Managing Unfair Dismissal Cases in Australia

If you employ staff in Australia, managing performance and ending employment will come up sooner or later. Done well, terminations are low‑risk and professional. Done poorly, they can turn into unfair dismissal cases that cost time, money and team morale.

The good news is that most claims are preventable with the right process and documents. In this guide, we’ll walk through how unfair dismissal works under Australian law from an employer’s perspective, what triggers claims, and the practical steps you can take to reduce risk and respond confidently if a claim lands on your desk.

We’ll keep it simple and actionable so you can get on with running your business.

What Is An Unfair Dismissal Case (For Employers)?

In Australia, an unfair dismissal case is a claim by an employee that their dismissal was “harsh, unjust or unreasonable.” These claims are generally handled by the Fair Work Commission (FWC).

For small businesses, there are a few threshold questions to consider before a dismissal can be “unfair” under the Fair Work Act:

• Minimum employment period: Usually 6 months, or 12 months if you’re a small business employer (fewer than 15 employees).
• High‑income threshold: If an employee is not covered by an award or enterprise agreement and earns above the high‑income threshold, they may be ineligible to bring an unfair dismissal claim.
• Time limit: Employees have 21 days from the date of dismissal to lodge a claim with the FWC.

If a claim proceeds and the FWC finds the dismissal was unfair, the typical remedies are reinstatement or compensation (capped, often by reference to around 26 weeks’ pay). Costs orders are rare, but the process itself carries real business costs if you don’t have your paperwork and process in order.

When Can A Termination Become “Unfair” Under Australian Law?

The FWC considers a list of factors when deciding whether a dismissal was harsh, unjust or unreasonable. The checklist comes from section 387 of the Fair Work Act and includes:

• Whether there was a valid reason for dismissal (e.g. performance or conduct) that’s sound, defensible and well‑founded.
• Whether the employee was notified of the reason and given an opportunity to respond before the decision was made.
• If warnings were given for performance issues and whether a reasonable chance to improve was offered.
• Whether a support person was allowed at discussions, if requested.
• Whether the size of your business or absence of HR expertise affected the procedures followed.
• Any other relevant matters, such as consistent application of policies.

There are also common exclusions. For example, a dismissal will not be unfair if it is a genuine redundancy (the job is no longer required and you’ve consulted as required) or if you can rely on the Small Business Fair Dismissal Code and you followed it properly.

The key takeaway: the FWC looks at both the reason and the process. Even if you have a valid reason, a poor process can still tip the outcome against you.

How To Prevent Unfair Dismissal Claims: A Step‑By‑Step Process

Prevention starts long before termination. The following steps form a defensible pathway that aligns with the FWC’s expectations and puts you in a strong position if your decision is later challenged.

1) Start With Clear Contracts And Policies

Make sure every employee has a current, tailored Employment Contract and that your performance, conduct and grievance policies are accessible and consistently applied. Contracts and policies set the standards you’ll later measure against, so vagueness here makes enforcement harder.

2) Identify The Issue And Gather Facts

For performance concerns, define the gap between expectations and outcomes. For conduct issues, gather objective evidence (documents, CCTV where lawful, witness accounts). If the matter is serious misconduct, consider a precautionary suspension or garden leave while you investigate.

3) Run A Procedurally Fair Investigation

• Notify the employee of the allegations and potential outcomes in writing.
• Provide the material you’re relying on and reasonable time to prepare.
• Offer a meeting and allow a support person if requested.
• Consider the employee’s response in good faith before deciding.

Where you need to formally warn the employee, issue a clear written warning that sets expectations, timeframes for improvement and consequences if issues continue. A documented, staged performance management process is strong evidence of fairness.

4) Use A Compliant Show Cause Step

If termination is a live option, send a show cause letter explaining the reasons you’re considering dismissal and inviting the employee to respond. This is a crucial fairness step and often where claims are defused because the employee feels heard and you address misunderstandings early.

5) Make A Decision And Communicate It Properly

After considering the response, make a decision and issue a letter setting out the outcome, the reasons, the last day of employment, and any entitlements (notice, payment in lieu of notice, accrued leave). Keep your tone factual and respectful. If you’re a small business relying on the Small Business Fair Dismissal Code, ensure the letter reflects how you complied with the Code.

6) Document Everything

In any unfair dismissal case, the paper trail tells the story. Keep dated notes of meetings, copies of warnings, responses, investigation materials, and your decision rationale. If a claim is lodged, this evidence will often decide the outcome.

Common Mistakes To Avoid (That Often Trigger Claims)

• Skipping warnings and going straight to termination for performance issues (except for serious misconduct).
• Not giving the employee a real chance to respond before deciding.
• Inconsistent treatment of similar behaviour across the team.
• Poorly drafted or outdated policies and contracts you don’t actually follow.
• Rushed processes that ignore the minimum employment period, notice, or Code requirements.

What To Do If An Unfair Dismissal Claim Is Filed Against Your Business

Even with best practice, claims can happen. If you receive a claim, act promptly and systematically.

