Can I Terminate an Employee Who is on Workers' Compensation?

Termination is stressful for all parties – so if you have to do it, make sure you get it right!

Having a worker away from your workplace on workers compensation is a very difficult situation for both the employer and the worker. The employer needs the work done and the worker, in all probability feels guilty because they cannot work.

Imagine you have a loyal long-term senior hairdresser who was injured on the job when he tripped over a client’ handbag and fractured his arm. He is now on long-term workers compensation and has had multiple surgeries to correct what was a very complex break, involving nerve injury, to his dominant arm.

Then, your employee tells you that his doctor has determined that he will not ever be able to return to his pre-injury duties as a hairdresser because, due to the arm injury, he has lost the fine motor skills he needs to cut hair.

You require a competent senior hairdresser who is fit enough to be his feet all day and to cut and style well – your business depends on it and the employee in question was very popular with clients.

But your business just isn’t big enough to find your employee an alternative position – your husband works on reception and he also does all the business administration, including pays.

Sound familiar? You are caught between a rock and a hard place – what should you do?

In certain circumstances it may be possible to lawfully terminate an employee who is on long term workers compensation provided you employer adhere to several key obligations – and crucially, provided you observe the protected period.

The Protected Period and Vocational Rehabilitation

By law, an employer is required to keep a worker’s position open for six months from the date he or she becomes entitled to weekly compensation (the protected period). Failure to do so may make an employer liable for a maximum penalty of $5,500.00.

Employers are also required to rehabilitate injured workers with the aim of keeping the worker employable (the vocational rehabilitation requirement).

An employer is at risk of penalties of up to $27,500.00 for non-compliance. You and your insurer should discuss these requirements where an employee is injured at work.

After you have observed the protected periods and the requirement for a rehabilitation program, you may decide that it is in the best interest of the business to terminate the worker’s employment.

If you chose to do that, the employee might then decide to file an unfair dismissal or general protections (dismissal) application with the Fair Work Commission (the FWC).

This can be a costly exercise for both the employee and the employer.

It may be possible to avoid such outcomes by consulting the worker and negotiating a separation that suits all parties, and allows relationships and reputations to remain intact.

Unfair Dismissal

Under the Fair Work Act 2009 (Cth) (the FW Act) an employee whose employment has been terminated, including an employee on long term workers compensation, may apply to the FWC for remedy.

Some employees are not covered by these provisions, for example, workers who earn above the unfair dismissal threshold of $118,000 per annum. There are also additional provisions relating to small businesses and the proper processes small businesses need to engage in so as to dismiss an employee.

A termination will be judged to have been an unfair dismissal if it was harsh, unjust or unreasonable and not a case of genuine redundancy.

In determining whether or not a dismissal has been unfair, there are numerous factors the FWC takes into account when assessing the harshness of any dismissal.


Every situation is different and it is not possible to provide comprehensive termination advice without a detailed factual understanding of a given case.

Therefore, this information is necessarily general rather than specific.

Termination is tough for both employer and employee, particularly where they have become close friends, and it pays to make any proposed termination as painless as possible for both parties.

If you require assistance in doing this please contact us so that you can receive advice tailored to your unique circumstances.

Contact our Specialist Employment & Workplace Relations Team for more information.