How unfair dismissal claims work in Australia, an employer's guide

Ending someone's employment is one of the few business decisions an Australian employer makes that a tribunal can reverse. The unfair dismissal scheme in the Fair Work Act 2009 (Cth) (the Act) exists to protect employees from being dismissed without a sound reason and a fair process. If the Fair Work Commission (the FWC) finds a dismissal was harsh, unjust or unreasonable, it can order the person back into their job or order the employer to pay compensation.

This article explains how the scheme actually operates: what counts as a dismissal, who is eligible to claim, the deadlines that apply, how the FWC assesses a claim, the two carve-outs that can end a claim before it reaches the merits, and the remedies the FWC can order. For most businesses the scheme becomes relevant at a predictable moment: when an employee is dismissed, or when a resignation follows a breakdown in the relationship.

The players and the pathways

Three parties carry the scheme, and each has a distinct role:

The employee: must have been dismissed, must be protected from unfair dismissal, and must lodge an application in time.
The employer: must be able to point to a valid reason for the dismissal and a fair process around it.
The Fair Work Commission: decides the preliminary questions first, then whether the dismissal was unfair, and if so what remedy to order.

Unfair dismissal is not the only legal route open to a dismissed employee, and it is worth keeping the others in mind because they are separate regimes with their own tests and deadlines. The general protections provisions prohibit dismissing someone for a prohibited reason such as discrimination or because they exercised a workplace right, and the unlawful termination provisions operate alongside anti-discrimination law. A general protections application about a dismissal must be made within 21 days under section 366 of the Act, mirroring the unfair dismissal deadline. An employee who misses the unfair dismissal eligibility mark is not necessarily left without options, so an employer should never assume that a claim is impossible just because one pathway is closed.

What counts as being dismissed

An unfair dismissal claim starts with a dismissal. Under section 386 of the Act, a person is dismissed if their employment ends on the employer's initiative, or if they resign but were forced to do so by the employer's conduct. That second limb is often called constructive dismissal: the employee hands in a resignation, but the real decision was made by the employer's behaviour, such as a demotion or an ultimatum that left no real choice. A resignation that is genuinely the employee's own decision does not trigger the scheme.

Some endings are not dismissals at all. The expiry of a fixed-term contract does not count as a dismissal, unless the arrangement was a sham designed to avoid the Act's obligations. The same goes for the end of a training arrangement, and for a demotion that does not significantly reduce the employee's pay or duties and leaves them employed. A business that lets a fixed-term contract run its course has therefore not, in general, dismissed the employee, whatever the reason for not renewing.

Who is protected from unfair dismissal

Eligibility is a jurisdictional question, not a merits question. If the employee does not satisfy the test in section 382 of the Act, the claim fails before the FWC ever looks at whether the dismissal was fair. Two things must both be true:

The employee must have completed the minimum employment period: that period is 6 months for employers that are not small businesses, and 12 months where the employer is a small business, under section 383. A small business employer is one with fewer than 15 employees, counting casuals who are employed on a regular and systematic basis.
The employee must be covered by an award or agreement, or earn below the high income threshold: the employee is protected if a modern award covers them, if an enterprise agreement applies to them, or if their annual earnings are less than the high income threshold. The threshold is indexed each 1 July: it was $175,000 in 2024-25, $183,100 in 2025-26 and $190,100 in 2026-27. Note that an employee earning above the threshold is still protected if a modern award covers them, so the threshold only filters out high earners who are not award or agreement covered.

Casual employment has its own rule. Service as a casual only counts towards the minimum employment period if the employment was regular and systematic and the casual had a reasonable expectation of continuing employment on that basis, under section 384. Genuine contractors and volunteers are not employees at all and cannot bring an unfair dismissal claim.

A probation period does not shorten the 6 or 12 month period. An employee dismissed during probation who has already completed the minimum employment period can still claim, so probation should be treated as a period for assessing suitability, not as a licence to dismiss without process.

The 21-day clock

Timing is unforgiving. An application must be made within 21 days after the dismissal takes effect, under section 394 of the Act. The FWC can extend that period only where there are exceptional circumstances, taking into account matters such as the reason for the delay, what the employee did to dispute the dismissal, and the prejudice to the employer. A late application fails at the threshold: the claim is dismissed for want of jurisdiction before the fairness of the dismissal is ever considered.

How the Fair Work Commission decides a claim

The FWC's process is deliberately sequenced, and the sequence matters to employers because most claims end at an early stage.

The threshold questions come first

Under section 396 of the Act, the FWC must decide four preliminary matters before considering the merits: whether the application was made in time, whether the person was protected from unfair dismissal, whether the dismissal was consistent with the Small Business Fair Dismissal Code, and whether the dismissal was a case of genuine redundancy. If the employer succeeds on any of these, the claim ends there.

The fairness test

A person has been unfairly dismissed if they were dismissed, the dismissal was harsh, unjust or unreasonable, it was not consistent with the Small Business Fair Dismissal Code, and it was not a case of genuine redundancy, under section 385. In deciding whether a dismissal was harsh, unjust or unreasonable, section 387 requires the FWC to take into account:

Valid reason: whether there was a valid reason for the dismissal related to the person's capacity or conduct, including its effect on the safety and welfare of other employees.
Notification: whether the person was notified of that reason.
Opportunity to respond: whether the person was given an opportunity to respond to any reason related to their capacity or conduct.
Support person: whether the employer unreasonably refused to allow the person to have a support person present at discussions relating to dismissal.
Warnings: where the dismissal related to unsatisfactory performance, whether the person had been warned about that performance before the dismissal.
Context: the degree to which the size of the enterprise, and the absence of dedicated human resource specialists, would have impacted on the procedures followed.
Other matters: anything else the FWC considers relevant.

