What is unfair dismissal?
Unfair dismissal refers to situations where an employee is terminated in a way that is legally deemed harsh, unjust or unreasonable. This might include dismissing someone without proper warning, failing to provide a fair process, or letting an employee go in circumstances that the Fair Work Commission believes were excessive or unsupported by evidence.
The terms ‘harsh’, ‘unjust’ and ‘unreasonable’ have distinct meanings in this context:
- A dismissal may be considered harsh if it has a disproportionate effect on the employee, especially if their length of service, performance history or personal circumstances were not taken into account.
- It is unjust if the person is found not to be responsible for the conduct or performance issues they were dismissed over.
- It is unreasonable when there is not enough evidence to support the employer’s decision to terminate the employee.
A dismissal can fall under one or more of these categories. For example, an employee with an otherwise clean record who is fired over a one-off error might be considered harshly dismissed, particularly if no warnings were given.
Note that dismissal does not only refer to being fired. It can also include being made redundant in circumstances that are not considered genuine or fair. In some cases, it may even include situations where an employee resigns because they felt forced out by the employer’s conduct. This is referred to as constructive dismissal.
Who is eligible to make an unfair dismissal claim?
Eligibility for making a claim depends on a few factors, including the size of the business, how long the employee has worked there and their salary or wage. For most employees, the minimum employment period is six months. However, if the business employs fewer than 15 people, the minimum period extends to 12 months. This is because small businesses are considered to have fewer resources, and different rules apply to balance fairness on both sides.
Eligibility is also linked to the employee’s annual earnings. Those who earn more than the high-income threshold (which is updated annually) and are not covered by an award or enterprise agreement may not be eligible to lodge a claim. Importantly, the threshold only includes base salary and does not count superannuation.
How does the unfair dismissal process work?
To begin the process, the dismissed employee needs to lodge an application with the Fair Work Commission within 21 calendar days of the dismissal taking effect. This time limit is strictly enforced, and extensions are only granted in exceptional circumstances. Missing the deadline generally means the claim cannot proceed.
Once a claim is submitted, the Commission usually organises a conciliation meeting within a few weeks. This is a voluntary process where both parties attempt to resolve the issue without proceeding to a formal hearing. Many claims are resolved at this stage, as it offers a faster and less adversarial way to reach an agreement. If conciliation fails, the matter may go to a formal hearing, where a member of the Commission will review evidence and make a decision. Outcomes can include reinstatement, financial compensation or other remedies.
The Fair Work Commission also provides a helpful eligibility tool on its website. This tool allows individuals to assess whether they are likely to have a valid claim based on their circumstances. It can be a useful reference for employers as well, particularly when evaluating whether a planned dismissal could trigger an unfair dismissal claim.
Rules specific to small businesses
Small businesses have their own set of rules under the Small Business Fair Dismissal Code. This code provides a framework that allows smaller employers to manage dismissals without the same level of formality expected in larger organisations.
If a small business employer follows this code and can demonstrate that they have done so, they are generally protected against unfair dismissal claims. The code allows for summary dismissal in cases of serious misconduct, such as theft, assault or fraud, without the need for formal warnings.
However, even in these cases, employers still have to follow fair process. For example, if a disciplinary meeting is held, the employee needs to be provided the opportunity to bring a support person. Refusing this without good reason may still result in a finding of unfair dismissal.
It is important that small business employers understand and follow the code precisely. Simply stating that the business is small is not enough. There has to be evidence that the dismissal was handled in accordance with the code’s requirements.
Common examples of unfair dismissal
There are many scenarios that may lead to an unfair dismissal finding. The following are three examples that illustrate each of the legal categories:
- Unreasonable: An employee is dismissed due to poor performance, but the employer failed to provide feedback or offer opportunities to improve. In this case, the employer’s decision may be seen as unsupported by evidence.
- Unjust: An employee is terminated for alleged misconduct, but later it becomes clear they were not the person responsible. The decision was therefore based on inaccurate assumptions.
- Harsh: A long-serving employee with a clean record is dismissed for a minor breach of company policy. The impact on their reputation and finances is significant, and a warning may have been more appropriate.
