Employee on stress leave? Communication is key

When an employee is absent from work for an extended period due to illness or injury, many employers eventually ask the same question: At what point can we end the employment?

A recent Fair Work Commission decision is a timely reminder that it’s often not the medical condition that creates legal risk; it’s the way the employer manages the process.

In this case, an employee on psychological injury leave was dismissed after an extended absence. However, the Fair Work Commission found the dismissal to be unfair, not because the employer couldn’t eventually terminate employment, but because it failed to properly communicate with the employee before making its decision.

What happened?

The employee had worked for her employer since 2018 and, after raising workplace concerns, commenced stress leave and lodged a workers’ compensation claim for a psychological injury. Over time, the employer concluded she was unable to return to work and terminated her employment on the basis of incapacity.

The problem?

The Commission found the employer hadn’t given the employee even a brief opportunity to provide updated medical evidence or explain her future capacity for work before deciding to terminate her employment.

Deputy President Tony Saunders found that without that communication, the employer couldn’t make a sound, well-founded or defensible decision about

Whether the employee was genuinely unable to perform the inherent requirements of the role.
Whether her medical capacity had changed.
Whether reasonable workplace adjustments could have supported a return to work.

As a result, the dismissal was found to be unfair.

The biggest mistake employers make

Many employers assume that because an employee has been absent for several months, they automatically have grounds to terminate employment. Unfortunately, it isn’t that simple.

Long-term absence alone does not remove an employer’s obligation to

Maintain communication.
Obtain current medical information.
Understand the employee’s likely prognosis.
Consider reasonable adjustments.
Follow a fair process before making any decision.

Too often, businesses make assumptions rather than seeking evidence.

Communication is more than a courtesy – It’s a legal requirement

One of the strongest messages from this decision is that employers must continue engaging with employees throughout periods of extended absence. That doesn’t mean daily contact or placing pressure on someone recovering from illness. It does mean maintaining respectful communication and ensuring important decisions aren’t made without first giving the employee an opportunity to respond.

A simple conversation or letter requesting updated medical information can make a significant difference to both the quality of the decision and the employer’s legal position.

Before considering termination, ask yourself

Do we have current medical evidence?
Have we spoken with the employee recently?
Have we asked whether their capacity has changed?
Have we considered reasonable workplace adjustments?
Could an independent Fitness for Work assessment assist?
Have we genuinely explored options for a safe return to work?

If the answer to any of these questions is “no”, it’s worth pausing before making a final decision.

Psychological injury claims require even greater care

Cases involving psychological injuries often involve additional complexity. There may be

Workers’ compensation claims.
Conflicting medical opinions.
Return-to-work obligations.
Allegations of workplace conflict or bullying.
General protections risks.
Adverse action considerations.

These situations require careful planning and clear documentation. Acting too quickly can significantly increase the likelihood of an unfair dismissal or general protections claim.

The best approach

In most cases, employers are better served by following a structured process

Maintain regular, respectful communication.
Obtain updated medical certificates.
Request clarification where medical information is unclear.
Consider an independent Fitness for Work assessment.
Explore reasonable adjustments or a graduated return-to-work plan.
Only make employment decisions once all relevant information has been considered.

This approach not only reduces legal risk but also demonstrates procedural fairness and genuine care for employee wellbeing.

Final thoughts

Managing employees on extended sick leave or workers’ compensation can be challenging, particularly for small and medium-sized businesses. However, this Fair Work Commission decision reinforces an important principle:

Employers don’t get into trouble simply because they terminate employment – they get into trouble when they don’t follow a fair and informed process before making that decision.

Taking the time to communicate, gather the right information and properly assess the available options can make all the difference.

Need advice before making a difficult decision?

If you’re managing an employee on long-term sick leave, dealing with a psychological injury claim, or considering termination due to incapacity, obtaining advice early can help you avoid costly mistakes. At HR Cornerstone, we help employers navigate complex workplace matters with practical, commercially focused advice that protects both your business and your people.

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