Can An Employee Be Terminated While on Sick Leave?

Employees aren’t automatically protected from dismissal simply because they are on sick leave. However, Australian employment law prohibits employers from terminating an employee for a temporary absence from work due to a protected illness or injury.

Whether a dismissal is lawful depends on the reason for the dismissal, whether the absence is protected under the Fair Work Act 2009 (Cth), and whether the employer follows the correct process.

Can an employee be terminated while they are on sick leave?

Yes. You can dismiss an employee while they are on sick leave if you have a lawful reason for dismissal unrelated to the employee’s protected temporary absence and all applicable termination requirements are met.

The key distinction is this:

Being on sick leave does not confer absolute immunity from dismissal, but employers can’t dismiss an employee for taking protected sick leave.

For example:

In every case, you should be able to demonstrate the genuine reason for the dismissal. Otherwise, significant legal risks may arise.

When is an employee protected from dismissal because of illness or injury?

The Fair Work Act provides employees with protection against dismissal when they’re temporarily absent from work due to illness or injury.

This protection generally applies when the employee:

• Is absent because of illness or injury.
• Provides evidence of the illness where required (such as a medical certificate).
• Has been absent for less than three consecutive months, or for less than three months in total over the previous 12 months.
• Continues to use available paid personal (sick) leave where applicable. However, it should be noted (and this is a commonly missed nuance) that under the Fair Work Regulations, a period where the employee is absent while receiving workers’ compensation does not count towards the three-month threshold.

Importantly, both paid and unpaid periods of absence can affect how the three-month threshold is assessed.

This protection only prevents dismissal because of the protected absence. It doesn’t prevent dismissal for an unrelated lawful reason, such as genuine redundancy or serious misconduct.

What is the three-month rule for sick leave and dismissal?

The three-month rule is one of the most commonly misunderstood aspects of Australian employment law.

The Fair Work Regulations provide that the temporary absence protection may no longer apply when:

• The employee has been absent for more than three consecutive months, or for more than three months in total during a 12-month period, and
• They have exhausted their available paid personal leave.

However, reaching this threshold doesn’t automatically make dismissal lawful.

You must still consider numerous other legal obligations before deciding to terminate employment.

The three-month rule removes only one specific protection. It doesn’t remove every legal protection available to an employee.

Can an employee be dismissed after more than three months of sick leave?

Possibly, but the answer depends on much more than the length of the absence.

Once the temporary-absence protection no longer applies, employers should still consider:

• The actual reason for dismissal
• Unfair dismissal laws
• General protections under the Fair Work Act
• Disability discrimination legislation
• Workers compensation protections
• Applicable state or territory legislation
• Obligations under an employment contract, modern award, or enterprise agreement
• Whether the employee is expected to return to work within a reasonable period
• Whether the employee can perform the inherent requirements of their position

Simply exceeding three months of absence doesn’t automatically justify dismissal.

Can an employer dismiss someone who can no longer perform their job because of illness?

Long-term incapacity presents a different legal issue from temporary illness.

An employer may ultimately be able to terminate employment when an employee can no longer perform the inherent requirements of their role, even with reasonable adjustments. However, this is often a complex and high-risk decision.

Before reaching that point, you should:

• Obtain appropriate and current medical information.
• Understand the employee’s likely capacity and expected return-to-work timeframe.
• Identify the inherent requirements of the position.
• Consider reasonable workplace adjustments.
• Check your obligations under disability discrimination laws.
• Consult with the employee and provide procedural fairness before making any final decision.

Every case depends on its particular facts, and you should consider the case details carefully.

What other reasons could justify dismissal while an employee is on sick leave?

The important question is not whether the employee is on sick leave, but why the dismissal is occurring.

Examples of lawful reasons that may justify dismissal while an employee happens to be on sick leave include:

Employers should ensure they have evidence supporting the genuine reason for the decision.

What should an employer check before terminating an employee on sick leave?

Before dismissing an employee who is absent due to illness, make sure to carefully work through the following questions:

Working through these questions before making a decision can significantly reduce legal risk.

Can notice of termination be given while an employee is on sick leave?

Yes, provided the dismissal itself is lawful.

If you have a lawful basis for terminating employment, you should be able to provide a notice of termination while the employee is on sick leave.

You should still ensure to:

• Provide written notice where required.
• Comply with the applicable minimum notice period unless payment in lieu is made.
• Understand how paid or unpaid leave interacts with the notice period.
• Check whether an employment contract, modern award, or enterprise agreement contains additional requirements.

The notice alone doesn’t make the process lawful or unlawful.

What can an employee do if they believe they were dismissed because of sick leave?

Employees who believe they were dismissed for exercising their entitlement to personal leave may have several legal options, depending on the circumstances.

Potential claims may include:

• Unfair dismissal: The dismissal was harsh, unjust, or unreasonable.
• General protections dismissal: The employee alleges adverse action was taken because they exercised a workplace right, such as taking protected personal leave.
• Unlawful termination: As applicable under the Fair Work Act.
• Discrimination claims: As applicable under federal, state, or territory anti-discrimination legislation.
• Workers’ compensation-related claims: The dismissal relates to a workplace injury or protected workers’ compensation rights.

Many Fair Work Commission dismissal applications must be lodged within 21 days after the dismissal takes effect.

Is unfair dismissal the same as a general protections claim?

No. Although both involve workplace dismissals, they address different legal issues.

• Unfair dismissal focuses on whether the dismissal was harsh, unjust or unreasonable.
• General protections claims focus on whether adverse action was taken because of a prohibited reason, such as exercising a workplace right or because of a protected attribute.

The two claims have different legal tests and eligibility requirements. You can’t simply treat them as interchangeable.

What rules apply to small business employers?

For Fair Work purposes, a small business employer is generally one that employs fewer than 15 employees.

Special rules may apply, including:

• The Small Business Fair Dismissal Code
• A 12-month minimum employment period before an employee is generally eligible to make an unfair dismissal claim (compared with six months for larger employers).

However, these rules relate primarily to unfair dismissal. Small business employers must still comply with the Fair Work Act, discrimination laws, workers’ compensation obligations, and other applicable employment laws.

Key takeaway for employers and employees

Whether an employee can be terminated while on sick leave depends on more than just their absence from work.

For employers, the critical questions are why termination is being considered, whether the employee’s absence is protected, and what other legal protections may apply. The Fair Work Act’s temporary absence provisions are only one part of a broader legal framework.

For employees, being on sick leave doesn’t guarantee that employment won’t end, but it does provide important legal protections against dismissal for a protected temporary absence.

Because dismissals involving illness or injury often involve overlapping legal obligations, obtaining legal advice before proceeding can help employers minimise risk and help employees understand their rights.

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