Unfair dismissal and unlawful termination, how the two claims work

Two claims, one dismissal

When you end someone's employment, two separate bodies of law can be triggered at once, and employers frequently assume they are the same thing. They are not. Unfair dismissal asks whether the dismissal was harsh, unjust or unreasonable, which usually comes down to how you handled it. Unlawful termination asks whether the reason behind the dismissal was one the law prohibits, regardless of how fairly the process looked. A termination can fail one test and pass the other, or fail both at the same time.

That distinction is not academic. The two claims have different eligibility rules, run through different forums, carry different deadlines, and expose you to different remedies. An employee who cannot bring an unfair dismissal claim at all may still succeed with an unlawful termination claim, and vice versa. This article explains how each scheme actually works, who can bring each claim, where they overlap, where they diverge, and what you should do to keep your exposure down.

Who does what when a dismissal is challenged

Before walking through the schemes, it helps to know the players:

The former employee starts the process by lodging an application or complaint, usually within days of the dismissal.
The employer receives the application and must respond quickly; the deadlines are short on both sides.
The Fair Work Commission hears unfair dismissal applications and general protections disputes about dismissal. It conciliates the parties and, for unfair dismissal, can also arbitrate and make binding orders.
The federal courts deal with general protections claims that seek compensation, injunctions or penalties, but only after the Commission has issued a certificate.
Anti-discrimination agencies handle discrimination complaints that run outside the Fair Work system, including the Australian Human Rights Commission at the Commonwealth level and state and territory tribunals.

The same dismissal can be challenged in more than one of these places, but the Act contains rules that stop an employee pursuing the same dismissal twice, so an applicant generally has to choose their pathway early.

How unfair dismissal works

Unfair dismissal is set out in Part 3-2 of the Fair Work Act 2009 (Cth) (the Act). Under s 385, a person has been unfairly dismissed if the Commission is satisfied that 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. Each limb matters. Even a dismissal with a solid business reason can still be unfair if the process was botched.

Who can apply

Not every employee is protected from unfair dismissal. Two hurdles apply:

Minimum employment period: the employee must have completed at least 6 months' service, or 12 months if you are a small business employer. Under s 23 of the Act, a small business employer employs fewer than 15 employees, counting casuals who work on a regular and systematic basis.
Award coverage or income: the employee must be covered by a modern award or enterprise agreement, or earn less than the high income threshold. That figure is $190,100 per year from 1 July 2026, and it is adjusted annually.

Employees who are still within their probationary period, or who earn above the threshold and are not covered by an award or agreement, generally cannot bring an unfair dismissal claim at all.

What the Commission weighs up

Section 387 sets out the factors the Commission must take into account when deciding whether a dismissal was harsh, unjust or unreasonable:

whether there was a valid reason for the dismissal related to the employee's capacity or conduct;
whether the employee was notified of that reason;
whether the employee was given an opportunity to respond;
whether the employer unreasonably refused to allow a support person at discussions about the dismissal;
whether the employee was warned about unsatisfactory performance before the dismissal;
the size of the employer's enterprise and how that affected the procedures used; and
whether the absence of dedicated human resources expertise affected those procedures.

In practice, these factors are a checklist for procedural fairness. A valid reason exists but was never communicated, or the employee was never given a chance to respond, and the dismissal can be unfair even though the outcome was deserved.

The 21-day clock and the small business code

An application for an unfair dismissal remedy must be lodged with the Commission within 21 days after the dismissal takes effect under s 394. The Commission can extend that period only in exceptional circumstances, so the window is effectively fixed. If you are the employer, a delay in receiving notice of an application is not something you can rely on; the clock runs from the dismissal, not from when you hear about it.

If you are a small business employer, the Small Business Fair Dismissal Code gives you an additional shield. Under s 388, a dismissal that is consistent with the code is not an unfair dismissal. In substance, the code allows summary dismissal where you genuinely believed on reasonable grounds that the employee's conduct was serious enough to justify it, and for other dismissals requires that you warn the employee, give the reason, and allow a genuine chance to respond. The code is only useful if you can show you actually followed it, so records matter even more for small businesses.

Remedies and the compensation cap

If a dismissal is found to be unfair, the Commission's preferred remedy is reinstatement, with compensation in lieu where reinstatement is not appropriate. Compensation is capped: under s 392 it cannot exceed the lesser of 26 weeks' remuneration or half the high income threshold, which is $95,050 from 1 July 2026. The cap is a ceiling, not a default, and the Commission reduces amounts for misconduct that contributed to the dismissal. Compensation for shock or distress is not available.

How unlawful termination works

"Unlawful termination" is not a single claim. It is a family of protections that share one idea: you must not end employment for a reason the law forbids. There are three main pathways, and which one applies depends on the facts.

General protections, or adverse action

The most important pathway is the general protections regime in Part 3-1 of the Act. Section 340 prohibits taking adverse action against an employee because they have a workplace right, have exercised one, or propose to exercise one. Workplace rights include things like making a complaint or inquiry about their employment, requesting leave, or asking about their pay.

Section 342 defines adverse action broadly. It includes dismissing an employee, injuring them in their employment, altering their position to their prejudice, and discriminating between employees. It also reaches prospective employees who are refused employment, and in some situations independent contractors whose contracts are terminated.

Two further protections sit alongside it. Section 351 prohibits adverse action because of a protected attribute, including race, colour, sex, sexual orientation, breastfeeding, gender identity, intersex status, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction and social origin. Section 352 prohibits dismissing an employee because they are temporarily absent from work due to illness or injury of a kind prescribed by the regulations. Union membership and industrial activity are separately protected under s 346.

