How To Manage A Disgruntled Employee In Australia: Practical Steps

Even in a strong team culture, most small businesses will eventually face a challenging moment with a disgruntled employee.

Sometimes it looks obvious - negativity, conflict, refusal to follow directions, poor performance, or “quiet quitting”. Other times it’s subtle: the employee is still doing the work, but their attitude is impacting morale, customer experience, and your confidence as an employer.

When you’re running a small business, it can feel personal. You might also worry about “saying the wrong thing”, triggering an unfair dismissal claim, or escalating the situation instead of fixing it.

The good news is that there are practical, lawful steps you can take to manage disgruntled employees in a way that protects your people and your business. Below, we’ll walk through a clear approach you can use in Australia - from early intervention through to formal processes, and how to prevent the same problem from repeating.

What Is A Disgruntled Employee (And Why It’s A Business Risk)?

A disgruntled employee is generally an employee who is unhappy, resentful, or disengaged at work - and that dissatisfaction is starting to show up in behaviour, performance, or workplace relationships.

In a small business, the impact can be outsized because one person can quickly affect:

• Productivity (missed deadlines, lower output, errors, slowdowns)
• Team culture (conflict, gossip, “us vs them” thinking)
• Customer relationships (poor service, reputation damage, negative reviews)
• Confidential information (higher risk of leaks, misuse, or taking information to a competitor)
• Legal exposure (bullying complaints, general protections claims, unfair dismissal risk if termination isn’t handled correctly)

It’s also important to remember that “disgruntled” doesn’t automatically mean “bad employee”. Sometimes the employee has a genuine workplace issue (unclear expectations, poor onboarding, workload, interpersonal conflict, change fatigue) and they just haven’t raised it well - or you haven’t had the chance to address it yet.

Your job is to respond early, fairly, and consistently - and to keep good records so you can show you acted reasonably.

Step 1: Identify The Root Cause Before You Act

If you jump straight to discipline, you risk missing the real problem - and escalating emotions. A smarter first move is to work out what’s driving the behaviour.

Common Causes Of Disgruntled Employees

• Role confusion: they don’t understand what “good performance” looks like, or expectations have changed.
• Perceived unfairness: rosters, workloads, pay issues, promotion decisions, or inconsistent treatment.
• Poor relationship with a manager: communication style, feedback delivery, lack of support.
• Burnout and stress: long hours, understaffing, unrealistic deadlines.
• Conflict with colleagues: personality clashes, team tension, alleged bullying.
• Personal circumstances: health, caring responsibilities, financial stress (you won’t always know, but you can still respond respectfully).

Quick Employer Checklist: What Have You Actually Observed?

Before you meet with the employee, write down:

• What behaviour or performance issues you’ve observed (facts, not opinions)
• When it occurred (dates, approximate times)
• What impact it had (customer complaint, missed deadline, team disruption)
• Whether you’ve already raised it informally (and what was said)

This helps you stay calm and specific in the conversation, rather than getting pulled into broad statements like “your attitude has been bad lately”.

Step 2: Have An Early, Structured Conversation (Before It Becomes Formal)

In many cases, you can turn things around with one well-run conversation. The key is to keep it structured, respectful, and focused on outcomes.

How To Run The Conversation

• Choose the right setting: private space, no interruptions, enough time.
• Start with what you’ve noticed: stick to observable facts (not character judgments).
• Explain the impact: how it affects customers, the team, safety, or workflow.
• Ask open questions: “What’s been going on from your perspective?”
• Listen, then summarise: confirm you’ve understood their concerns.
• Reset expectations: be clear about what needs to change, and by when.
• Offer reasonable support: training, check-ins, adjusting priorities, mediation, clarification of duties.
• Confirm next steps in writing: a short email summary is often enough at this stage.

What To Avoid Saying

When managing a disgruntled employee, it’s easy to say something reactive that later becomes problematic. Try to avoid:

• Threats (“If you don’t like it, leave.”)
• Assumptions about personal issues (“Are you depressed?”)
• Loose promises (“Don’t worry, nothing will happen.”)
• Emotional labels (“You’re toxic.”)

