How The Fair Work Commission Handles Unfair Dismissal Claims

As a small business owner, ending someone’s employment is never easy. But even when you’ve acted in good faith, a former employee may still lodge an unfair dismissal application with the Fair Work Commission (FWC).

Knowing how unfair dismissal works - and what the FWC expects from employers - will help you make confident decisions, manage risk and focus on running your business.

In this guide, we’ll explain what the FWC looks for, the step-by-step process if a claim is made, practical documents to prepare, and smart ways to reduce the chance of a dispute in the first place.

What Is Unfair Dismissal Under The Fair Work Act?

In Australia, a dismissal is “unfair” if it was harsh, unjust or unreasonable under the Fair Work Act 2009 (Cth). When the FWC assesses this, it uses a set list of factors in section 387 - things like whether you had a valid reason related to conduct or capacity, whether the employee was notified of that reason, and whether they had a real chance to respond.

If you want the detail, it’s worth reviewing how the FWC applies section 387 of the Fair Work Act so you can align your internal process with what the Commission expects.

Importantly, not every termination can be classed as unfair dismissal. For example, if the dismissal was a “genuine redundancy” (the job is no longer required, and you consulted as required), the claim may not succeed. The FWC assesses this under section 389 (genuine redundancy).

Who Is Eligible To Claim?

Generally, an employee can apply if they are covered by a modern award, an enterprise agreement, or if their earnings are below the high-income threshold (adjusted annually). They also need to satisfy the minimum employment period (usually 6 months, or 12 months if you’re a small business with fewer than 15 employees).

Remember, casual employees can sometimes be eligible if they have been employed on a regular and systematic basis and had a reasonable expectation of ongoing work.

Small Business Fair Dismissal Code

If you’re a small business (fewer than 15 employees), the Small Business Fair Dismissal Code can apply. If you follow the Code, it’s a strong shield against unfair dismissal claims - but you need to demonstrate compliance with the Code’s steps, including warning the employee (where appropriate) and keeping records.

How The Fair Work Commission Process Works (Step-By-Step)

Understanding the FWC’s pathway helps you prepare early and respond quickly. Here’s the typical flow after an employee files an application.

1) The Application (Strict Time Limit)

The employee has 21 days from the date of dismissal to lodge an application. The FWC will then send you a copy and require a response (the “employer response” form) within a set timeframe. Mark the deadline immediately and assemble your documents early.

2) Your Response And Evidence

In your response, you’ll set out why the dismissal was fair (or, in some cases, why the FWC doesn’t have jurisdiction - for example, the employee was not eligible). Attach key documents such as:

• Employment Contract and position description
• Warnings, performance reviews, and any show cause letters
• Investigation records, witness statements and meeting notes
• Policies (e.g. misconduct, performance management, bullying)
• Correspondence about the dismissal, notice and final payments

3) Conciliation Conference

Most unfair dismissal matters start with a phone conciliation. A conciliator helps the parties explore an outcome without a formal hearing. Many cases settle here. Be ready to discuss practical options (for example, a deed of release, a statement of service, or an ex-gratia payment) without admitting fault.

If you reach agreement, it’s common to document the terms via a settlement deed. A short, well-drafted Deed of Release and Settlement brings finality and reduces further risk.

4) Directions And Hearing

If the case doesn’t settle, the FWC will set directions for witness statements and evidence, and then list the matter for a hearing or determinative conference. The Commission will apply the section 387 factors to decide whether the dismissal was harsh, unjust or unreasonable and, if so, what remedy is appropriate.

How To Respond: A Practical Employer Checklist

Whether you’re considering a dismissal or responding to a claim, adopt a structured approach. It’s not about “ticking boxes” - it’s about making fair decisions and showing the FWC you acted reasonably.

Before You Dismiss

• Identify the reason: Is it conduct, capacity, performance, or a genuine redundancy?
• Give clear notice of the issues: Explain concerns to the employee and provide evidence.
• Offer a real chance to respond: Invite the employee to a meeting, allow a support person, and genuinely consider their explanation.
• Follow your policies: Apply your performance and misconduct processes consistently.
• Consider alternatives: Could training, a warning, redeployment or adjustments resolve the issue?
• Keep records: File notes, emails, warnings and outcomes. Good records are critical if a dispute arises.

If You’re Managing Performance Or Misconduct

• Use improvement plans and clear targets for performance issues.
• For serious misconduct, suspend on pay while you investigate, or consider standing down pending investigation if your circumstances allow.
• Where appropriate, issue written warnings (with conduct expectations and consequences).
• If risks are significant (e.g. confidentiality or client relationships), consider garden leave during the notice period.

When You Move To Terminate

• Confirm the decision maker and ensure a fair final meeting with the employee.
• Provide written notice of termination and set out the reason(s) in plain language.
• Pay the correct notice or, if appropriate, make payment in lieu of notice and any accrued entitlements.
• Issue a statement of service if requested, and clarify post-employment obligations (e.g. confidentiality, restraint).

Key Documents To Have Ready

• Employment Contracts and up-to-date position descriptions
• Workplace policies (performance, misconduct, bullying, grievance)
• Performance management templates and termination document templates
• Investigation procedure and report templates

If you need help building a practical, compliant pack that suits your business, we can help you set this up so your managers have the right tools from day one.

