Can You Be Fired for Mental Health Issues in Australia?

As a small business owner, you’re often balancing productivity, customer expectations, and your team’s wellbeing all at once.

So when an employee discloses a mental health condition (or their behaviour and performance suggest they may be struggling), it’s normal to wonder whether you can dismiss someone because of mental health issues in Australia.

Mental health can be legally complex in the workplace. In general, you shouldn’t dismiss an employee because they have a mental health condition. However, employment may be able to end lawfully where mental health affects things like capacity, performance, conduct or safety - provided you have a valid reason, you’ve considered reasonable adjustments, and you follow a fair process.

Below, we’ll walk you through what Australian employers need to know: your key legal obligations, what a “safe” process generally looks like, and practical steps you can take to protect both your team and your business.

Can You Be Fired For Mental Health In Australia?

In most workplaces, the key issue isn’t whether a person has a mental health condition - it’s how that condition is impacting work, and whether the employee can still do the job (with reasonable support).

From an employer perspective, the lawful focus is usually on things like:

• an employee’s capacity to perform the inherent requirements of their role (with reasonable adjustments considered)
• performance issues (such as repeated missed deadlines or errors)
• conduct issues (such as aggressive behaviour, breaches of policy, or safety issues)
• attendance issues (including excessive or unexplained absences)

However, where mental health is involved, you need to be extra cautious because dismissal may trigger additional legal risk, including:

• unfair dismissal claims
• general protections (adverse action) claims
• discrimination complaints
• work health and safety risks (including psychosocial hazards)

It’s also important to remember there are specific protections around absence due to illness or injury. Under the Fair Work Act, an employee may be protected from dismissal if they are temporarily absent from work because of illness or injury (including some mental health-related absences) and they meet the relevant requirements (such as providing evidence like a medical certificate). These rules can be technical, so it’s worth checking before taking action if leave or medical certificates are involved.

So if you’re asking “can you be fired for mental health?”, a more useful question for employers is:

Are you making decisions based on the employee’s condition itself - or on genuine, well-documented workplace issues (like capacity, performance, conduct or safety), handled fairly and with reasonable adjustments properly considered?

Key Employer Obligations When Mental Health Is Involved

When an employee’s mental health is affecting work (or may be), there are several overlapping employer obligations you need to keep in mind.

1) Don’t Discriminate (Even Indirectly)

Mental health conditions can fall within “disability” protections under Commonwealth and state/territory anti-discrimination laws.

This means you generally need to avoid:

• direct discrimination (treating someone worse because of their condition)
• indirect discrimination (applying a “neutral” requirement that disadvantages the employee and isn’t reasonable in the circumstances)

In practice, indirect discrimination risk often arises where you enforce a workplace rule without considering reasonable flexibility - for example, refusing any change to start times when a temporary adjustment might be workable.

2) Consider Reasonable Adjustments

If the employee has disclosed a condition, or it’s reasonably apparent, you’ll generally need to consider reasonable adjustments so they can perform their role.

Adjustments might include:

• temporary changes to hours (start/finish times, reduced hours, gradual return to work)
• workload adjustments or prioritisation
• changing reporting lines (where feasible)
• additional supervision, check-ins, or clearer written instructions
• short-term remote work (where the role allows)

Reasonable adjustments aren’t unlimited - they depend on what’s workable for your business, the role, and your resources. But you should be able to show you genuinely turned your mind to what could be done.

3) Maintain Work Health and Safety (Including Psychosocial Risks)

Work health and safety duties aren’t just about physical hazards. In many workplaces, you also need to manage psychosocial risks (like bullying, burnout, unreasonable workload, or poor change management).

If you suspect mental health issues are arising from the workplace, it’s important to treat it as a safety issue too - not only as “a performance problem”.

4) Follow a Fair Process Before Any Termination Decision

Even if your reason for dismissal is legitimate (for example, ongoing poor performance), the process matters.

A fair process usually involves:

• clearly identifying the performance or conduct concerns
• giving the employee a genuine opportunity to respond
• providing support and reasonable time to improve
• warning the employee if employment is at risk
• documenting what happens

Having a clear Workplace Policy framework can also help you show consistency and reduce “we didn’t know the rules” disputes later.

