Unfair dismissal and your obligations before dismissing an employee

Unfair dismissal is one of the most common claims brought against Australian employers, and the Fair Work Commission deals with thousands of applications every year. When you dismiss an employee, the Fair Work Act 2009 (Cth) (the Fair Work Act) imposes a set of obligations designed to make sure the decision is fair. Dismiss an employee harshly, unjustly or unreasonably, and the employee can lodge a claim with the Commission within 21 days, with reinstatement or compensation potentially on the line.

The obligations are practical rather than exotic. In most cases they come down to having a real reason for the dismissal, telling the employee what it is, letting them respond, and warning them before dismissing for poor performance. Small business employers have a separate pathway under the Small Business Fair Dismissal Code. This article sets out who is protected from unfair dismissal, the process you must follow, the special rules for businesses under 15 employees, and what the Commission can order if you get it wrong.

Who is protected from unfair dismissal

Before worrying about process, check whether the employee is protected at all. Under s 382 of the Fair Work Act, an employee is protected from unfair dismissal only if they have completed the minimum employment period and either a modern award covers them, an enterprise agreement applies to them, or their annual earnings are below the high income threshold.

The minimum employment period is:

Standard employers: six months of continuous service before the dismissal.
Small business employers: twelve months.

These periods come from s 383. The distinction matters. Hire someone who has been with you for eight months in a business with 16 employees, and they are already protected. The same person in a genuine small business would need twelve months.

The high income threshold is indexed on 1 July each year. For the year from 1 July 2025 it is $183,100, and it rises to $190,100 from 1 July 2026. Employees who earn above the threshold are only protected if an award or enterprise agreement covers them. The practical effect is that highly paid managers outside any award cannot claim unfair dismissal.

Casual employees are not automatically excluded. Whether a casual's service counts toward the minimum period depends on whether they have worked on a regular and systematic basis, which the Commission assesses case by case. If your workforce is largely casual, it is worth confirming where each long-serving casual sits before assuming they have no claim.

Have a valid reason for the dismissal

The first thing the Commission examines is whether there was a valid reason for the dismissal related to the employee's capacity or conduct: s 387(a). A valid reason is one that is sound, defensible and well-founded, and it must connect to how the employee does their job.

Conduct reasons need to be established, not just asserted. If you are dismissing for misconduct, you should be able to point to what the employee actually did, when, and why it warranted dismissal. Capacity reasons cover situations where the employee cannot perform the role, whether through illness, injury or an inability to meet the inherent requirements of the job. In both cases the reason must be genuine. A vague sense that the employee is not a good fit is not a valid reason on its own.

Tell the employee the reason and hear their response

Procedural fairness is where most dismissals come unstuck. Under s 387 the Commission considers whether you:

notified the employee of the reason for the dismissal (s 387(b));
gave the employee an opportunity to respond to any reason related to their capacity or conduct (s 387(c)); and
unreasonably refused to allow a support person at discussions about the dismissal (s 387(d)).

The notification must happen before the decision is made. Telling an employee at the dismissal meeting that they are being dismissed because of an incident last month fails this test if they were never told the incident was under investigation or that dismissal was on the table. Give the employee the substance of the allegations or concerns and a genuine chance to answer them before you confirm any outcome. If they ask to bring a support person, allow it unless there is a sound reason not to.

For performance-based dismissals, the Commission also considers whether the employee was warned about the unsatisfactory performance before the dismissal: s 387(e). A warning should be clear about what is wrong, what improvement is expected, and the consequence of failing to improve. Verbal warnings are permissible, but a written warning creates a record that the conversation happened. Follow up any verbal warning with a confirming email or letter.

The Commission also weighs the size of your business and whether you have dedicated human resources expertise: s 387(f) and (g). A small operator is not held to the same procedural standard as a large corporate employer, but the core steps still need to happen.

Small business employers and the Small Business Fair Dismissal Code

A business with fewer than 15 employees is a small business employer under s 23 of the Fair Work Act, and it has its own dismissal framework. If a small business employer complies with the Small Business Fair Dismissal Code (the Code), the dismissal cannot be found to be unfair: s 385(c).

The headcount is not always what it looks like. For the purposes of s 23:

every employee counts, including the employee you are dismissing (s 23(4));
casual employees are counted only if they are employed on a regular and systematic basis (s 23(2)); and
employees of associated entities are counted together with your own staff, because associated entities are treated as one entity (s 23(3)).

The associated-entities rule is easy to miss. A trading company with 10 staff that is part of a group where a related entity employs another 10 people is not a small business employer, no matter how small its own payroll looks. If you rely on the Code without checking the group headcount, you lose its protection at the moment you need it most.

