By Charles Power

It can be difficult when an employee resigns or you need to terminate the employee’s employment. So much needs to happen. For instance, often a replacement will need to be hired and a handover will need to take place. This is why we need notice of termination.

But things can get even trickier when annual leave enters the mix. What if the employee resigns while on annual leave? And can you direct an outgoing employee to take annual leave?

If an award applies to your employee, you have the right to withhold any amount the employee would have received under the award for the period of notice required less any period of notice the employee gave on termination under the award or the National Employment Standards (NES) (e.g. annual leave payments).

Example: Resignation without notice

Fred’s employment is subject to the Clerks-Private Sector Award. Fred has 2 week’s paid annual leave accrued under the NES. He resigns without serving his obligation under clause 13.1 of the Award to give 1 week’s notice. Therefore, Fred’s employer can withhold 1 week’s pay from his annual leave payment.

Important: It is difficult to make this deduction for non-award employees unless authorised by an enterprise agreement or a signed written authority given by the employee.

What if Fred arranged one week’s annual leave and gave notice of resignation on his first day of leave? Can Fred’s employer insist that Fred serve a further week after his leave finishes – and if Fred refuses, withhold a week’s pay from his annual leave payment?

A series of decisions of industrial tribunals suggests that you cannot give notice of termination while an employee is taking their paid leave entitlement (e.g. annual leave, long service or personal leave). That is because it would reduce the employee’s legal right to notice and to paid leave. This problem could be overcome by giving notice that the employment will end on the first working day after the expiration of the paid leave and that a payment in lieu of the full period of notice will then be made.

However, it is not clear whether an employee can give notice of resignation while taking their paid leave entitlements. The employee is by his or her actions consenting to reduce their entitlements to notice and paid leave. The employer has the benefit of the reduced entitlement and the notice as far as recruiting a replacement goes – but will be denied the opportunity to arrange a handover of duties.

My view is that because the Fair Work Act, awards and NES are primarily concerned with protecting employee entitlements, Fred’s employer would have to accept the notice that Fred gives.