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Termination Due to Incapacity Letter

Version 1.1 Updated 6 Dec 2017
Correspondence Separation

Who can use this correspondence?

This correspondence can be used by all employers.


Prior to any termination, an employer should obtain relevant medical evidence regarding the ability of the employee to perform the inherent requirements of his or her position. In this regard, see the ''Letter to Employee Concerning Incapacity''', also available on the Workplace website.

This letter refers to an attached medical report and an attached termination statement. The medical report should be requested from the employee using the 'Letter to Employee Concerning Incapacity', and the termination statement can also be generated using the Workplace website.
Once the medical report has been obtained, essentially an employer’s options are as follows:

  1. If the doctor certifies that the employee is able to safely perform his or her position without any restrictions, the employee will be able to return to this position.
  2. If the doctor certifies the employee cannot safely perform his or her position or cannot do so without restrictions or without risk of further injury or illness, the employer must consider whether any ‘reasonable accommodations’ can be made to assist the employee to safely perform their pre-injury or illness position. If so, the employer must provide such ‘reasonable accommodations’. If no such ‘reasonable accommodations’ can be made, the employer should consider whether it has any other vacant alternative positions available that the employee is skilled and capable of performing.
  3. If there are no ‘reasonable accommodations’ that can be made and no vacant alternative positions that the employee is skilled and capable of safely performing, the employer may consider terminating the employee’s employment.


This letter applies to option 3 (after situation 2 has been properly considered by an employer). However, in finalising the decision to proceed with option 3, we strongly advise that specific advice is obtained. Employers should also consider whether it would be appropriate to issue a show cause letter to the ill or injured employee prior to issuing this letter.

When seeking to use and adapt the letter to the particular circumstances of the ill or injured employee, you should be aware of a range of issues:

  • The draft template letter is necessarily general. The facts surrounding each employee’s illness or injury will be different. Accordingly, you may need to include additional background information in the letter.
  • If the illness or injury is work-related, you may need to seek advice regarding your obligations under workers compensation legislation. You may also need to discuss obtaining any previous medical reports obtained by the insurer, with your workers compensation insurer (and obtain consent from the employee).
  • Before terminating the employee’s employment, we recommend you seek advice. Termination of employment due to illness or injury can present an employer with various legal risks (see below). You should discuss these with your legal advisor before proceeding with the termination.


Letter template
The letter commences with a reference to previous correspondence to the employee about attending a medical examination to determine whether the employee is fit to return to their position.
The letter then outlines a summary of events since the last letter to the employee (see the 'Letter to Employee Concerning Incapacity'). This will include the date of the medical examination and the date of the medical report provided by the doctor to the employer.

Medical report
This part of the letter explains to the employee that the employer has reviewed the medical report and the doctor’s answers to the questions posed by the employer (see the 'Letter to Employee Concerning Incapacity'). Where possible, the medical report should be recent or contemporaneous relative to the preparation of this letter (i.e. you are relying on up to date medical information to make your assessment).
The letter then outlines a summary of the medical report. The letter provides various optional scenarios as to the doctor’s conclusion. You may need to amend these options in light of the conclusions made by the doctor in the medical report.
If the employer has previously obtained medical evidence consistent with the conclusions made by the doctor in the medical report, the letter also provides an optional paragraph to be inserted about the previous medical evidence. These are suggestions only, and you may need to amend these in light of the medical evidence previously obtained in relation to the employee.


The letter provides an outline of the ‘reasonable accommodations’ that the doctor has suggested are or are not available to the employee. Such information is necessary in the event the employer is required to defend a disability discrimination claim.
We recommend you seek further advice regarding what constitutes ‘reasonable accommodations’ by the employer in the circumstances of the particular employee’s case. Note, however, the employer is not required to create a position for the employee based on the tasks he or she can safely perform, nor should the ‘reasonable accommodations’ create an ‘unjustifiable hardship’ on the employer.
Recent decisions of the anti-discrimination tribunals have indicated that some ‘hardship’ is expected for employers to endure in accommodating an employee, however, it need not be ‘unjustifiable hardship’.

Alternative positions

Providing an employee with an alternative position is not a legal obligation. Also, there is no legal requirement imposed on the employer to create a position for the employee based on the tasks he or she can safely perform. However, recent case law from anti-discrimination tribunals has criticised employers (and awarded damages to employees) where there is an obvious vacant position the employee could have performed and the employer failed to consider offering it to the employee.
The letter outlines whether the doctor has considered the employee would be able to safely perform alternative positions within the employer.
The letter provides options for the employer to respond to the doctor’s considerations — that is, if the doctor has stated that the employee would be able to safely perform other positions within the employer, that there are no such alternative positions available within the employer; or alternatively,  to confirm the doctor has stated there are no alternative positions the employee would be able to safely perform.

Your employment
The date upon which the employee has been absent from work and the time period the employee has been absent is then summarised. The employer’s efforts to accommodate the employee’s illness/injury are noted.
The letter then necessarily concludes that, in light of the fact there are no reasonable accommodations that can be made or alternative positions available within the employer, the employer must proceed to terminate the employee’s employment.
The notice period, termination date, and payments to be made to the employee on termination are all noted in the letter.

Legal risks
The following is a general summary of the legal risks which may arise in the termination of employment of employees with illnesses or injuries (including non-work-related illnesses or injuries):

  • offence provisions in various State legislation prohibiting the termination of employment of an employee within a certain period of time (period differs between States) of sustaining a workers compensation injury, because of the injury;
  • reinstatement of injured worker provisions in various State legislation that enable employees to apply for reinstatement or re-employment after the termination in certain specified circumstances;
  • unfair dismissal claims;
  • unlawful termination claims under the Fair Work Act 2009 (Cth);
  • adverse action claims under the Fair Work Act 2009 (Cth); and
  • disability discrimination claims.


We recommend you seek advice regarding the process for best managing these risks in the individual circumstances of each employee, prior to any termination of employment.
Whether all of the legal risks apply will depend on the individual facts of the situation applying to the employee, and the relevant legislation in the State in which the employee works. If you require further information regarding the precise legal risks that arise in the particular situation regarding the employee, it is recommended you seek further advice.

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