Another example involves redundancy. A role that is declared redundant needs to be genuinely unnecessary, and the business has to attempt to find alternative roles for the affected employee where possible. If a role is made redundant, but another person is hired soon after to do similar work, the redundancy may not be considered genuine, and the dismissal may be challenged.
Constructive dismissal is also worth noting in this context. This occurs when an employee resigns because the work environment becomes intolerable, such as through bullying, reduced hours without consultation or unreasonable expectations. Even though the employee technically resigned, the employer’s actions may still be scrutinised under unfair dismissal law.
Dismissal versus other types of job ending
Note that not all terminations of employment are considered dismissal. There are legitimate reasons for employment to end that do not result in unfair dismissal claims. These include:
- End of fixed-term contracts: When a contract reaches its natural conclusion, and it was clear from the beginning that it was time-limited.
- Casual or seasonal work: Employees engaged for a specific period or task (such as Christmas casuals) are not typically eligible to claim unfair dismissal unless they had a reasonable expectation of ongoing work.
- Apprenticeships and traineeships: Employment ends when training is complete, which is generally not considered a dismissal.
- Voluntary resignation: Employees who resign on their own terms are not considered dismissed. However, as explained above, if they felt forced to resign due to the employer’s conduct, it may be seen as constructive dismissal.
In addition to unfair dismissal, there are separate provisions for unlawful termination. This includes being dismissed for discriminatory reasons, such as race, religion, age, disability or gender, or for exercising a workplace right, such as making a complaint or requesting leave. These cases fall under general protections claims and can carry significant penalties for employers.
Avoiding unfair dismissal claims
Employers can reduce the risk of unfair dismissal claims by putting clear policies in place and following lawful procedures when ending employment. Key preventative steps include the following:
Communicate expectations clearly
Provide staff with access to an employee handbook, intranet policies or onboarding materials that clearly explain conduct standards and performance expectations. These documents should outline the types of behaviours or performance issues that may lead to disciplinary action or dismissal.
Use performance management processes
Employees should not be dismissed for underperformance without first being given an opportunity to improve. This typically involves a formal performance management plan, regular reviews and support such as training or mentoring. Performance concerns should be documented, and employees need to be made aware that continued issues may lead to termination.
Conduct fair investigations
If an employee is accused of misconduct, it is important to conduct a thorough investigation before making any decisions. This includes gathering relevant evidence, allowing the employee to respond, and considering whether the misconduct warrants dismissal or a lesser consequence.
Offer support and representation
During meetings that could result in disciplinary action, employees need to be informed of their right to bring a support person. Denying this without a good reason can undermine the fairness of the process.
Apply the appropriate code or legislation
Small businesses should refer to the Small Business Fair Dismissal Code. Larger organisations must ensure compliance with the Fair Work Act 2009. In either case, seeking advice from HR specialists or employment lawyers is a wise precaution, especially when dismissals are complex or sensitive.
Document everything
Keeping detailed records is one of the best ways to protect your organisation if a claim is made. This includes performance reviews, written warnings, meeting notes, emails and any signed documents related to termination. This documentation can demonstrate that the process was fair, transparent and consistent.
Seeking advice and understanding legal differences
Employment laws may vary depending on the jurisdiction. While the Fair Work Act applies to most workplaces in Australia, there are still some state-specific differences. For example, Western Australia has its own industrial relations system for certain employees. Understanding which system applies to your organisation is essential.
What’s more, it is also important to distinguish between unfair dismissal and other forms of termination, such as wrongful dismissal, which involves a breach of the employment contract. These cases may proceed through the court system and can result in different outcomes, including financial compensation.
Before proceeding with any termination, it is best to consult a qualified employment lawyer or HR professional. Legal advice can clarify eligibility, minimise risk and help employers make informed decisions.
Final thoughts
Understanding the rules around unfair dismissal can help employers make confident, lawful decisions when managing performance and ending employment. By following the Fair Work Act or the Small Business Fair Dismissal Code, employers can reduce the risk of costly disputes and maintain a fair and respectful workplace. If in doubt, seeking professional legal advice is always recommended.
