Supporting your team when someone is unwell can be one of the hardest parts of running a business. You want to do the right thing by your employee and protect your business at the same time, and the law expects you to strike that balance.
If you’re weighing up termination on medical grounds in Australia, this guide explains what it means, when it may be lawful, the steps you should follow, and the key risks to avoid. We’ll also cover reasonable adjustments, evidence, privacy and final entitlements so you can approach this sensitively and compliantly.
With a fair process and up-to-date information, you can reach an outcome that respects everyone’s rights.
What Does Termination On Medical Grounds Mean?
Termination on medical grounds (sometimes called termination for medical incapacity) means ending employment because, based on current medical evidence, an employee cannot perform the inherent requirements of their role, even after you’ve considered reasonable adjustments.
This is not about punishing absence. It’s about assessing capacity to perform the job’s essential tasks safely and effectively over a reasonable timeframe.
Before moving to dismissal, employers are expected to:
- Consult with the employee about their condition and likely return-to-work options.
- Seek appropriate medical information (and, where needed, an independent assessment) to understand capacity.
- Genuinely consider reasonable adjustments to help the employee perform the inherent requirements of the role.
Only if an employee still can’t perform those inherent requirements - and the procedural steps have been followed - should termination be considered.
Can You Dismiss Someone Who Is Sick In Australia?
Not simply for being sick or for using leave. Employees are entitled to take personal/carer’s leave under the National Employment Standards (NES), and taking a lawful entitlement should not result in dismissal or adverse treatment. Doing so can expose your business to general protections (adverse action) claims and discrimination risks.
There are a few important legal guardrails to understand:
- Temporary absence protection: Under workplace laws, an employee generally must not be dismissed because of a temporary absence from work due to illness or injury. In broad terms, an absence is not “temporary” once it exceeds 3 consecutive months or totals more than 3 months over a 12-month period. This protection is not limited to periods of paid leave, but employees ordinarily need to provide reasonable medical evidence supporting their absence.
- After the temporary absence period: The protection ending does not automatically make a dismissal lawful. You still cannot dismiss someone because of their illness or disability. Any decision must turn on current capacity to perform the inherent requirements of the role, following a fair process and adequate consultation.
- Workers’ compensation limits: If the condition is work-related, state and territory workers’ compensation laws may restrict dismissal within set protection periods. Check your local rules before taking action.
- Unfair dismissal qualifying periods: For unfair dismissal, the minimum employment period is 6 months for most businesses and 12 months for a small business (fewer than 15 employees). General protections claims, however, are not limited by those qualifying periods.
If capacity is unclear or the absence is prolonged, you can request medical evidence. As part of a supportive and lawful process, many employers seek updated certificates and, where appropriate, a fit-for-work assessment. For routine absences, it also helps to understand when you can request medical certificates and what you can reasonably ask for.
Bullying, pressuring or penalising an employee for being ill or for using leave can breach discrimination laws and workplace protections. If you’re concerned about conduct risks, it’s worth reviewing your approach to harassment and discrimination as well.
The Lawful Process: Step-By-Step For Medical Incapacity
Process matters. Following a measured, consultative approach not only supports your employee - it’s also your best defence if a decision is challenged.
1) Identify The Concern And Open Supportive Dialogue
- Note the issue: sustained absence, repeated medical certificates, failed return-to-work attempts or safety risks.
- Invite a discussion: meet with the employee to understand their condition, prognosis and any supports needed. Keep the tone empathetic and solutions-focused.
- Document all communications: dates, attendees, key points and any agreed next steps.
- Ask for up-to-date certificates or reports addressing capacity, restrictions and likely timeframes.
- Consider an independent assessment (with consent) if the information you have is unclear or conflicting.
- If the employee is approaching the end of their paid leave, it’s helpful to understand your options when sick leave runs out.
3) Assess Inherent Requirements And Reasonable Adjustments
- Identify the role’s inherent requirements: the essential tasks and capabilities the job genuinely requires.
- Explore reasonable adjustments: modified duties or hours, equipment, different rostering or hybrid work arrangements. Trial adjustments if practical.
