Let’s say you’ve dismissed one of your employees for reasons you believe are entirely justified. But, after a couple of days, you receive an unfair dismissal claim and face severe financial and reputational costs.

In such a situation, responding promptly and correctly to protect your business would be crucial. Moreover, it’s essential to understand what constitutes unfair dismissal to avoid such disputes entirely.

In this guide for employers, we explain the fundamentals of unfair dismissal under Australian law. We also look at specific provisions for small businesses and share valuable insights on minimising the possibilities of unfair dismissal claims.

Unfair dismissal refers to the unlawful and unreasonable termination of an employee.

Under the Fair Work Act 2009 (the Act), employees may be eligible to pursue an unfair dismissal claim if they meet the following criteria:

  • have been dismissed;
  • the dismissal has been harsh, unjust or unreasonable;
  • the dismissal wasn’t per the Small Business Fair Dismissal Code;
  • haven’t been dismissed because of genuine redundancy;
  • have been employed for at least six months or one year if the company is a “small business”.

*We’ll discuss details of these provisions later in the text.* 

So, if an employee believes that you’ve unfairly dismissed them, they can file a claim with the Fair Work Commission (FWC), Australia’s national workplace relations tribunal. The FWC will then evaluate the facts surrounding the termination to decide whether it was fair or unfair.

If the FWC determines that the dismissal was unfair, it may obligate you to allow the employee back at work or to pay compensation. And, for the current financial year of 2022-2023, the pay can be as high as $81,000! (The maximum compensation changes on 1 July each year.)

The best way to avoid such expenses and stress in your business is to understand the core aspects of unfair dismissal. Let’s take a closer look at them.


Understanding harsh, unjust and unreasonable

The terms harsh, unjust, and unreasonable refer to the reason for and the method of the dismissal. 

Here are their interpretations in the context of unfair dismissal:

Harsh – if the dismissal was excessive in relation to the employee’s alleged misconduct.

Unjust – if the employee wasn’t guilty of the alleged misconduct, thus the employer didn’t have a valid reason to dismiss them.

Unreasonable – if an employer failed to provide procedural fairness during the dismissal process.

Note that these concepts may overlap, so avoiding actions that may lead to any of them is crucial. Also, keep in mind that FWC considers a variety of circumstances when evaluating whether the dismissal was harsh, unjust, or unreasonable:

  • Was the reason for the dismissal valid?
  • Was the employee informed of the reason for termination?
  • Whether the employee had an opportunity to respond to the allegations against them?
  • What are the impacts (both financial and personal) of the dismissal on the employee?
  • Was the employee forewarned about the unsatisfactory performance prior to termination? (If the reason for the dismissal was due to poor performance.)
  • Did a lack of dedicated human resource specialists impact the dismissal procedures?
  • Any other matters that the FWC deems relevant.

Small businesses and unfair dismissal: Small Business Fair Dismissal Code

Small businesses don’t typically have personnel dedicated to HR management specifically. Therefore, such companies may be more vulnerable to allegations regarding unfair dismissal.

Fortunately, the Fair Work Act includes special provisions protecting small businesses against accusations of unfair dismissal as long as they adhere to the Small Business Fair Dismissal Code.

First things first: what is a small business?

A small business employs less than 15 people (including full-time, part-time, and regular casual employees).

So, if your company falls within this category, the Small Business Dismissal Code applies to you. This Code covers the circumstances that indicate a fair termination and the procedures that you, as a small business, must follow when dismissing employees.

Furthermore, if you receive an unfair dismissal claim and the case goes to a hearing, you must demonstrate to the Commission that you followed the Code. You may need to submit evidence such as:

  • a copy of the completed checklist (included in the Code)
  • copies of written warnings you gave the employee
  • the “statement of termination”
  • signed witness statements

Download the Small Business Fair Dismissal Code.

A genuine redundancy: NOT an unfair dismissal

You may have wondered by now, “Am I at risk of an unfair dismissal claim if I fired an employee due to genuine redundancy?”

The answer is ― No. Employees can’t claim unfair dismissal if their employment has ended because of genuine redundancy.

Here are the specifics of what constitutes genuine redundancy:

  • The employer no longer requires an employee’s position to be occupied by anyone because of changes in operational needs.
  • The dismissal was in accordance with the modern award or enterprise agreement.

On the other hand, the following circumstances indicate that the redundancy is NOT genuine:

  • The company hires someone else to do the same job as the terminated employee.
  • The employer hasn’t complied with the terms and conditions outlined in the agreement or modern award.
  • The employer hasn’t taken the initiative to reassign the employee to another position.

If you need clarification on whether the redundancy is genuine, feel free to contact us for expert advice from our work relation specialists.

Avoid unfair dismissal claims with the right approach and support

You can feel safe from unfair dismissal allegations by avoiding the unfair practices mentioned above and following the right ones.

Nonetheless, if you receive an unfair dismissal claim, the first thing you should do is seek legal advice. This way, you increase the likelihood that the dispute will settle in your favour.

At Fresh HR Insights, we are employment specialists ready to provide valuable advice and assist you in following legal procedures, addressing dismissals, minimising risks, and protecting your company’s interests. Get in touch with our team at 0452 471 960 or paulette@freshhrinsights.com.au to schedule your consultation.