Lawful Reasons to Dismiss an Employee in Australia

Letting someone go is one of the hardest things you’ll do as a small business owner. You want to protect your team, your culture and your customers - but you also need to act when performance slips, misconduct occurs, or the role is no longer needed.

The key is doing it lawfully and fairly. Australian employment law sets out what counts as a valid reason to dismiss, and how you need to handle the process. Getting this right reduces the risk of an unfair dismissal claim and ensures your business remains compliant.

In this guide, we’ll walk through lawful reasons to fire someone, what to avoid, and the practical steps to follow so you can make confident, compliant decisions.

What Are Lawful Reasons To Fire Someone?

Under Australian law, a dismissal generally needs a valid reason related to the employee’s conduct or capacity, or your genuine business needs. For unfair dismissal purposes, the Fair Work Commission will look at whether the dismissal was harsh, unjust or unreasonable - including whether there was a sound, defensible and well‑founded reason and a fair process. You can read a plain-English overview at Section 387 of the Fair Work Act.

Common lawful reasons include:

• Poor performance (capacity): The employee isn’t meeting reasonable, clearly communicated performance standards, despite support and a fair opportunity to improve.
• Misconduct: Breaches of policy or reasonable directions - such as repeated lateness, inappropriate behaviour, or failure to follow safety procedures.
• Serious misconduct: Behaviour that makes continued employment untenable (for example, theft, fraud, violence, serious WHS breaches). This can justify summary dismissal (i.e. without notice) if properly investigated.
• Capacity/ill health: The employee can no longer perform the inherent requirements of the role, even with reasonable adjustments (after a careful, evidence‑based process).
• Role no longer required (redundancy): Genuine operational change where the role is eliminated and there’s no reasonable redeployment. Note that redundancy is not “firing someone for performance” - it has specific rules and entitlements.

If you’re a small business (fewer than 15 employees), the Small Business Fair Dismissal Code offers a framework for fair and lawful dismissals. It does not give you a free pass - but it sets out steps that, if followed and documented, strongly support your decision.

What Reasons Are Unlawful Or Risky?

Some reasons are unlawful regardless of process. Avoid any dismissal that is actually because the employee:

• Is temporarily absent due to illness or injury (within legal limits)
• Engages in a workplace right (for example, making a complaint, taking leave, joining a union)
• Is protected by discrimination laws (e.g. pregnancy, sex, race, age, disability, religion)
• Exerts a right under an award or enterprise agreement (for example, asking to be paid correctly)

These “general protections” issues can lead to significant penalties. Likewise, dismissing someone without warning or process for minor conduct issues, or masking a performance dismissal as “redundancy”, can expose you to unfair dismissal or adverse action claims.

To minimise risk, be clear on the true reason, keep records, and separate performance or conduct issues from any protected attributes or rights.

A Fair Process: Steps Before You Dismiss

Even with a valid reason, a fair process matters. A procedurally sound approach can be the difference between a compliant, defensible decision and an expensive dispute.

1) Clarify Expectations And Gather Evidence

Make sure the employee knows the standards (KPIs, policies, safety rules) and where they’ve fallen short. Collect objective examples - dates, times, outputs, emails, witness accounts. Documentation is critical.

2) Communicate Concerns And Offer A Chance To Respond

Invite the employee to a meeting, outline the concerns, and allow them to bring a support person. Provide detail and give them a genuine opportunity to explain or correct the record. If appropriate, follow with a written warning and a reasonable improvement plan.

3) Support Performance Improvement (Where Appropriate)

Set clear targets, timeframes and support (coaching, training, resources). Monitor progress and document check‑ins. If performance still doesn’t improve, a final warning may be appropriate before termination.

4) Investigate Misconduct Properly

For alleged misconduct, conduct a timely, fair investigation. Put the allegations in writing, share relevant evidence, and invite a written and/or verbal response. In serious cases, consider standing the employee down pending investigation if your contract or applicable instrument allows it.

