Understanding the Small Business Fair Dismissal Code

What is the Small Business Fair Dismissal Code?

‍Need to let an employee go? Running a small business with fewer than 15 employees comes with its own set of challenges, and one of those challenges involves navigating employee dismissal fairly. That's where the Small Business Fair Dismissal Code (Code) comes in. It acts as your roadmap, guiding you through the dismissal process in a way that protects both you and your employees.

Think of the Code as your two-fold safeguard:

• It lays out clear steps to ensure you dismiss an employee for a valid reason based on their conduct or capacity (including performance). This means following a fair procedure and having valid reasons for the dismissal. Genuine redundancy is assessed separately and is not a reason under the Code.
• By following the Code, you minimise the risk of legal issues if an employee challenges their dismissal. The Code is voluntary, but if you comply with it the dismissal is treated as fair. Completing the Code checklist and keeping records serves as evidence that you acted fairly and according to established guidelines.

If you run a small business with fewer than 15 employees, including casual employees you employ regularly and staff working for associated businesses, then the Code applies to you. It's important to note that employees cannot claim unfair dismissal within their first 12 months of employment. So, if you follow the Code's guidelines after this initial period, the dismissal is treated as fair.

Summary dismissal - know your options

As a small business owner, navigating employee dismissal can be challenging. While the Small Business Fair Dismissal Code allows for summary dismissal (letting an employee go immediately without notice), it's important to understand when this option is truly justified.

Think of summary dismissal as a last resort reserved for situations involving serious misconduct. Under the Code, you can dismiss without notice or warning if you believe on reasonable grounds that the employee's conduct is serious enough to justify immediate dismissal. This misconduct must pose a direct and immediate threat to your business, workplace safety, or the employment relationship itself. Here's what constitutes serious misconduct:

• Actions harming your business including theft, fraud, or intentional property damage directly impact your reputation and finances.
• Endangering workplace safety including violence, harassment, or clear disregard for safety protocols put others at risk and require immediate action.
• Breaching the employment relationship. In rare cases, extreme negligence, insubordination, or activities directly contradicting the employee's role might necessitate immediate dismissal.

Examples include:

• Stealing company property, funds, or confidential information.
• Intentionally damaging company assets.
• Misusing company resources or engaging in deceptive practices.
• Physical or verbal assault towards colleagues or customers.
• Putting others at risk by disregarding critical safety rules or procedures.

Determining if a situation warrants summary dismissal involves carefully assessing the severity of the action, considering any mitigating factors, and potentially seeking legal guidance.

If you pursue summary dismissal, conducting a workplace investigation and gathering solid evidence is essential. This may include witness statements from colleagues, physical evidence related to the incident, or police reports for serious offences like theft or violence. However, filing a police report should only be done for legitimate reasons and not solely to support your dismissal decision.

While summary dismissal exists for extreme situations, it should always be approached with caution and due process. The next section will explore alternative dismissal procedures and emphasise the importance of ensuring fair treatment throughout the process.

Addressing performance and conduct issues

Most employee dismissals involve addressing ongoing performance or conduct issues. The Small Business Fair Dismissal Code emphasises fair and reasonable management of these situations. If an employee's conduct isn't severe enough for immediate termination, you're responsible for handling the issue fairly and reasonably. This involves a performance improvement approach with steps that include:

1. An initial warning, given verbally or preferably in writing, clearly outlining the problematic behaviour and its potential consequences, including dismissal, if improvement isn't shown.
2. With open communication that does not just state the issue and provides a clear explanation. Allow the employee to explain their perspective and provide context. Offer specific, achievable steps for improvement.
3. And an opportunity to improve, providing the employee a reasonable timeframe to demonstrate improvement. Depending on the situation, this may involve additional training, support, or mentoring.

Remember that simply stating dissatisfaction with employee performance isn't enough. You need to be specific and provide clear expectations for improvement and engage in open communication and active listening are crucial. Understanding the employee's perspective can help address underlying causes and guide improvement efforts. The timeframe for improvement should also be reasonable and consider the complexity of the issue and the employee's history.

Navigating downturns and redundancy

Running a small business, you may face situations where employee dismissal becomes necessary due to factors beyond your control. This could be due to a downturn in business activity or a situation where a specific position is no longer required. However, during these challenging times, ensuring you follow the correct procedures is important. Genuine redundancy is assessed separately from the Small Business Fair Dismissal Code: a dismissal that is a genuine redundancy is not an unfair dismissal.

