Wrongful Termination and Unlawful Dismissal in Australia

Understanding wrongful termination

Rates current from 1 July 2026.

Wrongful termination is a serious issue for Australian employers. The term is often used loosely to mean that you've ended an employee's contract without a legally valid reason or without following the proper procedures. Strictly, wrongful termination (or wrongful dismissal) is a dismissal that breaches the employment contract, for example by not giving the notice the contract requires. It is different from unlawful termination (dismissal for a prohibited reason, such as temporary illness or union membership) and from general protections and unfair dismissal claims under the Fair Work Act. Australian workplace laws are in place to protect employees from unfair treatment in the workplace. If you terminate someone's employment in a way that is considered harsh, unjust, or unreasonable, it could be an unfair dismissal.

The consequences for employers who wrongfully terminate an employee can be significant. You may be required to pay the employee compensation for their lost income and other damages. In addition, if you breach the general protections or other Fair Work Act rules, a court can order you to pay civil penalties.

Understanding wrongful termination and unfair dismissal laws can help you avoid costly legal issues and protect your business's reputation.

‍Common reasons behind wrongful termination

It's important for employers to understand why wrongful termination might occur, as this knowledge can help prevent your business having to respond to a claim lodged with the Fair Work Commission. Here are some of the most common reasons.

• ‍Breach of contract - Every employee should have an employment contract or agreement. This outlines terms for termination. Dismissing an employee in a way that violates the agreed-upon terms within the contract can lead to a wrongful termination claim.
• ‍Violation of workplace laws - Australia has strong laws protecting employees' rights. Terminating an employee for reasons prohibited by national or state workplace laws can give the employee grounds for a general protections, unlawful termination or discrimination claim.‍
• Insufficient notice or severance - Even if you have a valid reason to terminate an employee, you may still be liable for wrongful termination if you don't follow procedures in their contract or give employees appropriate notice periods and severance pay (if applicable).

Who is eligible to make a wrongful termination claim?

The Fair Work Act (2009) is federal legislation that offers protections against unfair dismissal for most Australian employees (those in the national workplace system). It safeguards employees' rights, upholds workplace standards, protects from discrimination, and ensures just causes for termination. You can learn more in Part 3-1 (general protections) and Part 3-2 (unfair dismissal) of the Fair Work Act. If an employee isn't covered by the Fair Work Act's unfair dismissal protections, they may still be able to make a general protections claim, an unlawful termination claim, a discrimination complaint or a breach of contract (wrongful dismissal) claim in court, depending on the circumstances.

Australian workplace relations law is strict with respect to employment termination. Whether or not employees fall under the general protections of the Fair Work Act, employers always need to have valid reasons and follow legal procedures when ending someone's employment contract. Failure to do so could lead to wrongful termination claims, even in cases where an employee isn't technically eligible for traditional unfair dismissal remedies.

When can an employee file a wrongful termination claim?

An employee who believes their termination was unjust or illegal might be able to start a claim with the Fair Work Commission (for unfair dismissal, general protections or unlawful termination) or, for a breach of contract, in a court. However, there are specific criteria an employee must meet to proceed with this type of claim.

• ‍A dismissal occurs - The employee must have been terminated from their job. This means resignations, even if prompted by difficult circumstances, generally do not fall under wrongful termination.‍
• Prohibited reasons - An employee could have grounds for a wrongful termination claim if they believe the reason for their dismissal falls under categories prohibited by the Fair Work Act. Common examples include discrimination, taking permitted leave (like parental leave), exercising their legal rights or being targeted in retaliation for reporting unlawful workplace activity.‍
• Eligibility - While employees generally have strong protections, the specifics of wrongful termination become intricate based on whether they are covered by the Fair Work Act's unfair dismissal provisions (national system employees). Those not covered may still have a possible wrongful termination claim depending on the circumstances.

Wrongful termination cases can be complex. Even if a business owner feels the termination was justified, an employee might believe there were underlying prohibited reasons. Having clear written policies and seeking expert guidance can help prevent claims in the first place.

Employees who believe they may have been wrongfully terminated must lodge an unfair dismissal, general protections or unlawful termination claim with the Fair Work Commission within 21 days after the dismissal takes effect, and must meet specific criteria. This includes being dismissed from their job and having experienced what might be considered termination based on prohibited reasons.

For unfair dismissal claims only, there are also minimum employment periods that must have been met - generally at least six months of employment, or a year if the employer is a small business (fewer than 15 employees). General protections and unlawful termination claims have no minimum employment period.

Prohibited reasons for termination

Section 772 of the Fair Work Act explicitly outlines grounds upon which it is illegal to terminate an employee. As an employer, you need to be fully aware of these prohibited reasons to prevent serious legal and reputational consequences.

Employers CANNOT terminate an employee based on factors including:

• Employees have the right to take personal leave and reasonable time off work to recover without fear of losing their job.
• Discrimination against employees on grounds of union membership, or because they engage in lawful union activities (with appropriate limitations for during business hours), is strictly prohibited.
• Targeting an employee because they represent (are an employee representative) other employees can land you in serious legal trouble.
• Employees are protected if they make formal complaints or engage in legal proceedings against their employer. Dismissal as a reaction is prohibited.
• Terminating someone because of personal characteristics like race, gender, sexual orientation, disability, religion, marital status, family responsibilities, age, political beliefs, pregnancy, or social origin is a fundamental workplace rights violation.
• Employees have the right to take parental leave, and cannot be dismissed because they intend to take it or have already done so.
• You cannot dismiss an employee because they reasonably needed time off to assist with an emergency situation if they're a registered volunteer.