None of these factors is decisive on its own. The FWC weighs the overall picture, and a dismissal can be found unfair even with a valid reason if the process around it was deficient.

Conciliation, then a hearing

Most applications are first referred to conciliation, where a Commission member helps the parties explore a settlement without a formal hearing. If the claim is not resolved there, it proceeds to a hearing at which the parties put on evidence and the member applies the section 387 factors. Because the threshold questions are decided first, many claims never reach that point.

The two carve-outs that can end a claim early

Two defences, if made out, defeat an unfair dismissal claim outright. Both are worth understanding before a dismissal happens, because neither can be manufactured afterwards.

The Small Business Fair Dismissal Code

A dismissal by a small business employer is not unfair if it was consistent with the Small Business Fair Dismissal Code, under section 388 of the Act. In broad terms, the Code allows a small business to dismiss without notice or warning for serious misconduct such as theft, fraud or violence. For other dismissals, it expects the employer to give the employee a reason for the proposed dismissal, an opportunity to respond, and the chance to have a support person present, with a warning before dismissing for unsatisfactory performance. Because the Code is the standard the FWC applies, a small business that follows it has a genuine shield, while one that does not faces the full unfair dismissal test.

Genuine redundancy

A dismissal is not unfair if it was a case of genuine redundancy, under section 385. Section 389 defines genuine redundancy, and all of the following must be satisfied: the employer no longer required the person's job to be performed by anyone, because of changes in the operational requirements of the business; the employer complied with any consultation obligations in the applicable modern award or enterprise agreement; and it would not have been reasonable in all the circumstances to redeploy the employee within the business or an associated entity.

This is a demanding test in practice. If the same work is still being done by someone else, the job has not disappeared. If the employer skipped consultation, the defence fails. And a genuine redundancy is not a cheap exit: the employee is still owed notice and, depending on their service, redundancy pay under the National Employment Standards. Using "redundancy" to remove an underperformer whose job still exists is a common mistake, and it usually converts a straightforward performance issue into a claim the employer has to defend.

What happens if the dismissal is found unfair

If the FWC finds an unfair dismissal, the primary remedy it contemplates is reinstatement, under section 390 of the Act. The employee is put back into their job, typically with continuity of service restored. Compensation is only ordered where reinstatement is inappropriate, and it is paid in lieu of reinstatement.

Compensation under section 392 is capped at the lesser of 26 weeks of the employee's remuneration and half the high income threshold. In deciding the amount, the FWC must consider the effect of the order on the viability of the employer's enterprise, the length of the employee's service, the remuneration they would have received if not dismissed, and their efforts to mitigate their loss by finding other work. The amount is reduced where the employee's misconduct contributed to the dismissal, and it cannot include a component for shock, distress or humiliation. The scheme is remedial rather than punitive: the aim is to address the impact of the dismissal, not to penalise the employer.

The termination mechanics that protect the decision

Even a dismissal with a valid reason can be undermined by the way it is carried out. The National Employment Standards require written notice of termination, or payment in lieu of notice, of at least the minimum period worked out under section 117 of the Act, which scales with the employee's length of service. Final pay must cover outstanding wages and any accrued annual leave and other entitlements the employee is owed, and the employer should collect property, cancel access and confirm any post-employment obligations such as confidentiality and restraints.

Above all, the process needs to be documented. Contemporaneous notes of meetings, emails confirming discussions, copies of warnings and investigation records are what the FWC reconstructs the process from. An employer's documents and messages at the time are effectively the case the employer would have to run, so they should be written as if they will be read by a Commission member.

Where employers typically get caught

Most unfair dismissal claims that reach the FWC are lost for one of a handful of recurring reasons:

Process failures: dismissing for a valid reason but without notifying the employee of the reason, without a real opportunity to respond, or without allowing a support person. The section 387 factors can tip the result against the employer even where the reason was sound.
Constructive dismissal: a resignation provoked by a demotion, an ultimatum or other conduct can still count as a dismissal under section 386, so the employer ends up defending a claim it thought had ended by resignation.
Suspension without an entitlement: standing an employee down or suspending them without pay while an allegation is investigated is only safe if the contract, award or enterprise agreement provides for it. Otherwise the suspension itself can become part of the dispute.
Mixing up performance and redundancy: removing an underperformer by "redundancy" when the job still exists, which fails the section 389 test and leaves the employer defending a performance dismissal it never properly ran.
Assuming probation is a free pass: the minimum employment period still applies, and an employee dismissed during probation who has served it can claim.
Ignoring the small business shield: a small business that does not know the Code exists defends claims it could have prevented by following it.

When a lawyer should be involved

The cheapest advice is the advice given before the decision is made. A workplace lawyer can review the contract, award and policies before a process starts, help design a defensible process including the investigation and any warnings, assess whether a redundancy is genuine and whether consultation obligations have been met, and confirm whether the Small Business Fair Dismissal Code applies. If a claim has already been lodged, a lawyer can raise the jurisdictional objections that are decided before the merits, represent the business at conciliation, and run the hearing if it gets that far. Much of this work can be done on a fixed-fee basis, and it is almost always cheaper than the compensation, reinstatement and management time at stake in a claim.

The record you leave is the case the FWC sees

Every stage of the scheme, from eligibility to remedy, turns on what the employer did and wrote down at the time of the dismissal. The FWC cannot observe the workplace; it reads the record. That makes the process before the dismissal the whole game, and it makes early advice the most cost-effective protection available. If you are facing a dismissal decision, the point to get the process reviewed is before the decision is communicated, when a single consultation can still steer the outcome, rather than after a claim is lodged, when the choice is between defending and settling.