How Employers Should Handle Fair Work Unfair Dismissal Cases

Terminating employment is one of the toughest decisions you’ll make as a small business owner. If it’s not handled properly, you can quickly find yourself responding to a Fair Work unfair dismissal claim - even when you felt the decision was justified.

The good news? With a sound process and clear documents, you can manage risk, treat people fairly, and put your business on strong legal footing.

In this guide, we break down what counts as unfair dismissal, common mistakes, the steps to follow before terminating, and how to deal with a claim if one lands on your desk. We’ll keep it practical and focused on what small businesses need in Australia.

What Counts As Unfair Dismissal Under Fair Work?

Under the Fair Work Act 2009 (Cth), a dismissal can be “unfair” if it’s harsh, unjust or unreasonable. For employers, the two big pillars are:

• Having a valid reason related to the employee’s capacity or conduct (including performance or misconduct), and
• Following a fair process before making the decision.

The Fair Work Commission (FWC) looks at a list of factors when deciding if a dismissal was fair. These are set out in section 387 of the Fair Work Act and include whether the employee was notified of the reason, given a chance to respond, allowed a support person, and whether warnings were given for performance concerns.

It’s not enough to have a good reason if the process was flawed - and vice versa. You need both.

Who Can File - And When?

Not every employee can bring an unfair dismissal claim. As a quick overview:

• Minimum employment period: For a small business (fewer than 15 employees), the employee must have at least 12 months’ service. For larger employers, it’s 6 months.
• Earnings cap: If the employee is not covered by an award or enterprise agreement, their earnings must be under the high-income threshold (indexed annually).
• Time limit: Employees generally have 21 days from the date of dismissal to file a claim (extensions are rare).
• Small Business Fair Dismissal Code: If you’re a small business, following the Code can be a strong defence - but you must be able to show you actually complied with it.

If you’re unsure whether a team member is eligible, check their award coverage and earnings, and confirm your headcount for the 12-month threshold. Keep records - they’ll matter if a claim is lodged.

Common Employer Mistakes That Lead To Unfair Dismissal Findings

Most adverse decisions against employers come back to process. Here are frequent pitfalls we see:

• No clear reason: Terminating “for attitude” or “not the right fit” without linking it to performance or conduct - and evidence - is risky.
• No warnings or performance plan: For performance issues, a single un-documented conversation rarely cuts it. You typically need warnings that explain the issue and the consequences if it doesn’t improve.
• No opportunity to respond: You must tell the employee the specific concerns and give a genuine chance to respond before deciding.
• Denying a support person: You don’t have to provide one, but you shouldn’t unreasonably refuse a request to bring one to a meeting.
• Predetermined decision: If your notes look like the decision was made before hearing the employee, the process can be seen as unfair.
• Inconsistent treatment: Treating similar incidents differently can undermine your “valid reason”.
• Poor records: No written warnings, no meeting notes, no evidence of underperformance - you’ll struggle to defend the decision.

A fair process doesn’t need to be complicated, but it does need to be deliberate and documented.

A Practical Process For Managing Performance Or Misconduct

When issues arise, a structured process protects your business and gives employees a fair chance. Here’s a practical approach you can adapt to your workplace.

1) Identify The Concern And Gather Evidence

Be specific. Is it performance (missed KPIs, quality issues), conduct (behaviour, policy breaches), or capacity (illness, loss of licence)? Collect examples, dates, and documents. For misconduct, secure witness statements and relevant records (emails, system logs).

2) Invite The Employee To A Meeting (With Notice)

Provide a letter or email setting out the concern in plain terms, attaching (or referencing) key documents. Tell them the meeting purpose, that they can bring a support person, and that no final decision has been made yet.

3) Hold The Meeting And Allow A Genuine Response

Explain the issues, hear their side, ask clarifying questions, and take notes. If new issues arise, consider adjourning to investigate further.

4) For Performance: Use Warnings And A Performance Improvement Plan

Where appropriate, issue a written warning that sets out the problem, the expected standard, support you’ll provide, and a clear timeframe for improvement. Multiple warnings may be needed, depending on severity and history.

5) For Serious Misconduct: Consider A Show Cause Step

Before termination, many employers issue a Show Cause Letter outlining the allegations and the possible outcome (including dismissal), and inviting a written response. This reinforces procedural fairness and creates a record of your reasoning.

6) If Risks Are Live: Stand Down Or Suspend During Investigation

Where there are safety, operational or integrity risks, you may consider standing down an employee pending investigation or, in some cases, suspending an employee pending investigation. Check the contract and policies first, and keep the suspension on pay unless there’s a clear legal basis to do otherwise.

7) Decide And Communicate The Outcome

After considering the full picture, decide on the outcome: no action, warning, final warning, or termination. Communicate in writing, with reasons. If terminating, include the effective date, notice arrangements, and how final pay will be handled.

8) Keep A Complete Paper Trail

Save letters, meeting notes, evidence, and decision rationale. If challenged, these documents will be central to your defence. Having a clear performance management process and consistent templates makes this much easier.