How To Manage Performance Or Conduct Issues When Mental Health May Be A Factor

When mental health concerns appear alongside performance or conduct issues, you’ll usually get the best outcome (and reduce legal risk) by using a structured, calm, and evidence-based approach.

Step 1: Focus On Observable Behaviour (Not Diagnoses)

You don’t need to “diagnose” an employee. Stick to what you can observe and document.

For example:

• “You have missed three rostered shifts this month without notice”
• “You raised your voice at a customer on Monday and Friday”
• “Your timesheets have been submitted late for four weeks in a row”

This keeps your management approach fair and avoids slipping into assumptions about the person’s health.

Step 2: Invite A Conversation And Offer Support

It’s usually best to have a private discussion early, especially if this is new behaviour.

You can ask questions like:

• “Is there anything affecting your ability to work at the moment?”
• “Is there any support or adjustment that would help you meet the requirements of the role?”

A practical tip: keep notes of what was discussed, what was offered, and what was agreed. Documentation is often what makes the difference if a dispute later arises.

Step 3: Request Medical Evidence Where Appropriate

If an employee says they’re unfit for work, or you’re considering adjustments, you may be able to ask for evidence (for example, a medical certificate or other supporting information).

In some situations, you may also need to consider whether it’s appropriate to request a fitness-for-work or return-to-work clearance. This is a sensitive area, so it’s worth checking what you can ask, how to ask it, and what you can do with that information.

Where you need a structured plan for performance concerns, a properly drafted Show Cause Letter process can help you clearly set out the issues, the expectations, and the consequences if things don’t improve.

Step 4: Make A Plan (And Give A Reasonable Opportunity To Improve)

Even if the employee is struggling, your business still needs the work done safely and to an acceptable standard.

A reasonable improvement plan might cover:

• what the employee needs to do (clear expectations)
• what support you will provide
• timeframes and check-in dates
• how you will measure improvement

Also, make sure you’re not undermining your process by having unclear employment terms. A tailored Employment Contract helps set expectations around duties, performance, conduct, and workplace rules from the start.

When Can Termination Be Lawful If Mental Health Issues Are Involved?

There are circumstances where terminating employment may be lawful even if mental health issues are involved - but it’s rarely “simple”, and it’s usually high risk if handled informally.

Below are some common situations where termination may be possible, provided you follow a fair and compliant process.

1) The Employee Cannot Perform The Inherent Requirements Of The Role (Even With Adjustments)

One of the key legal concepts in this area is the “inherent requirements” of the role - meaning the essential duties that must be performed.

If, after considering reasonable adjustments, the employee still cannot perform those essential duties, termination may be an option.

This is often described as termination on medical grounds. Because the decision can easily be challenged, employers should generally ensure they have clear evidence of:

• what the inherent requirements are
• what adjustments were considered and trialled
• why further adjustments are not reasonable or workable
• why the employee still can’t meet the requirements

Be careful if the issue involves an employee taking leave or being away from work due to a mental health condition. Depending on the circumstances, the employee may be protected from dismissal for a temporary absence due to illness or injury under the Fair Work Act, particularly where they’ve provided required evidence.

2) Misconduct Or Safety Issues (Handled Procedurally Correctly)

If an employee’s behaviour creates a safety risk - for example, aggressive conduct, harassment, or other serious incidents - you may need to act quickly to protect your workplace.

In some cases, employers consider standing down an employee pending investigation while you gather facts. This can be a useful tool when you need time to investigate, but it should be approached carefully, with a clear process and communication.

Even if misconduct is linked to mental health, you should still:

• investigate properly
• give the employee a chance to respond
• consider whether adjustments or alternative duties are appropriate (where feasible)
• apply consequences consistently with your policies and past practice

3) Ongoing Poor Performance (With Warnings And Support)

Mental health can sometimes affect concentration, attendance, or communication. If performance issues arise, it’s important to avoid assuming it will “just fix itself”.

