How to Terminate an Employee Without an Unfair Dismissal Claim
Terminating an employee is one of the most legally sensitive decisions a business owner can make.
In Australia, employees who believe they have been dismissed unfairly can lodge a claim with the Fair Work Commission, which may result in compensation or reinstatement.
For SME owners, the risk is not only financial. Defending an unfair dismissal claim can consume time, resources and management attention.
Understanding the legal framework before terminating an employee can significantly reduce the likelihood of a dispute.
What Is Unfair Dismissal?
Under the Fair Work Act 2009, a dismissal may be considered unfair if it is:
harsh, unjust or unreasonable
not supported by a valid reason
carried out without procedural fairness.
Employees who meet eligibility criteria can apply to the Fair Work Commission for remedies.
Which Employees Can Bring an Unfair Dismissal Claim?
Not all employees are eligible to bring a claim.
Generally, an employee must:
have completed the minimum employment period
earn below the high income threshold unless covered by an award or enterprise agreement.
The minimum employment period is:
12 months for small businesses (fewer than 15 employees)
6 months for larger businesses.
The Importance of a Valid Reason
Before terminating employment, employers should ensure there is a valid reason related to capacity or conduct.
Examples may include:
poor performance
misconduct
repeated breaches of company policy
inability to perform the inherent requirements of the role.
However, even when a valid reason exists, employers must still follow a fair process.
Procedural Fairness: The Step Many Employers Miss
A common reason unfair dismissal claims succeed is lack of procedural fairness.
Employers should usually:
Explain the concerns to the employee clearly.
Provide the employee with an opportunity to respond.
Consider the response before making a decision.
Allow the employee to bring a support person to formal meetings.
Failure to follow these steps can lead the Fair Work Commission to find that a dismissal was unfair.
Performance Issues vs Misconduct
Employers should treat these situations differently.
Misconduct
Serious misconduct may justify immediate dismissal, but employers should still ensure they investigate the circumstances before taking action.
Performance issues
Where termination relates to poor performance, employers should usually:
provide clear feedback
allow time for improvement
document warnings.
The Small Business Fair Dismissal Code
Small businesses may rely on the Small Business Fair Dismissal Code, which provides guidance on fair termination processes.
If the Code is followed, the dismissal may be considered fair even if the process is simpler than that used by larger organisations.
However, employers should apply the Code carefully, as mistakes can still lead to claims.
Common Mistakes That Lead to Claims
Some of the most common issues seen in unfair dismissal matters include:
terminating employment without prior warnings
failing to document performance concerns
not allowing the employee to respond
inconsistent treatment of employees.
Addressing these issues early can significantly reduce legal risk.
When Employers Should Seek Legal Advice
Many employers seek legal advice when:
terminating a long-term employee
dealing with allegations of misconduct
responding to an unfair dismissal application
negotiating settlement agreements.
Early advice can help ensure the process is handled correctly and reduce the likelihood of costly disputes.
Speak With an Employment Lawyer
If your business is considering terminating an employee or responding to an unfair dismissal claim, obtaining legal advice can help you understand your obligations and manage risk.
Connected Legal + Commercial advises SME employers on employment contracts, workplace disputes and termination processes.
You can arrange a consultation to discuss your situation and options.
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