- Weigh business impacts carefully (cost, WHS, team capacity). Keep a record of adjustments considered and why any were not feasible.
4) Consult Under Any Award/Agreement And Your Policies
- Follow consultation obligations in any modern award or enterprise agreement that applies.
- Apply your internal policies consistently (e.g., fitness for duty, performance management, WHS, privacy).
- If your contracts and policies need work, consider updating your Employment Contract and a clear workplace policy framework to guide these steps.
5) Make A Decision Grounded In Evidence
- If the employee can perform the inherent requirements (with reasonable adjustments), continue supporting a safe return to work plan.
- If the current medical evidence shows they cannot perform the inherent requirements now or in the reasonably foreseeable future - and all reasonable adjustments have been exhausted - a capacity-based termination may be open to you.
- Before finalising, consider whether you need to request medical clearance for a safe return to work or, conversely, whether clearance is not available. If relevant, see guidance on requesting medical clearance to return.
6) Issue Outcome, Notice And Final Entitlements
Reasonable Adjustments, Evidence And Privacy
Australian anti-discrimination law expects you to consider reasonable adjustments for employees with disabilities (which can include long-term illness or mental health conditions). Practical examples include modified duties, adjusted hours, equipment or supportive rostering. You don’t need to create a new role or accept unjustifiable hardship, but you do need to demonstrate you considered feasible options.
Capacity decisions should rely on up-to-date medical information that squarely addresses the job’s inherent requirements. If differing opinions arise, it’s common to request an independent medical assessment (with consent) to clarify restrictions and prognosis.
Handle medical information carefully. Limit collection to what you reasonably need for fitness-for-work decisions, store it securely, and restrict access. Many businesses implement an Employee Privacy Handbook to embed good practices around collecting, using and retaining sensitive health information.
And a quick word on culture: checking in regularly, setting expectations early and documenting a clear return-to-work plan makes the process less stressful for everyone - and gives you a better evidentiary basis if hard decisions become unavoidable.
Key Legal Risks (And How To Reduce Them)
- Unfair dismissal: If the process is not fair or the decision isn’t based on current evidence, a dismissed employee may lodge an unfair dismissal claim (subject to minimum employment periods). The best defence is a transparent process, meaningful consultation and detailed documentation.
- General protections (adverse action): Dismissing someone because they took sick leave or because of their illness or disability risks a general protections claim, which isn’t limited by minimum employment periods. Anchor your decision to capacity and inherent requirements - not absence or illness itself.
- Discrimination claims: If you have not considered reasonable adjustments, or your process suggests bias, you may face discrimination allegations. Record the adjustments you explored and your reasons if they weren’t feasible.
- Workers’ compensation laws: State and territory laws may restrict dismissal of employees who have a compensable injury for defined periods and impose return-to-work obligations. Check the rules in your jurisdiction before deciding.
- Privacy breaches: Over-collecting or mishandling medical information can create privacy risks. Collect only what’s necessary, secure it appropriately and keep access tight.
- Process gaps: Skipping award or enterprise agreement consultation steps can invalidate an otherwise sound decision. Build a checklist against your applicable industrial instrument.
Finally, remember the small business rules: the minimum employment period for unfair dismissal is 12 months for small businesses and 6 months for others, but that does not shield against general protections or discrimination claims. A careful, evidence-based process is essential regardless of your size.
Key Takeaways
- Termination on medical grounds is a last resort and must be based on current medical evidence that the employee cannot perform the inherent requirements of the role, even with reasonable adjustments.
- Temporary absence protections apply to illness and injury - you cannot dismiss someone just because they’re on sick leave. After that period, any dismissal must still be grounded in capacity, not illness itself.
- Follow a fair process: consult, obtain appropriate medical information, consider adjustments, meet consultation obligations in any award or agreement, and document each step.
- Be mindful of overlapping risks: unfair dismissal, general protections, discrimination, workers’ compensation limits and privacy obligations.
- When terminating, provide the correct notice (or payment in lieu), and pay final entitlements accurately. Tools like clear employment contracts and a consistent policy framework help prevent issues.
If you would like a consultation on managing termination on medical grounds for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