5) Make A Decision And Communicate It Clearly

After considering the employee’s responses and the evidence, decide on the outcome - no action, warning, alternative role, or termination. Document your decision-making and communicate the outcome in writing, including the effective date and final pay details.

For performance or misconduct matters, many employers use a structured letter to outline concerns, invite a response and flag potential consequences. A show cause letter can help you frame this step clearly and fairly.

Note: During probation, the process can be more streamlined, but you should still act fairly and pay correct entitlements. See our guide to termination during probation for practical steps.

Managing Different Scenarios: Performance, Misconduct And Capacity

Performance And Conduct (Not Serious)

When issues are not serious enough for summary dismissal, focus on support and procedural fairness. Use clear warnings, improvement plans and reasonable timeframes. If improvement doesn’t occur despite a fair chance, a dismissal will usually be reasonable and defensible.

Serious Misconduct And Summary Dismissal

Serious misconduct includes theft, fraud, assault, intoxication at work, serious breach of safety, or refusing lawful and reasonable instructions. In these situations, summary dismissal may be justified - but only after a fair and prompt investigation and an opportunity for the employee to respond to the allegations. Do not rush this step; a flawed process can undermine an otherwise valid reason.

Capacity And Medical Grounds

If an employee is ill or injured and cannot perform the inherent requirements of their role, you must carefully assess capacity with appropriate medical evidence, consider reasonable adjustments, and comply with discrimination laws. Only when the evidence indicates they cannot perform the role (even with adjustments), can termination be considered. Our guide on termination on medical grounds explains the key steps and risks.

Redundancy (A Different Path)

Redundancy is about the role - not the person. It’s a genuine operational change where the job is no longer required. You must consult under any applicable award or enterprise agreement, explore redeployment, and pay redundancy entitlements if eligible. Avoid using redundancy to address performance issues; that is likely to be challenged.

What Should You Pay And Document At Termination?

At the end of employment, compliance is about getting the money and paperwork right. This is where many disputes start, so double‑check everything.

Notice Or Payment In Lieu

Most employees are entitled to notice based on their length of service (unless dismissed for serious misconduct). You can require the employee to work out the notice, place them on garden leave, or make a payment in lieu of notice - as long as the contract or applicable instrument permits it. If an award or contract sets a longer notice period, comply with that.

Final Pay And Accrued Entitlements

Final pay typically includes outstanding wages, accrued but untaken annual leave, and any applicable leave loading. For award-covered employees, check requirements for paying out entitlements and any penalties for late payment. Use this step-by-step guide to calculating final pay to avoid mistakes.

Redundancy Pay

For a genuine redundancy, eligible employees may be entitled to redundancy pay under the National Employment Standards, unless an exception applies (for example, a small business exemption or acceptable redeployment).

Tax, Super And Records

Process superannuation as usual and provide the separation certificate or employment verification if requested. Keep investigation notes, warnings, meeting records, and the termination letter on file - clear records are your best defence if a claim arises.

Using Garden Leave And Post-Employment Protections

Where appropriate, you can place employees on garden leave during the notice period to protect customers, staff and confidential information. Make sure the employment contract actually allows this and that any post‑employment restraints are reasonable and enforceable.

Key Takeaways

• Lawful reasons to fire someone usually relate to capacity (performance or medical), conduct (including serious misconduct), or genuine redundancy.
• Unlawful reasons - like dismissing because of a protected attribute, a complaint, or a workplace right - can trigger serious penalties, regardless of your process.
• Process matters: give clear warnings for performance issues, investigate misconduct fairly, invite a response, and document every step.
• In serious cases, consider standing down pending investigation and use a structured show cause letter to ensure procedural fairness.
• During probation you still need to act fairly and pay the correct entitlements - see termination during probation for your options.
• At termination, check notice or payment in lieu, annual leave and any redundancy entitlements, and follow a clear process for final pay.
• The Fair Work Commission assesses reason and process together - Section 387 is a helpful checklist to keep your approach fair and defensible.
• Capacity cases need extra care. When health affects work, follow the evidence-based steps in termination on medical grounds before deciding.

If you’d like a consultation on managing dismissals lawfully in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.