainty of winning.

For senior people a no-fault termination provision is likely to be in the range of 6-12 months depending on the level of seniority. That is a considerable cost, but at least for both parties its clear, avoids a lot of emotion and there are no legal costs.

We have wide experience in managed exit processes and the design of no-fault termination provisions. 

Contact us for expert advice: Tony Teesdale 021 920 323, Justine O’Connell 021 920 410, Michelle Battersby 021 993 735, or Esther Cohen-Goh 021 178 4111