Workplace Relations
Unfair Dismissal: An Employer's Guide to Avoiding Claims
Unfair dismissal claims are one of the most common and costly legal risks for Australian employers. Even when you have a legitimate reason to end someone's employment, a flawed process can turn a justified termination into an unfair dismissal finding. This guide shows you how to get it right.
What the Law Says
Under Part 3-2 of the Fair Work Act 2009, a dismissal is unfair if:
- The person was dismissed
- The dismissal was harsh, unjust, or unreasonable
- The dismissal was not a case of genuine redundancy
- The dismissal was not consistent with the Small Business Fair Dismissal Code (for small businesses)
The FWC considers several factors under Section 387 when determining whether a dismissal was harsh, unjust, or unreasonable:
- Whether there was a valid reason for the dismissal related to capacity or conduct
- Whether the employee was notified of that reason
- Whether the employee was given an opportunity to respond
- Whether the employer unreasonably refused to allow a support person
- Whether the employee had been warned about unsatisfactory performance (if applicable)
- The degree to which the size of the employer's business impacted procedures
- The degree to which the absence of dedicated HR management impacted procedures
- Any other relevant matters
What Employers Must Do
1. Establish a valid reason
Ensure you have a sound, defensible reason related to the employee's conduct or capacity. Gather evidence and document everything before initiating the process.
2. Notify the employee
Tell the employee the specific reason you are considering dismissal. Be clear and factual — vague allegations are not sufficient.
3. Allow a response
Give the employee a genuine opportunity to respond to the allegations or concerns. Allow reasonable time to prepare and offer a support person.
4. Consider the response
Genuinely consider what the employee says. If their response raises new information, investigate it before making a final decision.
5. Issue prior warnings (for performance)
For performance-related dismissals, ensure you have given the employee clear warnings and a reasonable opportunity to improve before moving to termination.
6. Document the entire process
Keep written records of every meeting, warning, discussion, and decision. These records are your primary evidence if a claim is lodged.
Common Mistakes and How to Avoid Them
Mistake: Dismissing in the heat of the moment
Fix: Never dismiss someone on the spot (unless serious misconduct makes the workplace unsafe). Stand the employee down on pay, investigate, and follow the process.
Mistake: Having a valid reason but no fair process
Fix: Even with strong grounds for dismissal, failure to follow procedural fairness can still result in an unfair dismissal finding. Process matters as much as substance.
Mistake: Not allowing a support person
Fix: If the employee requests a support person for a meeting that could result in dismissal, you must not unreasonably refuse. The support person can observe and take notes but does not have a right to advocate.
Mistake: Vague or inconsistent warnings
Fix: Warnings must clearly identify the issue, what improvement is expected, the timeframe, and the consequences of not improving. Verbal-only warnings are risky — always follow up in writing.
Mistake: Treating the decision as a foregone conclusion
Fix: If you have already decided to dismiss before the meeting, the process is a sham. The FWC will see through it. Approach each step with an open mind.
Penalties and Consequences
If the FWC finds a dismissal was unfair, it may order:
Beyond direct costs, unfair dismissal claims involve significant legal fees, management time, and potential reputational damage. Most matters settle at conciliation, but settlements often range from $5,000 to $40,000+ depending on the strength of the case.
When to Get Professional Help
Seek expert advice when you:
- Are considering dismissing an employee and want to ensure the process is watertight
- Have received an unfair dismissal application and need to prepare a response
- Are attending a conciliation conference at the FWC
- Want to review and strengthen your performance management and termination procedures
Jordan Firme Business Consultants represents employers throughout the dismissal process, from pre-termination advice to FWC representation.
Frequently Asked Questions
An employee can claim unfair dismissal if they have completed the minimum employment period (6 months, or 12 months for small businesses with fewer than 15 employees), earn below the high income threshold ($175,000 as of 1 July 2024) or are covered by a modern award or enterprise agreement, and were dismissed rather than having their fixed-term contract expire.
A valid reason relates to the employee's capacity (their ability to do the job) or their conduct (their behaviour). The reason must be sound, defensible, and well-founded — not capricious, fanciful, or prejudiced. Importantly, having a valid reason alone is not enough; you must also follow a fair process.
Procedural fairness means the employee was notified of the reason for the proposed dismissal, given an opportunity to respond (with a support person present if requested), had their response genuinely considered, and was given prior warnings about unsatisfactory performance (unless the dismissal is for serious misconduct).
The maximum compensation the Fair Work Commission can award is the lesser of 26 weeks pay or half the high income threshold (approximately $87,500). The FWC considers factors including the employee's length of service, remuneration, efforts to mitigate loss, and any misconduct that contributed to the dismissal.
Small businesses (fewer than 15 employees) can follow the Small Business Fair Dismissal Code to protect against unfair dismissal claims. For summary dismissal, the employer must believe on reasonable grounds that the employee committed serious misconduct. For other dismissals, the employer must have given the employee a valid reason and a warning, and a reasonable chance to improve.
You can dismiss an employee during the minimum employment period (6 months, or 12 months for small businesses) and they generally cannot claim unfair dismissal. However, they can still lodge general protections claims if the dismissal was for a prohibited reason such as exercising a workplace right, discrimination, or temporary absence due to illness.
Facing a Dismissal Situation?
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