Instead, keep it practical: expectations, behaviour, performance standards, and a pathway forward.

Use Your Employment Documents As Your Anchor

This is where your paperwork matters. A well-drafted Employment Contract and clear role expectations make these conversations much easier, because you can point back to duties, standards, and company processes without it feeling personal.

If you don’t have consistent rules across the workplace, the employee may argue they’re being singled out. Having a clear Workplace Policy framework (conduct, performance, complaints, social media, confidentiality, etc.) helps you apply the same standard to everyone.

Step 3: Move To A Fair Performance Management Process (And Document It)

If the behaviour or performance doesn’t improve after the initial conversation, your next step is typically a more formal performance management process.

Small business owners often worry that “formal” means aggressive. It doesn’t. It means you’re being clear, consistent, and giving the employee a fair opportunity to improve - while keeping proper records.

When Should You Start Performance Management?

Consider moving to a more structured process if:

• There’s an ongoing drop in performance or repeated mistakes
• The employee is regularly negative or disruptive, despite feedback
• There are attendance, punctuality, or reliability issues
• The employee refuses reasonable directions (without a legitimate reason)
• You’re receiving internal complaints about behaviour

What A Practical Performance Process Often Includes

• Meeting 1 (formal feedback): detail the issues and required improvement.
• Written summary: send an email or letter confirming what was discussed.
• Improvement plan: measurable goals, timeframe (for example, 2-6 weeks), and check-in dates.
• Support measures: training, supervision, clarifying duties, adjusting workload where reasonable.
• Check-in meetings: document progress and further concerns.
• Final warning (if needed): if improvement isn’t happening.

Many employers ask: “How many warnings before dismissal?” There isn’t a one-size-fits-all number. What matters is procedural fairness - that you made the concerns clear, gave a genuine opportunity to improve, and acted reasonably in the circumstances.

Where warnings are appropriate, make sure they’re done properly. A formal warning should be clear on what the issue is, what improvement is required, the timeframe, and what may happen if things don’t improve. If you’re unsure how to structure this, formal warnings are one of those areas where a bit of guidance upfront can save you real risk later.

Why Documentation Matters (Even If The Employee Seems “Obviously” In The Wrong)

When you’re dealing with disgruntled employees, emotions run high and memories become unreliable. Written records help you show:

• what you raised
• when you raised it
• what support you offered
• what the employee said in response
• what outcomes you agreed on

This can be crucial if the employee later alleges unfair treatment, bullying, adverse action, or unfair dismissal.

Step 4: Handle Misconduct Or Serious Conflict Carefully (Including Investigations)

Not every disgruntled employee situation is “just performance”. Sometimes it escalates into misconduct, such as aggression, insubordination, harassment, bullying, or dishonesty.

When that happens, your focus should be:

• safety (including psychological safety for other staff)
• procedural fairness (so your decisions are defensible)
• consistency (treat similar conduct similarly)

When You May Need An Investigation

You may need to investigate if there are allegations of:

• bullying, harassment, discrimination
• threats, aggression, or violence
• theft, fraud, or serious policy breaches
• serious safety breaches

Investigations don’t need to be overly complex, but they do need to be fair. That usually means:

• gathering relevant information (documents, CCTV where lawful, witness accounts)
• giving the employee a chance to respond to allegations
• keeping confidentiality tight (to protect all parties and the integrity of the process)
• making findings based on evidence, not assumptions

Can You Stand The Employee Down While You Investigate?

In some situations, you may consider standing the employee down to manage risk (for example, where there’s a safety concern or risk to the business while facts are established). This needs to be handled carefully - including whether the stand down is permitted under the Fair Work Act, an applicable award or enterprise agreement, or the employment contract.

It’s also important to be clear on pay: in many cases, a stand down pending investigation is paid unless you have a lawful basis to stand the employee down without pay. If you’re at this point, it’s worth checking your options around standing down an employee pending investigation, because an improvised approach can create unnecessary legal exposure.