Termination Options And Payments: Notice, PILON, Summary Dismissal, Redundancy

Once you reach a termination decision, the “how” matters. Get these fundamentals right:

• Notice vs Payment in Lieu (PILON): You can ask the employee to work out their notice period, or you can make a payment instead. If you choose PILON, ensure the amount is correct and documented - see Payment In Lieu Of Notice for a useful overview.
• Calculating notice: Contractual notice may exceed the minimum under the National Employment Standards (NES). Confirm the correct period by checking the contract, any applicable award, and the NES - our guide to notice periods explains how employers can approach this.
• Summary dismissal: For “serious misconduct” (e.g., theft, fraud, violence), you can usually dismiss without notice - but the bar is high. Always conduct a fair investigation and allow a response first.
• Redundancy: If the role is no longer required due to operational changes, that’s redundancy - not performance or conduct. There are consultation and payment obligations (unless a genuine small business exemption applies). Understanding redundancy vs termination will help you choose the correct pathway.

Finally, calculate and pay all entitlements in full and on time: outstanding wages, accrued leave, and any redundancy (where applicable). This is separate from unfair dismissal risk but is often scrutinised in disputes.

How To Respond If An Unfair Dismissal Claim Is Filed

Don’t panic. Most matters resolve at the early conciliation stage when you’re prepared and pragmatic. Here’s a roadmap.

Step 1: Read The Application And Deadline Carefully

Note the applicant’s claims, proposed remedy, and the deadline for your response. Diarise the conciliation date, if set.

Step 2: Assemble Your Evidence

Collect the employment contract, position description, warnings, meeting notes, emails, policies, and investigation records. Organise them chronologically with a short timeline. This will inform your response and settlement strategy.

Step 3: File Your Employer Response

Answer the allegations clearly. Focus on the valid reason and fair process. Attach key documents or reference them. Avoid emotional language - keep it factual and professional.

Step 4: Prepare For Conciliation

Most matters settle at conciliation with an agreed amount, a separation letter, and a mutual release. If settlement is on the table, document it properly - typically through a Deed of Release to finalise claims and protect confidentiality.

Step 5: If It Proceeds, Get Ready For A Hearing

If no agreement is reached, the case may go to a conference or hearing. At this point, it’s worth re-assessing the merits, costs, and commercial impact. Good records and consistent reasoning are your best defence.

Prevention: Contracts, Policies And Training That Reduce Risk

The best way to avoid unfair dismissal cases is to set expectations early and follow your own rules. A few building blocks go a long way:

• Employment Contract: Clear duties, performance standards, notice provisions, and policy compliance clauses put everyone on the same page from day one.
• Workplace policies: Practical policies on performance, conduct, disciplinary process, bullying/harassment and investigations help you act consistently and fairly.
• Manager training: Teach leaders how to document issues, conduct fair meetings, give feedback, and keep records. Consistency across the business is key.
• Regular reviews: Short, documented check-ins help you spot issues early and demonstrate procedural fairness if concerns escalate.
• Fit-for-purpose templates: Letters for warnings, show cause, suspension, and termination make the process easier to follow and reduce errors.
• Risk checks before termination: Pause and confirm the valid reason, the steps you’ve taken, and whether there’s any discrimination, adverse action, or whistleblower risk lurking.

A little structure upfront saves time, reduces stress, and protects your brand and team culture.

Realistic Scenarios: How Fair Work Unfair Dismissal Cases Play Out

Here are a few common scenarios and how process makes the difference.

Repeated Performance Issues, No Warnings

Even if performance has declined, dismissing without prior warnings (and an opportunity to improve) is often found to be unfair. A short warning process with clear expectations and support can tip the balance your way.

Serious Misconduct Allegation, No Investigation

If you dismiss on the spot without an investigation or chance to respond, the Commission may find the dismissal harsh even if misconduct later seems likely. Use a show cause step, consider paid suspension, and document your reasoning.

Genuine Redundancy, Poor Consultation

If the role truly isn’t needed, but you skip award or policy consultation, the dismissal may still be deemed unfair. Consult properly, consider redeployment, and ensure payments are correct.

Key Takeaways

• Unfair dismissal turns on two pillars: a valid reason and a fair process. You need both to defend a claim.
• Follow a structured pathway - notice of concerns, meeting, genuine response, warnings or show cause, and a reasoned decision - and keep solid records throughout.
• Choose the correct termination pathway: performance/conduct with notice or PILON, summary dismissal for proven serious misconduct, or redundancy (with consultation) if the role is no longer required.
• If a claim is filed, act quickly: organise your evidence, file a clear response, and consider commercial settlement documented by a Deed of Release.
• Prevention is best: a strong Employment Contract, clear workplace policies, trained managers and fit-for-purpose templates greatly reduce unfair dismissal risk.
• Small businesses have extra tools (like the Small Business Fair Dismissal Code), but you still need to show that you applied a fair and reasonable process.

If you’d like a consultation on managing unfair dismissal risks in your business - from process design to document templates and responding to claims - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.