Ending someone’s employment is one of the harder calls a small business owner has to make. Get the reasons or the process wrong and you can find yourself defending an unfair dismissal claim at the Fair Work Commission — even when you felt the decision was justified.
This is general information, not legal advice — seek professional advice before dismissing an employee. Every situation turns on its own facts, and the cost of getting it wrong is usually higher than the cost of a quick check.
Unfair dismissal happens when an employee is dismissed in a way the Fair Work Commission considers harsh, unjust or unreasonable. It is a specific legal concept under the Fair Work Act 2009 — it is not the same as a redundancy, a contract ending on its agreed date, or a general protections claim (which deals with dismissals connected to a workplace right or a protected attribute).
When the Commission looks at whether a dismissal was unfair, it weighs up two things: whether there was a valid reason for the dismissal, and whether the process you followed was fair. A genuine reason carried out through a poor process can still be ruled unfair — and so can a fair-looking process built on a reason that does not stack up.
Not every employee is eligible. To bring a claim, a person generally needs to clear a few thresholds set by the Fair Work Commission (source: Fair Work Commission and Fair Work Ombudsman, current as at 2025–26):
Counting heads for the “small business” test can be fiddly: you include employees of associated entities, and regular and systematic casuals count, but other casuals usually do not. If you are close to the 15-employee line, it is worth confirming where you sit before you act.
If you employ fewer than 15 people, the Small Business Fair Dismissal Code is your friend. It sets out a straightforward standard for dismissing an employee fairly, and if you follow it and can show evidence that you did, the Commission will treat the dismissal as fair.
In broad terms, the Code recognises two situations. For serious misconduct — such as theft, fraud, violence or a serious safety breach — you may dismiss without notice, provided your belief that the conduct occurred is reasonable. For other performance or conduct issues, the Code expects you to warn the employee (usually in writing) that they risk losing their job, explain what needs to change, give them a reasonable chance to improve, and allow them to bring a support person to discussions.
The single most useful habit is to keep records: file notes of conversations, copies of warnings, and any response from the employee. If a claim is ever made, that paper trail is what demonstrates you followed the Code.
Whether or not the Code applies, the Commission looks for the same core elements. A fair dismissal process usually involves:
There must be a sound, defensible reason connected to the person’s capacity (their ability to do the job) or conduct (how they behave at work). A vague “it’s not working out” rarely survives scrutiny.
The employee should be told clearly what the concern is and given a genuine opportunity to respond before any decision is made. Procedural fairness means they are not blindsided — they hear the issue, and their side is actually considered.
For performance or conduct matters, the person should generally have received at least one warning and a real opportunity to improve. They should also be allowed a support person at any meeting where dismissal is a possibility.
The decision-maker should weigh the response, consider whether something short of dismissal would be reasonable, and only then act. Moving too quickly — or appearing to have made up your mind in advance — is a common reason dismissals are found to be unfair.
If the Commission finds a dismissal was unfair, its preferred remedy is reinstatement — putting the person back in their job. Where reinstatement is not appropriate, it can order compensation instead. Compensation is capped at the lower of six months’ pay or half the high income threshold — $91,550 for dismissals on or after 1 July 2025 (source: Fair Work Commission). The Commission cannot award compensation for hurt or distress; it focuses on lost earnings.
Most unfair dismissal claims are avoidable. They come down to a weak reason, a rushed process, or missing documentation — all of which can be fixed before you act.
As an HR consultancy for Australian small businesses, Employment Star helps you handle performance and conduct issues the right way. Through HR consulting (charged at $195 per hour), we can review a situation before you make a decision, help you run a fair process, draft warning letters and file notes, and set up the policies and templates that keep you on solid ground next time. Where ongoing support makes more sense than ad-hoc advice, we can wrap HR into a fixed monthly arrangement quoted after a short discovery call.
Thinking about ending someone’s employment, or want your process checked before you act? Book a free discovery call and we will talk it through.
Generally six months of continuous service, or twelve months if you are a small business with fewer than 15 employees (source: Fair Work Commission, 2025–26). Service before that minimum period does not count towards eligibility.
From 1 July 2025 it is $183,100 per year, and it is adjusted on 1 July each year (source: Fair Work Commission). Award- and agreement-free employees earning at or above it generally cannot claim, but employees covered by an award or enterprise agreement can claim regardless of income.
If you employ fewer than 15 people and you follow the Code — and can show evidence that you did — the Commission will treat the dismissal as fair. Keeping written warnings, file notes and records is what makes that protection real.
The Code allows dismissal without notice for serious misconduct where your belief that it occurred is reasonable. Even so, it is wise to investigate, give the person a chance to respond, and document everything before acting, because “serious misconduct” is judged on the facts.
An unfair dismissal application must be lodged with the Fair Work Commission within 21 days of the dismissal taking effect (source: Fair Work Commission). The Commission only extends this in limited circumstances.
Thinking about ending someone’s employment, or want your process checked before you act? Employment Star’s HR specialists can guide you — book a free discovery call.