1) Diarise Deadlines And Acknowledge Receipt

There are short FWC timelines for responding. Missed deadlines reduce your options. Acknowledge the claim internally, identify the decision‑maker and who holds the records, and get your documents in order.

2) Assemble Your Evidence

Pull together the employment contract, position description, policies, warnings, investigation notes, meeting invites and minutes, emails, and the termination letter. Lay them out chronologically to check your narrative is complete and consistent.

3) Assess The Merits Early

Revisit the factors in section 387 and stress‑test your decision. Did you have a valid reason? Was the process fair? Are there any gaps you can clarify in your response? An early merits assessment helps you decide whether to defend, settle, or participate in conciliation with settlement parameters.

4) Participate Constructively In Conciliation

The FWC will usually convene a conciliation by phone. Go in prepared with a realistic settlement range (if appropriate) and a clear list of terms you’d need in any agreement (e.g., no admission of liability, confidentiality, mutual non‑disparagement, return of property, deeds signed). If you reach in‑principle agreement, confirm the key points the same day to avoid drift.

5) Use The Right Documents To Finalise Settlement

Settlements are typically documented in a deed that sets out the release and terms. Tailored Employee Termination Documents help you lock in finality, protect your business, and avoid later disputes over what was agreed.

6) If It Proceeds To A Hearing

If the matter doesn’t settle, the FWC may list it for conference or hearing. This is where your evidence and witnesses matter. At this stage, get legal support to refine your case theory, prepare affidavits or statements, and ensure you’re addressing the Commission’s criteria, not just telling a general story.

Key Documents And Policies That Reduce Your Risk

Strong paperwork doesn’t replace fairness, but it does make it far easier to show the FWC that you acted lawfully and reasonably. Consider putting these in place and keeping them current.

• Employment Contract: Sets role expectations, duties, policies that apply, notice periods, and lawful directions. A clear, tailored Employment Contract is your first line of defence.
• Performance Management Policy: Explains how underperformance is raised, supported and reviewed, including timeframes and warning steps.
• Code Of Conduct/Behaviour Policy: Defines acceptable behaviours and consequences, helping you show consistency if misconduct arises.
• Investigation Procedure: Sets out a fair process for gathering facts, providing particulars, allowing a response and documenting outcomes.
• Show Cause Letter Template: A legally sound starting point for giving notice of alleged issues and inviting a response, aligned with FWC expectations for a show cause letter.
• Termination Letter Templates: For resignation acceptance, dismissal, redundancy and payment in lieu of notice, tailored to your structure and awards.
• Settlement Deed: If a dispute resolves, a deed captures confidentiality, release and post‑employment obligations. This is often part of our Employee Termination Documents.
• Suspension/Garden Leave Clause: Allows you to lawfully remove a staff member from the workplace while investigating, consistent with good practice on garden leave.

If you’re unsure which documents you need or how they should interact with awards and your industry, it’s worth getting a quick review so everything lines up with your processes.

What About Probation, Probationary Dismissals And The Minimum Employment Period?

Probation is a contractual tool for setting expectations and providing structured check‑ins, but the unfair dismissal rules hinge on the minimum employment period (6 months, or 12 for small business). If you dismiss within that period, an unfair dismissal claim usually can’t be made, though other claims (like general protections) may still be available to the employee. It’s still best practice to follow a fair process - clear reasons, a chance to respond and proper documentation - because it reduces the risk of other disputes and promotes a respectful culture.

Performance Vs Misconduct: Why The Pathway Matters

With performance issues, warnings and an improvement plan are expected unless the situation is very serious. With misconduct, the focus is on a fair investigation and giving the employee an opportunity to respond to allegations before making your decision. Matching your process to the reason for dismissal is important to avoid a “harsh” finding in unfair dismissal cases.

Redundancies And Role Changes

If the job is no longer required due to operational change, a genuine redundancy can be a complete defence to unfair dismissal - but only if you’ve followed the consultation requirements under the relevant award or agreement and considered redeployment. If in doubt, sense‑check your plan before you announce changes to staff.

Key Takeaways

• Unfair dismissal cases focus on both the reason and the process - a valid reason paired with a fair, well‑documented process is your best defence.
• Know the thresholds: the minimum employment period, the 21‑day claim window, and any award/enterprise coverage or high‑income considerations.
• Prevention is practical: use clear contracts and policies, run an investigation, provide warnings for performance, and use a compliant show cause letter before deciding.
• If a claim is filed, move quickly: gather your evidence, assess the merits against section 387 of the Fair Work Act, and approach conciliation with a clear strategy.
• Strong documents make a real difference: an up‑to‑date Employment Contract, investigation procedures, and the right termination and settlement templates reduce risk and help resolve matters efficiently.
• Get support early on complex exits or redundancies - a short chat can prevent missteps that often lead to claims.

If you’d like a consultation about preventing or responding to unfair dismissal cases in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.