Unfair Dismissal Australia: A Business Owner's Guide

Unfair dismissal claims can be costly and disruptive to your business. Protect yourself by understanding the laws and following fair procedures. This guide breaks down unfair dismissal, covers your obligations as an employer, and offers strategies to minimise your risk.

Understanding unfair dismissal

Dismissal occurs in Australia when an employer formally ends an employee's employment. It can also happen if an employee feels they have no choice but to resign due to unreasonable or unfair behaviour by the employer – this is known as "constructive dismissal."

The Fair Work Commission (FWC) can investigate a dismissal and determine if it was "unfair." In their examination, they look at several factors:

  • Did the employer clearly terminate the employee's position?
  • Was the termination excessively harsh, unjust, or without a strong underlying reason?
  • Was the position really made redundant (no longer needed), or was another reason used to dismiss the employee?
  • If you're a small business owner, did your dismissal process adhere to the Small Business Fair Dismissal Code?

Australian business owners must have a solid understanding of unfair dismissal laws. Failure to observe these workplace laws could result in penalties or even mandatory reinstatement of the dismissed employee by the FWC.

Who is eligible to claim unfair dismissal?

Not every employee in Australia who is dismissed can file an unfair dismissal claim with the Fair Work Commission. There are specific requirements:

Minimum Employment Period - Employees generally need to have worked for their employer for a certain period. This is either six months (for larger businesses) or twelve months (for small businesses with fewer than 15 employees).

Award or Agreement Coverage - The employee must either be covered by a Modern Award (which sets out minimum pay and conditions for specific industries) or an Enterprise Agreement (a workplace-specific agreement between the employer and employees).

Having eligibility requirements prevents a flood of claims from employees who have only been on the job briefly. It also allows businesses a period to assess if new hires are the right fit before those employees qualify for unfair dismissal protection.

To apply for unfair dismissal, employees must submit their application to the Fair Work Commission within 21 days of their dismissal effective date, which starts the day after the dismissal. There are a few exceptions to these rules, mostly dealing with dismissals related to discrimination or other unlawful reasons.

Unfair Dismissal Australia

What makes a dismissal "harsh, unjust, or unreasonable"?

Australian workplace law requires employers to maintain procedural fairness during the dismissal process. The Fair Work Commission (FWC) carefully examines several factors to determine if a dismissal meets this fairness standard. These factors include:

  • Did the employer have a genuine and defensible reason for the dismissal related to the employee's performance, conduct, or how their actions might have impacted the safety of others in the workplace?
  • Was the employee clearly informed of the reason for their dismissal?
  • Did the employee have a fair chance to respond to the concerns raised and potentially improve their situation?
  • Employers should generally allow a support person (like a union representative or a friend) to be present during dismissal discussions unless there's a compelling reason not to.
  • If the dismissal relates to the employee's job performance, had they received prior warnings and an opportunity to correct the issues?

The FWC takes into account the size of your business and if you have dedicated HR representative when deciding whether your dismissal procedures were fair, and can consider any other relevant circumstances on the case and the unique situation to determine the fairness of the dismissal.

The Small Business Fair Dismissal Code

Australia's Small Business Fair Dismissal Code offers some protections to small businesses (those with fewer than 15 employees) when it comes to dismissals.

Under the Code, a small business may be able to dismiss an employee without warning or notice if they hold a strong belief that the employee engaged in serious misconduct. This serious misconduct includes offenses like theft, fraud, violence, or significant breaches of health and safety protocols. To meet the Code's standards, the employer should consider reporting these serious behaviours to the police if there are reasonable grounds to do so.

For dismissals not related to serious misconduct, small business owners still must follow fair procedures. This includes giving the employee a valid, documented reason for their potential dismissal. This reason should be directly related to the employee's job performance or conduct. Additionally, employers must provide a written warning, an opportunity for the employee to improve, and may include measures like additional training to make expectations clear.

If an unfairly dismissed employee brings a claim to the Fair Work Commission, the small business employer will need to prove they followed the procedures set out in the Code. This means having documentation such as written warnings, checklists, and potentially witness statements available.

Following the correct procedures

To protect your business from unfair dismissal claims, it's important to have comprehensive employment contracts and a well defined employee handbook. These documents should clearly outline both your company's terms of employment and its disciplinary procedures, including rules for dismissal.

Always get new employees to sign these documents (along with any induction checklists) to show they've been informed of your policies. Most importantly, apply these policies consistently with all employees, as favouritism or uneven enforcement can make you vulnerable to unfair dismissal claims. Always prioritise thorough fact-finding and due process before dismissing an employee. Reacting hastily can create legal problems.

If you have any doubts or navigate a difficult dismissal situation, seeking professional advice is advisable. Employment Compass offers specialised support in all areas of fair and unfair dismissal. For help and guidance, call our 24/7 Employer Assist Line today on 1300 651 415.

Frequently asked questions

What is unfair dismissal in Australia?

Unfair dismissal occurs when an employer terminates an employee's contract without a valid reason, without following fair procedures, or when the termination is deemed excessively harsh or unjust. In some cases, redundancy might not be considered a valid reason if the Fair Work Commission finds it doesn't meet their definition.

Who can make an unfair dismissal claim?

Employees generally need to meet a minimum employment period (6 months for larger businesses, 12 months for small businesses) and be covered by a Modern Award or Enterprise Agreement. There are some exceptions in cases of unlawful discrimination.

Can casual employees in Australia claim unfair dismissal?

Generally, no. However, there are exceptions. A casual employee might have an unfair dismissal case if:

  • Their employment was regular and systematic (meaning they had predictable, consistent work patterns).
  • They had a reasonable expectation that their employment would continue.

How can I protect my business from unfair dismissal claims?

The best protection is prevention! Have well written employment contracts, a clear employee handbook outlining disciplinary procedures, and apply your policies consistently. Always strive for fairness and clear documentation before taking the step of dismissal.

What's the Small Business Fair Dismissal Code?

This Code offers smaller businesses some leeway when it comes to dismissals. For serious misconduct (theft, violence, etc.), immediate dismissal might be allowed. However, for performance-related issues, small businesses still need to follow clear warnings and provide opportunities for improvement.

I'm considering dismissing an employee. What should I do?

Follow your written procedures, gather full documentation of the performance concerns or misconduct, and consider providing clear feedback and a chance for improvement (except in cases of serious misconduct). When in doubt, always consult an HR professional for guidance on your specific situation.

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