Everything you need to know about unfair dismissal laws


Sometimes the people you hire to work in your small business just don’t work out as you’d hoped, and for a variety of reasons.

While an employee may be costing you money in lost productivity or low staff morale, it can feel difficult to move them on. Many small business owners are worried they’ll find themselves before the Fair Work Commission after being accused of unfair dismissal – and potentially ordered to pay compensation to a worker, or reinstate the employee.

Here’s a snapshot of what you, as a small business owner, need to know to avoid a court date.

What does unfair dismissal mean?

According to the Fair Work Commission, which hears all unfair dismissal claims, an employee can consider an unfair dismissal claim where they feel they have been unfairly dismissed or sacked; or forced to resign because of something an employer did.

It is worth noting that only employees under the unfair dismissal high income threshold can make a claim at the Fair Work Commission, unless they are covered by a modern award. The current threshold is $142,000. Those employees who earn more than this have to pursue alternative legal actions.

Employees need to prove their dismissal was harsh, unjust or unreasonable and could make a case if their redundancy was not genuine. They must have been employed for at least six months to make a claim.

“The importance of documenting issues with an employee’s performance or behaviour is really clear”, says Alison Williams, Managing Editor with HR Advance. “Whether it’s to get the best performance you can, or to move the employee on. Use a checklist to help you.”

Download the HR Advance checklist to help you start the performance management process.

If businesses employ fewer than 15 people, they must adhere to the Small Business Fair Dismissal Code.

The Code offers a simpler approach to dismissal via a checklist, which an employer can rely on in the event of a future unfair dismissal claim.

It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. 

In cases of other kinds of dismissal, business owners, regardless of their size, must give an employee a valid reason as to why they are being dismissed, for instance their conduct or capacity to undertake the role.

The scare factor

Unfair dismissal cases can be brutal, especially when an employer has had a knee-jerk reaction, not followed the letter of the law, or when an employee can argue over a ‘grey area’.

Social media is a huge area of consternation for employers, and many cases have been brought to the Commission in the past few years over employees’ conduct on platforms such as Facebook.

Last year, lighting company LED Technologies was ordered to pay $6200 to a former employee who was fired shortly after they wrote an offensive Facebook post which asked an unnamed person “how much of the bosses [sic] c-ck did you suck?”. The Commission found his dismissal was unjust and unreasonable because, among other reasons, the person was unnamed and the company did not provide the employee with “any real opportunity to provide an explanation or response to the reason” for his sacking.

Queensland bitumen company Rock N Road was ordered to pay eight weeks’ wages, or $5192, plus superannuation to a human resources and training officer. This was despite the business raising and documenting a number of concerns about the worker’s performance – the Commission ruled she hadn’t been counselled enough on the consequences of their performance concerns.

On the other hand, Victoria’s Western Health District recently successfully defended a nurse’s claim for unfair dismissal after sacking her for sleeping on the job because she had refused to cooperate with the investigation into her conduct. The Commission said her dismissal was not harsh, unjust or unreasonable as her employer had a valid reason for her dismissal and she had been warned her failure to follow the process would result in her dismissal.

An unfair dismissal claim is actually just one of four ways an ex-employee can take action against your business, so it pays to be on top of all potential outcomes.

Each case is argued on an individual basis, but there are certain safeguards small business owners can follow to help prevent a trip to the Fair Work Commission.

Protecting your business

Documentation is often the key to protecting your business from potential claims, whether that’s performance reviews, noting instances of offensive behaviour, dereliction of a worker’s responsibilities and ensuring any redundancy complies with relevant awards or contracts.

Julian Arndt, Senior Associate with Sydney-based firm Australian Business Lawyers & Advisors, says in the case of serious misconduct, it’s important to have strict procedures in place so you comply with the Small Business Fair Dismissal Code (different rules apply to businesses with more than 15 employees).

It is also important to understand that the threshold for seriousness is relatively high. The Code identifies theft of money or goods, fraud, violence or threats thereof and serious WHS breaches.

Critically, employers must have reasonable grounds to believe that serious misconduct occurred, so you almost always must get the employee’s ‘side of the story’ to ensure you are not making an serious decision without all the facts.

If you are dismissing a person due to unsatisfactory conduct, performance or capacity to do the job, Arndt advises you to take the following steps to comply with the Code:

  1. Make sure you have given the employee previous warnings of their need to improve and the likely consequences if they fail to improve. There is no magic ‘3 strikes’ rule and whether an employee has been given adequate warnings will depend on the circumstances.
  2. If you have previously required an employee to improve, you should give them a meaningful opportunity to do so, which would allow adequate time and any training or opportunities to improve their skills.
  3. If you have asked the employee to improve, and they have done what you asked, you should not dismiss them.
  4. Do not refuse a reasonable request for a support person to be involved in discussions.
  5. Before dismissing an employee you should clearly identify the reason you are considering dismissing them and seek their response. Once you have considered their response, you can make your decision.

Arndt also cautions small business owners:

  1. Where an employee has a long period of service, ‘fairness’ usually requires more from the employer.
  2. Short of reaching a binding ‘settlement’ with an employee, you can never totally avoid the prospect of an unfair dismissal claim, even where the employee has behaved or performed disgracefully and where you have undertaken a ‘perfect’ process. As a commercial reality, a small business owner needs to undertake the best process it can and then make a call.

Don’t leave it too late.


Note: This article is intended to provide a summary and overview of matters of interest. It is not intended to be comprehensive nor be legal advice. We attempt to ensure that the content is current but do not guarantee its currency.  You should seek legal or other professional advice before acting or relying on the content.

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