The ACT party’s Employment Relations (Termination of Employment by Agreement) Amendment Bill (Bill) had its first reading in the House on 9 April 2025 and is currently at the select committee stage.
The select committee’s report to the House on the Bill is due in October. Although this is only a member’s bill, it could be adopted by a coalition party and soon passed into law, especially given the upcoming election and the current government’s direction to reform employment legislation.
If passed into law, these changes could bring great clarity to both sides around the termination process and ultimately lead to having open and honest conversations a lot sooner.
But employers are going to want to pay attention to the detail and possible consequences of not obtaining timely legal advice.
What does the Bill propose?
The Bill proposes to amend the Employment Relationships Act 2000 (Act) to allow employers to negotiate with employees the termination of their employment through “mutual agreement” without the risk of a personal grievance. Its purpose is to help employers and employees avoid costly personal grievance claims by providing a mechanism for obtaining a fast and mutually beneficial resolution.
As currently drafted, the Bill would enable an employer to offer a monetary payment to an employee for the purpose of reaching agreement to end their employment, including full and final settlement of any cause of action arising from the employment relationship, such as a personal grievance for unjustified disadvantage.
The offer and any negotiations around reaching an agreement would be inadmissible in Employment Relations Authority proceedings, meaning they are effectively made on a “without prejudice” basis. This protection would not apply in cases of dishonesty or offending.
Under the Bill, an offer could also not give rise to a personal grievance, regardless of whether there is an existing employment relationship problem. Without this provision, an employer could be subject to a claim by an employee such as a personal grievance for unjustified constructive dismissal.
If an agreement is reached between the employer and employee, certain requirements must be met for it to be enforceable:
The agreement must be in writing, signed by both parties, and specify the applicable legislation.
Before signing, the employee must also be informed of their right to seek independent advice and given a reasonable opportunity to do so.
Employers must carefully consider and comply with these requirements; otherwise, the employee’s termination may not be valid, and the employee could pursue a claim.
What is the current situation?
The current law does not prevent employers from reaching an agreement with an employee to end their employment. It is common for employers and employees to enter into legally binding records of settlement that contain a clause that records the how the Employee’s employment with the Employer will end by way of resignation.
In these agreements, the employer often agrees to make monetary payments to the employee in exchange for the employee agreeing to not pursue any claims related to their employment. However, these negotiations and agreements typically occur only after an employment problem has already arisen.
Attempting to negotiate the end of an employee’s employment without an existing problem in the employment relationship carries significant financial and reputational risks for employers. This could result in claims of constructive dismissal or undermine any formal processes the employer may initiate later. It is therefore advisable employers seek legal advice before attempting to negotiate termination with an employee.
What are our thoughts?
Although the Bill is not guaranteed to become law, we believe it contains some positives worth supporting, especially for employers.
If passed, it could also lead to more honest and early conversations between employers and employees that could avoid more protracted disputes occurring.
Employers would gain greater flexibility in managing their business and workforce. For instance, an employer seeking to restructure its business could first offer an employee a monetary package to terminate their employment to avoid initiating a lengthy redundancy process.
On the other hand, if passed, the changes could lead to some risks for employers who don’t follow the requirements outlined to the letter.
Employers would need to carefully consider their offer and be open to negotiation with the employee, taking into account the financial implications and potential risks of a challenge.
Overall, we believe these changes could lead to more streamlined processes for businesses and greater clarity for parties as to what they can and cannot do around exit agreements.
For further information about the Bill or advice on terminating employment, you can get in touch with us.
By Liam Collins