If you find yourself needing to let go of employees due to reasons like economic downturn or restructuring, redundancy might be the appropriate course of action. However, it's essential to remember that:

• You must be able to demonstrate the redundancy is genuine and not a way to unfairly dismiss an employee. This means proving the position is no longer required, that you met any consultation obligations in the employee's award or agreement, and that it wouldn't have been reasonable to redeploy the employee within your business or an associated entity.
• Just like any dismissal, redundancy requires following the correct procedures. This includes providing the required notice period and ensuring you have the necessary documentation in place. Small business employers generally don't have to pay NES redundancy pay, but check the employee's award, agreement or contract.

While navigating downturns and redundancy can be complex, remember that fairness and transparency are paramount. By understanding your responsibilities and following the correct procedures, you can ensure a smooth and legally compliant process for both your business and your employees.

Understanding the dismissal procedure

If repeated warnings and support haven't led to improvement in an employee's performance or conduct, you may have reasonable grounds to issue a termination letter. It's important to note that throughout this process, fairness and due process are key.

Before issuing a termination letter, hold clear and constructive discussions with the employee. During these discussions, they have the right to have someone present for support, though not a lawyer acting professionally. Remember, open communication and clarity are crucial in ensuring a fair outcome.

Record keeping and documentation is essential throughout the dismissal process. This includes:

• Copies of any previous warnings issued to the employee.
• Completing the Small Business Fair Dismissal Code Checklist demonstrates your adherence to the Code's guidelines.‍
• A termination letter that formally outlines the reason for dismissal and the effective date.‍
• If present, having witness statements from any involved parties adds further clarity and evidence.

Remember to fulfill any outstanding financial obligations to the employee. This includes paying out any earned wages or entitlements in full.

While you strive for a smooth dismissal process, be aware that the employee may choose to submit an unfair dismissal claim. To prepare for this possibility, ensure you have gathered and retained all relevant evidence mentioned above. This documentation becomes key in demonstrating your compliance with the Code and justifying your actions.

Navigating employee dismissal can be complex, but by understanding the procedures and prioritising fair treatment, you can approach the situation with confidence. Remember, the Small Business Fair Dismissal Code serves as your guide, and seeking advice is always advisable for more intricate situations.

Considering the complexities involved in dismissal procedures, seeking support from specialists in the Small Business Fair Dismissal Code can offer valuable peace of mind. Employment Compass offers a team of HR consultants ready to support your business. Call our 24/7 HR advice line on 1300 144 002 for free initial advice. If an employee lodges a claim, our Fair Work representation for employers can support you.

What is the Small Business Fair Dismissal Code?

The Small Business Fair Dismissal Code (Code) provides a framework for small businesses (fewer than 15 employees, counting regular casuals and associated entities) to manage employee dismissals fairly and legally. It outlines steps to follow for dismissal due to conduct or capacity (including performance). If you follow it, the dismissal is treated as fair, minimising the risk of unfair dismissal claims. Genuine redundancy is assessed separately.

When is summary dismissal justified?

Summary dismissal (immediate termination without notice) is a last resort for serious misconduct, where you believe on reasonable grounds that the conduct is serious enough to justify immediate dismissal, posing a direct threat to your business, workplace safety, or the employment relationship. Examples include theft, violence, or serious safety breaches. Conduct a workplace investigation to gather solid evidence like witness statements and police reports (for serious offences) to justify your decision.

How to address performance or conduct issues?

Follow a progressive discipline approach for ongoing performance or conduct issues. Start with a verbal or written warning outlining the issue, potential consequences, and specific steps for improvement. Offer an opportunity to improve with a reasonable timeframe and consider additional support if needed. Remember, open communication and clear expectations are crucial.

What is redundancy and how to handle it?

Redundancy involves letting employees go due to business downturn or a position no longer being needed. Ensure the redundancy is genuine and redeploying the employee is not reasonable. Genuine redundancy is assessed separately from the Code, and small businesses generally don't have to pay NES redundancy pay. Follow proper procedures, including providing the required notice period and documenting everything. Fairness and transparency are key during this challenging process.

What is the dismissal procedure and what records to keep?

If warnings and support haven't been successful, you may have grounds for dismissal. Prior to issuing a termination letter, have clear and constructive discussions with the employee, allowing them to have someone present for support. Document everything meticulously, including warnings, completed Code checklists, the termination letter, and any witness statements. Remember to fulfill any outstanding financial obligations and be prepared for potential unfair dismissal claims by having your evidence ready.