A critical feature of this regime is that it has no minimum employment period and no income cap. A probationary employee, a casual with three weeks' service, and a high-income executive are all protected. This is why an employee who cannot bring an unfair dismissal claim may still succeed with a general protections claim.

The other critical feature is where the burden falls. Under s 361, once an employee alleges that action was taken for a prohibited reason, the law presumes that was the reason unless you prove otherwise. You do not have to have said anything discriminatory for the presumption to operate; timing can be enough. If the dismissal follows a complaint, a leave request or a medical absence, you carry the practical burden of showing the real reason was something else.

The Act's own unlawful termination provisions

Part 6-4 of the Act contains a separate set of unlawful termination provisions. Section 772 prohibits terminating employment for a list of reasons that overlaps with the general protections, including temporary absence due to illness or injury, union membership or non-membership, seeking office as an employee representative, filing a complaint or participating in proceedings against the employer, the protected attributes, and absence during parental leave. These provisions operate in more limited circumstances, largely where the general protections do not reach, but they carry the same kind of reverse onus under s 783.

Anti-discrimination laws

Outside the Fair Work Act, discrimination in termination is also unlawful under the Commonwealth Age Discrimination Act 2004, Disability Discrimination Act 1992, Racial Discrimination Act 1975 and Sex Discrimination Act 1984, and under state and territory anti-discrimination legislation. Complaints can be made to the Australian Human Rights Commission and to state and territory tribunals, and the time limits differ between jurisdictions and have changed over the years, so the current limit for the relevant Act should always be checked. These claims can run alongside or instead of the Fair Work pathways, which is why a single dismissal can generate risk in several directions at once.

Time limits and remedies

For a general protections claim about dismissal, the employee must apply to the Fair Work Commission within 21 days of the dismissal under s 366, the same window as unfair dismissal. The Commission attempts to resolve the dispute by conciliation. If it cannot, it issues a certificate and the employee then has 14 days from the certificate to start proceedings in a court under s 370.

The remedies differ from unfair dismissal in an important way. The Commission cannot award compensation in a general protections dispute unless both parties agree to arbitration; the real money is in the courts, which can award compensation, grant injunctions, and impose civil penalties on employers for contraventions. A general protections claim can therefore be significantly more expensive to defend than an unfair dismissal application, even though it starts in the same place.

Where the two schemes overlap and diverge

The practical picture for an employer is that the same dismissal can be attacked on both fronts, and you can lose on one even while winning on the other:

Process versus reason: Unfair dismissal scrutinises how you went about the dismissal: the warnings, the investigation, the chance to respond. Unlawful termination scrutinises why: the real reason sitting behind the paperwork. A fair process does not cure a prohibited reason, and a lawful reason does not cure a botched process.
The evidence differs: For unfair dismissal, the file is the story: meeting notes, warnings, the opportunity given to respond. For unlawful termination, the decision-making record is the story: what was discussed, when the dismissal happened relative to the leave request or complaint, and whether you treated the employee differently from others in the same position.
Who is in the game differs: Unfair dismissal is limited to employees who have served the minimum period and are under the income threshold. Unlawful termination claims reach probationary employees, high-income earners, prospective employees and some contractors.
The redundancy defence only goes so far: A genuine redundancy is a complete answer to an unfair dismissal claim under ss 385 and 389, but calling something a redundancy does not defeat an adverse action claim. If the real reason for cutting the role was a protected one, the label does not save you.

Common traps for employers

Across both schemes, the same patterns of mistakes show up repeatedly in small and medium businesses:

Dismissing on the spot: Immediate dismissal without warning is only defensible for serious misconduct. For performance issues, the absence of warnings and a chance to improve is usually fatal to an unfair dismissal defence.
Reaching for redundancy when the real issue is performance or a falling-out: If the role continues to exist, or someone else fills it, the redundancy label collapses and you are left defending a dismissal with no process behind it.
Acting on the back of a complaint, leave request or medical absence: The timing alone can trigger the presumption in s 361, and you then have to prove the reason was unrelated.
Standing employees down or suspending without clarity: Suspension pending investigation can be legitimate, but getting the pay and process wrong creates a fresh claim while you are still dealing with the original one.
Treating employees inconsistently: One employee dismissed for behaviour that another was forgiven for is powerful evidence in both unfair dismissal and adverse action claims.
Relying on verbal feedback only: If the only record of a performance conversation is your memory, the conversation may as well not have happened when the Commission asks for it.

When a lawyer should be involved

The most valuable point for legal input is before you end the employment, not after the application lands. A practitioner can stress-test the reason you are relying on, work out which claims could realistically be brought, and identify the evidence you will need to have on file. That includes checking the current high income threshold, which changes each 1 July, and confirming whether the Small Business Fair Dismissal Code applies to your headcount.

If an application does arrive, the 21-day deadlines mean there is no time to sit on it. A lawyer can assess the strength of the claim, prepare the response, and negotiate a settlement in conciliation, where most of these matters resolve. If a claim moves past the Commission into court or an anti-discrimination tribunal, the stakes rise quickly because penalties and costs come into play, and that is the point where having run the early stages properly pays for itself.

Write the reason down now

Every dismissal dispute comes back to two things: the reason, and the record of it. The employer who can point to a genuine reason, documented at the time, with a process that gave the employee notice and a chance to respond, is in a fundamentally different position from the employer who acted on the day and reconstructed the paperwork afterwards. The same is true in reverse: the fairest process in the world does not help if the underlying reason was prohibited, because the law presumes it was the reason and asks you to prove otherwise.

That is why the time to think about these two claims is before you act, while the decision is still yours to make well. A consultation to map the exposure, check the thresholds and plan the process is a small cost compared with defending a claim where the evidence was never captured. If you are facing a termination decision, getting early advice on which claims could bite, and what to document before you move, is the single most effective step you can take.