Use A “Show Cause” Step Before Termination In Higher-Risk Matters

Where termination is on the table (especially for misconduct or repeated behavioural issues), you may consider using a “show cause” process - essentially giving the employee a final opportunity to explain why their employment should not be terminated.

This step isn’t mandatory in every situation, but it can demonstrate fairness, flush out relevant information you may not have considered, and reduce the risk of claims. If this is relevant to your scenario, show cause letters should be tailored to the situation and carefully worded.

What If The Employee Is Still In Probation?

Probation can give you more flexibility, but it doesn’t mean “no rules apply”. You still need to act lawfully and avoid discriminatory reasons or adverse action.

If you’re considering ending employment early, it’s important to understand your obligations around termination during probation, including notice requirements and how to communicate the decision.

Step 5: Reduce The Chances Of Having Disgruntled Employees In The First Place

You can’t prevent every situation, but you can absolutely reduce the likelihood of disgruntled employees taking hold - and you can make it easier to manage if they do.

1) Set Expectations Early (And Put Them In Writing)

Most dissatisfaction grows in the gap between what the employee thought the job would be and what it actually is.

Make sure you have:

• clear job descriptions
• structured onboarding and training
• probation review checkpoints
• written standards around conduct and performance

Having a consistent Employment Contract (and using it across your team) helps you avoid “but you never told me” disputes later.

2) Build A Simple Feedback Rhythm

You don’t need corporate-style performance reviews. In a small business, even a monthly 15-minute check-in can help you spot issues early.

In practice, disgruntled employees often appear when feedback only happens after something goes wrong. Regular check-ins make feedback normal - not a crisis event.

3) Apply Policies Consistently

Inconsistency is one of the fastest ways to create resentment. If one person is regularly late with no consequences, and another gets pulled up for it, you’ll quickly see disengagement spread.

A practical set of Workplace Policy documents helps you set a consistent baseline. The policy isn’t about micromanaging - it’s about making sure everyone understands the rules of the workplace.

4) Train Your Managers (Even If “Manager” Is You)

Most employee disputes aren’t caused by the legal rules - they’re caused by how conversations are handled.

If you’re leading the team, it’s worth building basic habits around:

• giving clear directions
• addressing issues early (not after you’ve hit breaking point)
• staying calm and factual
• documenting key discussions

It’s also important to watch for “reverse” risks - for example, a disgruntled employee making allegations against a manager. Having fair complaint pathways (and using them) protects everyone.

5) Don’t Ignore The Digital And Confidentiality Risks

When someone is unhappy, the risk of data misuse or reputational harm rises - even if the employee would never see themselves as doing something “wrong”.

Practical steps include:

• limiting access to confidential files to what the employee needs for their role
• having a clear confidentiality clause in employment documentation
• clear rules on social media and communications (especially where the employee represents your business)
• revoking access promptly if the employee resigns or is terminated

This is about good governance - not distrust. Most employees are doing the right thing, but your systems should protect the business if a relationship breaks down.

Key Takeaways

• A disgruntled employee can be a serious business risk in a small team, impacting productivity, morale, customers, and legal exposure.
• Start by identifying the root cause and documenting what you’ve observed, so your response stays factual and consistent.
• An early, structured conversation can resolve many issues before they become formal - but you should still confirm key outcomes in writing.
• If problems continue, move to a fair performance management process with clear expectations, support, and properly documented warnings.
• For misconduct or high-conflict matters, consider an investigation process and get the “process” right before making termination decisions.
• Strong foundations (clear contracts, consistent policies, and regular feedback) reduce the likelihood of disgruntled employees and make issues easier to manage if they arise.

Need help? If you’d like help managing a disgruntled employee or putting the right employment documents and processes in place, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Important: This article is general information only and does not constitute legal advice. For advice tailored to your business and circumstances, speak with a qualified lawyer.