If you’ve provided clear expectations, training/support, reasonable adjustments (where appropriate), and warnings - and the employee still hasn’t met the role requirements - termination may be lawful.

The key is that the reason for termination should be genuine performance issues, not the mental health condition itself.

4) Probation Period Termination (Still Needs Care)

Probation can feel like a “low risk” time to end employment, but if mental health has been disclosed (or is otherwise involved), it can still raise discrimination or general protections risks.

Even during probation, you should be able to point to clear reasons tied to performance, conduct, or role fit - and show you acted fairly and consistently.

If you’re managing an underperforming new hire, it helps to understand the common pitfalls around termination during probation so you don’t accidentally create legal exposure.

A Practical Checklist For Small Businesses (What To Do Before You Dismiss)

If you’re considering dismissal in a situation where mental health may be a factor, here’s a practical checklist you can use to sanity-check your process.

Step 1: Clarify The Real Issue You’re Managing

• Is it performance, conduct, attendance, capacity, or safety?
• Do you have specific examples (dates, incidents, metrics)?
• Have you communicated expectations clearly?

Step 2: Check Whether Any Legal Protections Are Likely To Apply

• Has the employee disclosed a mental health condition?
• Has the employee recently taken personal/carer’s leave or provided medical certificates?
• Has the employee raised a workplace complaint or safety concern?

These factors don’t prevent termination, but they can increase the risk of a claim if the timing and reasons aren’t handled carefully.

Also check what dismissal framework applies to your business. If you employ fewer than 15 employees (counting casuals on a regular and systematic basis), you may be a “small business employer” for unfair dismissal purposes, and different rules can apply (including a shorter minimum employment period and the Small Business Fair Dismissal Code). Even if unfair dismissal risk is reduced, discrimination and general protections laws can still apply.

Step 3: Consider Reasonable Adjustments (And Document Them)

• What adjustments could you try?
• What would “reasonable” look like in your business size and context?
• Have you trialled adjustments for a reasonable period (where feasible)?

Step 4: Use A Structured Process And Put Things In Writing

• Hold a formal meeting and allow a support person if appropriate
• Provide written warnings where needed
• Confirm outcomes and expectations in writing

Small businesses often get into trouble by having “informal” management conversations that aren’t documented and aren’t consistent. Written steps reduce confusion and make it easier to show procedural fairness later.

Step 5: Make Sure Your Core Documents Are Solid

A lot of disputes start because expectations were never clearly set, or the business doesn’t have a consistent framework for managing issues.

Depending on your team and operations, it can help to have:

• Employment Contract setting out duties, expectations, and key policies (including confidentiality and conduct) (Employment Contract)
• Workplace Policy suite covering conduct, bullying/harassment, performance management, leave, and disciplinary procedures (Workplace Policy)
• Clear investigation and warning templates that you can apply consistently (a structured Show Cause Letter process can be particularly helpful)

If you’re unsure about the correct process for your exact situation, getting advice early can often prevent a much larger (and more expensive) dispute later.

Key Takeaways

• You generally should not dismiss someone just because they have a mental health condition, but employment may be able to end for legitimate reasons like capacity (including inability to perform inherent requirements), performance, conduct, or safety - if handled lawfully.
• When people ask “can you be fired for mental health”, the legal risk usually comes down to whether the decision is based on the condition itself (high risk) versus genuine workplace issues (lower risk if properly managed).
• Employers should consider reasonable adjustments and document what was considered or trialled before moving toward termination.
• Process matters: clear communication, an opportunity to respond, warnings/support where appropriate, and good records significantly reduce the risk of unfair dismissal and other claims.
• Be mindful of Fair Work protections relating to a temporary absence due to illness or injury (including some mental health-related absences), and the different unfair dismissal rules that may apply to small business employers.
• Where safety or serious misconduct is involved, you may need interim steps (like standing down during an investigation), but these should be handled carefully and consistently.
• Having the right foundations in place - like an Employment Contract and clear Workplace Policies - makes it much easier to manage mental health-related issues fairly and protect your business.

If you’d like help navigating a mental health-related workplace issue or a termination process, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.