Common Employer Risk Areas (And How To Avoid Them)

Most unfair dismissal disputes don’t turn on one dramatic event. They stem from small missteps that snowball - and that’s good news for employers, because these risks are fixable with better process and documentation.

1) No Valid Reason Or Vague Allegations

The FWC looks for a valid reason related to conduct or capacity. Be specific. “Poor attitude” is vague; “three instances of refusing lawful and reasonable directions on ” is clearer. Attach evidence and witness notes where you can.

2) No Real Opportunity To Respond

It’s essential to notify the employee of the concern and the evidence, then give them a chance to respond before you decide. A meeting invite with a summary of issues, the right to a support person, and a fair discussion goes a long way.

3) Inconsistent Or Unfair Process

Apply policies consistently across staff. If you’ve warned others for the same conduct but dismissed this employee immediately, explain why. Consistency is a fairness signal to the FWC.

4) Confusing Redundancy With Performance Issues

If the role is genuinely no longer required, redundancy may be appropriate - but don’t use redundancy to manage performance. The FWC will test if it was a genuine redundancy (consultation, no suitable redeployment), not a disguised disciplinary action.

5) Probation Isn’t A Free Pass

Probationary periods are helpful, but they’re not a shield against every claim. You still need a fair process and to pay correct entitlements. If you’re considering exiting someone early in their tenure, read up on termination during probation.

What Outcomes Can The FWC Order?

If the FWC finds the dismissal was unfair, it will consider the appropriate remedy. The main outcomes are:

• Reinstatement: Returning the employee to their job or similar position, sometimes with continuity of service.
• Compensation: If reinstatement isn’t appropriate, the Commission can order compensation capped at the lesser of 26 weeks’ pay or half the high-income threshold (with adjustments based on factors like length of service and efforts to mitigate loss).

Costs are not typically awarded, but in limited circumstances (e.g. if a claim or response had no reasonable prospects) the FWC can consider costs orders.

Most matters resolve well before this stage. During conciliation, parties often agree on a clean break using a settlement deed that covers confidentiality, non-disparagement, mutual releases, and a statement of service. Getting these terms right is important - they should dovetail with any restraints and confidentiality obligations already in the contract.

Proactive Ways To Reduce Unfair Dismissal Risk

The best unfair dismissal strategy is prevention. A few practical steps can dramatically reduce disputes and strengthen your position if a claim arises.

1) Start With Strong Foundations

• Use clear, up-to-date Employment Contracts with role duties, notice, confidentiality and post-employment clauses.
• Roll out practical workplace policies covering conduct, performance improvement and grievances - and train managers on using them.
• Ensure managers understand procedural fairness: giving notice of issues, allowing a response, and documenting decisions.

2) Handle Investigations Properly

When allegations arise, take them seriously and follow a fair process. Depending on the situation, consider paid suspension or a compliant stand down pending investigation. Keep your investigation proportionate, timely and well-documented.

3) Use The Right Exit Tools

Exits can be orderly when approached with care. Options might include agreed notice, payment in lieu, or placing the employee on garden leave. Where appropriate, a mutual separation or settlement can be finalised under a tailored deed to close off claims and protect your business.

4) Be Careful With Redundancy

If you’re restructuring, plan and consult. Map out roles, assess redeployment options, and document your process so it demonstrates a genuine redundancy. This step alone prevents many unfair dismissal disputes.

5) Keep Good Records

Documentation wins cases. Keep copies of warnings, meeting notes, performance targets, investigation materials and decision letters. If a claim is filed, you’ll be able to respond quickly and credibly.

FWC Case Preparation: What To Expect And How To Prepare

Conciliation and hearings are more straightforward when you’ve prepared early. Here’s a simple prep plan.

Documents Bundle

• Chronology: One-page timeline of key events
• Contract and policies: The version applicable at the time
• Evidence: Warnings, performance plans, emails, investigation notes, and witness statements
• Termination letter and proof of payments (notice, leave, any severance)

Your Key Messages

• Valid reason: Capacity, conduct or genuine redundancy
• Procedural fairness: Notice of concerns, opportunity to respond, support person offered
• Consistency: Similar matters handled consistently across the business
• Proportionality: Why dismissal was a reasonable outcome on the facts

Settlement Parameters

Before conciliation, decide your settlement guardrails. Consider non-financial items (statement of service wording, return of property, non-disparagement) as well as any financial component. If you do resolve, capture the terms in a clear deed - we can help prepare documentation that aligns with your employment contracts and policies.

Key Takeaways

• Unfair dismissal turns on whether a dismissal was harsh, unjust or unreasonable; align your process with the section 387 factors.
• Plan and document: clear reasons, a fair opportunity to respond, and consistent application of your policies are essential.
• If restructuring, make sure it stacks up as a genuine redundancy with proper consultation and redeployment consideration.
• Most cases settle at FWC conciliation - be ready with practical options and a robust settlement deed to finalise terms.
• Proactive steps - strong Employment Contracts, clear policies, fair investigations and good records - will significantly reduce your risk.
• Have a repeatable playbook: use templates like an Employee Termination Documents Suite so managers can act consistently and compliantly.

If you’d like a consultation about unfair dismissal risks and the Fair Work Commission process for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.