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Can an employer terminate employment at the end of the Workcover obligation period?

Kim McLagan


Many employers make the mistake of assuming they can simply terminate the employment of an injured employee at the end of any obligation period1 if the employee has not returned to their pre-injury role.

If an employer were to terminate employment at the end of an obligation period, the employee would undoubtedly succeed in a discrimination, adverse action or unfair dismissal claim. A claim can easily be avoided if the employer commits to a straight-forward but essential process.

Both anti-discrimination legislation and the Fair Work Act allows an employer to lawfully discriminate against an ill or injured employee in circumstances where:

  1. The employee cannot (now or in the foreseeable future) perform the genuine and reasonable (i.e. inherent) requirements of their pre-injury role; and
  2. There are no modifications (reasonable adjustments) the employer can make to the job or the place/system of work that would enable the employee to perform the genuine and reasonable requirements of their employment;
    (referred to below as ‘the legal test’).

Discrimination can also be lawful if the employee poses a risk to their own safety or to the safety of others in the workplace (by reason of their illness or injury).

There are many factors to be taken into account when considering terminating an employee on the ground they can’t perform the inherent requirements of their pre-injury role. These include:

  1. What is the pre-injury role? Has the employer unwittingly provided the employee with a new role through offering suitable duties?
  2. What are the inherent requirements of the pre-injury role? If an employee can perform some but not all of their role, does this meet the legal test?
  3. Is the employee’s incapacity short term or permanent?
  4. If modifications can be made, are they ‘reasonable’ in the circumstances of the employer?
  5. What evidence does the employer need to be able to meet the legal test?
  6. What is the best source of medical evidence the employer needs to obtain (i.e. treating practitioner or independent examiner)?

The issue of whether the employee will have capacity in the ‘foreseeable future’ can also be complex for two reasons. First, there is no definition of ‘foreseeable future’, or guidance in case law as to what this means. Second, it is a question for a doctor. What the practical impact is, if the medical evidence is the employee may or will recover from their injury, for example after surgery or particular treatment, even it takes up to 12 months, then it would be unlawful for the employer to terminate the employment at that time.

Conversely, the issue of reasonable adjustments is not so much a medical question. When considering whether medically-recommended adjustments (if any) are ‘reasonable’, the employer needs to weigh up the benefit and detriment to the employee, how much the adjustment will cost the employer (i.e. will it cause ‘unjustifiable hardship’) and if there are any adverse impacts on other staff (e.g. will it impose a burden on other staff if they are required to perform certain aspects of the injured employee’s role). The larger and more resourced the employer, the greater the expectation it will modify a role or pay for resources to make adjustments (e.g. purchase a mechanical lifting aid so the employee can avoid manual lifting).

Not only does the termination of an ill or injured worker2 require a consideration of all of the above, it requires a prescribed process be followed. The employer must rely on medical evidence (i.e. medical evidence not obtained through the WorkCover claim) that opines the employee is not fit to perform the inherent requirements of their role, either now or in the foreseeable future.

Treating doctors aren’t always the best option for seeking this medical opinion as they will often advocate for their patient, may be influenced by them, and avoid giving the information required to meet the legal test. In some circumstances, however, they can be a quicker, much cheaper and very successful option.

An ‘employer directed medical assessment’ is the second and sometimes preferred option to seek the medical evidence required. If the employee refuses to comply with a direction to provide medical evidence or attend a medical assessment, this can constitute serious misconduct and can warrant summary termination of employment in certain circumstances.

Whichever path the employer follows, it must ensure the reporting doctor has a very clear understanding of the nature of the employee’s role (i.e. the inherent requirements), so the employee can be assessed against that role.

Premium Impact

Before making a decision to terminate employment, the employer should consider how the termination will impact their workers’ compensation premium. Termination can be unwise if the employee has been at work and receiving little or no workers’ compensation payments. Termination in those circumstances will undoubtedly result in an increase in the annual premium cost. This can be significant, so it is best to seek legal advice before terminating employment.

Termination Process

The prescribed process for an employer to follow, after considering premium impact, for termination is as follows:

  1. Write to the employee – direction to attend independent medical examination OR provide a report from their treating practitioner (the latter can be avoided in some jurisdictions in circumstances where the employer can write directly to the treating doctor)
  2. Write to the doctor seeking a report
  3. Write to the employee – provide the doctor’s report and request a meeting
  4. Write to the employee – terminating their employment

Although these steps appear simple, they require real skill and care. Please seek advice before starting the process.

For any questions about inherent requirement terminations, please contact Kim McLagan, Principal Lawyer on 0447 455 189 or at Kim is Melbourne-based but acts for clients who operate throughout Australia.

1 That is, the period during which the employer is obliged under WorkCover legislation to provide ‘suitable duties’.

2 Note – this applies equally to employees with work-related and non work-related illness or injury

Kim McLagan


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