How to Protect Your Business from Unfair Dismissal Claims in Australia
Unfair dismissal claims can be costly and damaging to a business’s reputation. The Fair Work Commission received over 15,000 unfair dismissal applications in 2022-23, with many claims resulting in financial settlements or reinstatements. Understanding how to terminate employees lawfully can help business owners avoid legal pitfalls and unnecessary claims. Source: Fair Work Annual Report
What Constitutes Unfair Dismissal?
Under the Fair Work Act 2009, an employee can claim unfair dismissal if:
They were terminated in a harsh, unjust, or unreasonable manner.
They were dismissed without procedural fairness.
They were employed for at least six months (or 12 months for small businesses with fewer than 15 employees). Source: Fair Work Ombudsman
Steps to Avoid Unfair Dismissal Claims
1. Have a Clear and Fair Termination Process
Business owners should have documented policies outlining:
Misconduct and performance expectations
Disciplinary actions and steps before termination
Internal grievance procedures for employees to raise concerns
2. Provide Warnings Before Termination
Unless it’s serious misconduct (such as theft or violence), businesses should:
Give verbal and written warnings.
Offer support or additional training if needed.
Allow employees a reasonable chance to improve before taking final action.
A study by the Fair Work Commission found that terminations without sufficient warning were a leading cause of successful unfair dismissal claims. Source: Fair Work Commission
3. Follow Small Business Fair Dismissal Code
For businesses with fewer than 15 employees, following the Small Business Fair Dismissal Code provides legal protection in case of disputes. Employers should document reasons for dismissal and follow the Code’s guidelines to avoid claims. Source: Fair Work Commission
4. Conduct Terminations Professionally
Avoid terminating employees on the spot unless for serious misconduct.
Allow them to have a support person present.
Provide a termination letter outlining the reasons and final entitlements.
5. Offer a Settlement Agreement When Necessary
In some cases, offering a redundancy or severance package can help avoid legal disputes. If an employee agrees to a mutual separation, ensure all agreements are documented to prevent future claims.
The Cost of Getting It Wrong
Unfair dismissal claims can result in:
Compensation payments of up to six months’ wages
Legal fees and tribunal costs
Reputational damage and negative media coverage
Potential reinstatement of the dismissed employee
According to Beyond Blue, workplace stress and unresolved disputes contribute to increased absenteeism and reduced productivity, costing Australian businesses $10.9 billion annually. Source: Beyond Blue Workplace Report
Conclusion
Understanding and following proper termination procedures is essential for business owners to protect themselves from legal action and financial losses. If you need expert HR support in hiring, firing, or compliance, contact us at Be Still Consulting today.