How wrongful termination happens

Now that you grasp the concept of wrongful termination, let's look at how it often manifests in the workplace. These examples show the kinds of wrongful termination matters that have been heard at the Fair Work Commission.

• ‍Refusing illegal activities - A business owner instructed an employee to perform an illegal act (like under-reporting income to avoid taxes). They refuse, and were terminated. This is clear-cut wrongful termination. Similar risks occur if an employee threatens to report a workplace violation and they are fired in retaliation.‍
• Discrimination - Australian law strictly prohibits discrimination based on protected characteristics (race, religion, gender, etc.). An employee expresses a political opinion different from their employer's views. That employee is subsequently dismissed, even though the employer states it's for another reason, a wrongful termination claim based on discrimination is possible.

Even if wrongful termination wasn't your intent, violating Fair Work laws by discriminating against an employee or firing them for not breaking the law puts you at serious legal risk. Often, what feels like a justified action in the moment isn't held up by employment law.

In some examples above, an employee might have additional protections for being wrongly fired under the "general protections" of the Fair Work Act. If not, a wrongful termination claim may still be possible.

Breaching an employment contract

Before taking any steps to terminate an employee, you must thoroughly review their employment contract or registered agreement. These documents outline the acceptable reasons and procedures for ending employment. Not observing these agreed terms creates a significant risk of wrongful termination or unfair dismissal claims, even if you feel the dismissal is justified overall.

Your employee's contract likely provides clear guidance on the process leading up to termination. This might include specific requirements for providing verbal or written warnings, documented conversations addressing any performance issues, or other required steps. Failure to follow the process outlined within the contract grants the employee grounds to claim that their termination was wrongful, even if underlying reasons exist.

What businesses should do to minimise risk

Understanding a potential dispute from the employee's side helps proactively protect your business from damaging and costly wrongful termination claims. Here are some steps your business should consider:‍

• Employee Contracts - Ensure that every employee has a clear and legally compliant employment contract that unambiguously details valid reasons for dismissal and a step-by-step process for terminations.
• ‍Thorough Documentation - Always keep detailed records of any performance conversations, warnings (verbal or written), or issues regarding an employee's conduct. This objective documentation can be crucial to defend against a wrongful termination claim.‍
• Internal Processes - Have a clear and fair internal process for employees to challenge or dispute a termination. This could involve your HR department handling a formal complaint with open communication about potential resolutions.‍
• Know Your Limits - Do not terminate an employee for prohibited reasons. These include unlawful acts, discrimination, retaliation, or any reason specifically barred by the employment contract or Fair Work legislation.

Situations aren't always black and white. If you doubt whether a planned termination aligns with your contractual obligations and workplace laws, consult an HR professional for guidance. This proactive step could save you a substantial amount of money and avoid lasting reputational damage to your business.

It's easier and less costly to take appropriate preventive measures before terminating an employee, than find yourself battling a legal claim afterward.

If you need further advice on managing employee exits, their entitlements and final payments, Employment Compass can provide assistance. Call our 24/7 HR advice line on 1300 144 002 for free initial advice. If a claim is made, our Fair Work representation for employers can support you.

What's the difference between wrongful termination and unfair dismissal?

‍Wrongful termination (wrongful dismissal) usually refers to a dismissal that breaches the employment contract, such as not giving the notice the contract requires, and is pursued in the courts. Unfair dismissal is a separate claim to the Fair Work Commission where the dismissal is harsh, unjust, or unreasonable, and an employee is covered by unfair dismissal provisions in the Fair Work Act. Dismissal for a prohibited reason can also lead to a general protections or unlawful termination claim.

What is constructive dismissal, and how is it related to wrongful termination?

Constructive dismissal happens when an employee feels forced to resign due to intolerable working conditions created by the employer. This can open the employer up to a wrongful termination claim, even though the employee technically resigned.

What happens if my business loses a wrongful termination case?

Losing a wrongful termination case can be costly. You may have to pay compensation to the former employee for lost wages and other damages, or reinstate them (unfair dismissal compensation is capped at $95,050, or 26 weeks' pay if that is less, for dismissals on or after 1 July 2026). If you breached the general protections, a court can also order civil penalties, and the negative publicity could damage your company's reputation.

Can I be sued for wrongful termination if I had a good reason to fire someone?‍

Potentially, yes. Even if you feel the dismissal was justified, your actions might still violate workplace laws or the terms of the employee's contract. For example, dismissing someone due to a protected characteristic (like age or pregnancy) is prohibited. It's important to seek professional advice if you're unsure.

‍My employee claims their dismissal was wrongful. What should I do?

‍Take the claim seriously. Review their contract, any documentation relating to the dismissal and potentially consult with an employment lawyer. Consider whether internal resolution through your HR department is possible.

I'm a small business, do I need to worry about wrongful termination claims?‍

Absolutely! All businesses, regardless of size, are bound by Australian employment laws. Small businesses often have fewer resources to defend against legal claims, making preventative steps like clear contracts and HR consultation more impactful.