Under the Code, you can dismiss an employee without notice or warning for serious misconduct, provided you believe on reasonable grounds that the conduct was sufficiently serious. Serious misconduct is defined in reg 1.07 of the Fair Work Regulations 2009 (Cth) and includes theft, fraud, assault, sexual harassment, conduct that causes a serious and imminent risk to health and safety or to the business's reputation, and intoxication at work. The Code's own examples of conduct that justifies dismissal without notice include theft, fraud, violence and serious breaches of workplace health and safety procedures. Reporting an allegation of theft, fraud or violence to the police can support your position, but it is not essential, and you should investigate the matter on reasonable grounds before acting.

For anything short of serious misconduct, the Code requires you to:

give the employee a reason why they are at risk of dismissal;
warn them, ideally in writing;
give them a reasonable opportunity to improve; and
give them an opportunity to respond to the reason before you dismiss them.

A final protection to be aware of is genuine redundancy. Under s 389 a dismissal is not unfair if the job is genuinely redundant, meaning the employer no longer requires the job to be performed by anyone because of changes to operational requirements, and any award or enterprise agreement obligation to consult about the redundancy was complied with. The dismissal stops being a genuine redundancy if it would have been reasonable to redeploy the employee elsewhere in the business, including in an associated entity.

The consequences of getting it wrong

An employee who believes their dismissal was unfair has 21 days from the date the dismissal took effect to apply to the Fair Work Commission: s 394. The Commission can extend the deadline only for exceptional circumstances, so you should treat the 21 days as a hard limit.

The Commission's remedies are:

Reinstatement: the primary remedy. The Commission can order you to take the employee back with continuity of service and pay them any lost remuneration.
Compensation: ordered only where reinstatement is inappropriate. Compensation is capped at the lesser of 26 weeks of the employee's remuneration or half the high income threshold, which is $91,550 for the 2025-26 year: s 392.

The cap operates as a ceiling, not a starting point. The Commission works out an amount having regard to the remuneration the employee would likely have received, their efforts to mitigate their loss, any income they have earned since the dismissal, and the effect of the order on the viability of your enterprise. Compensation cannot include a component for shock or distress, and if the employee's own misconduct contributed to the dismissal, the amount is reduced.

Most applications are resolved in conciliation before any hearing, but even a successful defence costs time, management attention and legal fees. An application that fails at the threshold stage still needs a response.

A dismissal compliance checklist

Before you dismiss anyone, work through this list:

Confirm eligibility: has the employee completed the minimum employment period, and are they award-covered or below the high income threshold?
Count your headcount: fewer than 15 employees, counting regular casuals, any employees of associated entities, and the employee being dismissed?
Establish the reason: can you point to specific conduct or incapacity that gives a valid reason?
Notify and respond: has the employee been told the reason and given a real chance to respond, with a support person if requested?
Warn if it is performance: has the employee been warned in writing about the unsatisfactory performance and given time to improve?
Small business: if you are relying on the Code, have you followed it, and is the conduct serious misconduct or something that needs a warning first?
Redundancy check: if the dismissal is a redundancy, is the job genuinely gone, has consultation occurred, and was redeployment unreasonable?
Document everything: keep records of warnings, meetings, investigations and the reasons for the decision.

When you need a lawyer

Many dismissals can be handled in-house if the process is followed carefully, but a lawyer is worth engaging early when:

the conduct is serious and you are contemplating dismissal without notice;
the employee has raised allegations of their own, such as discrimination or adverse action;
you are restructuring and roles are being made redundant;
a claim has been lodged and you must respond within tight timeframes; or
you are unsure whether your business is a small business employer under the current definition.

An employment lawyer can stress-test your reason for dismissal, run the investigation, draft the warnings and termination documents, and, if a claim is lodged, prepare your response and represent you in conciliation and any hearing. The cost of advice before the dismissal is usually a fraction of the cost of defending a claim after it.

Check your headcount before you rely on the Code

The mistake that costs small business employers most is assuming the Code protects them without checking the definition. The 15-employee headcount includes the employee you are dismissing, casuals who work regularly and systematically, and, under the current law, employees of associated entities. Miss that last one, and a business that thought it was small finds its dismissal judged against the full s 387 criteria, with only a six-month rather than twelve-month minimum period protecting it.

The first action to take this week is a headcount audit: list everyone engaged across your business and any related entities, work out which casuals are regular and systematic, and record the result. If you are under 15, keep a copy of the Small Business Fair Dismissal Code with your employment records, because the day you need it is the day you dismiss someone. If you are over 15, the s 387 process set out above is your roadmap.