Navigating Unfair Dismissal: Key Insights Into Australian Employment Law

Ending employment is one of the toughest calls a business can make - and getting it wrong can be costly and stressful for everyone involved.

If you’re worried about unfair dismissal risk, or you’re trying to understand what “fair” looks like under Australian law, you’re in the right place.

In this guide, we’ll step through when a dismissal may be considered unfair, who’s eligible to claim, how the Fair Work Commission (FWC) assesses cases, and practical steps employers can take to manage termination lawfully and respectfully.

Our goal is to give you clear, actionable guidance so you can make confident decisions and reduce your risk, while treating your people fairly.

What Counts As Unfair Dismissal In Australia?

In Australia, an unfair dismissal occurs when an employee is dismissed in a way that is “harsh, unjust or unreasonable.” That’s the legal test used by the Fair Work Commission.

Importantly, unfair dismissal is different to unlawful termination (for example, dismissing someone for discriminatory reasons) or general protections claims (which relate to adverse action for exercising a workplace right). Those are separate legal pathways with different tests and remedies.

For unfair dismissal, the FWC looks at the overall circumstances. The central questions are:

• Was there a valid reason related to the employee’s conduct or capacity?
• Was the worker notified of that reason and given a real opportunity to respond?
• Was the process fair (including any investigation) and proportionate to the issue?

These considerations come from section 387 of the Fair Work Act. If you want a deeper dive into those factors, it’s worth reading this overview of section 387 and how the test is applied in practice.

Are You Eligible To Make An Unfair Dismissal Claim?

Not every worker can bring an unfair dismissal claim. Generally, an employee will need to meet these eligibility rules:

• Minimum employment period - at least 6 months of service, or 12 months if the employer is a small business (fewer than 15 employees).
• Coverage - covered by a modern award or enterprise agreement, or (if not covered) under the high income threshold.
• Type of engagement - typically, regular and systematic casuals with a reasonable expectation of ongoing work can qualify; contractors and true volunteers cannot.

If a role is genuinely redundant (more on that below), unfair dismissal won’t apply - though other obligations may still arise.

Timing matters too. Applications must usually be lodged with the FWC within 21 days of the dismissal taking effect.

Fair Reasons Vs Unfair Reasons: How The Law Assesses Dismissals

Whether a dismissal is fair doesn’t turn on labels - it turns on evidence and process. Here’s how decision-makers generally approach common scenarios.

Performance Or Capacity

Performance-based dismissals can be fair if you have a valid reason and have followed a fair process. That usually means clear performance expectations, documented feedback, reasonable support (like coaching or a performance improvement plan), and time to improve.

It also means communicating concerns clearly and giving the employee a meaningful chance to respond before any final decision is made.

Misconduct Or Serious Misconduct

Misconduct covers behaviour like refusal to follow lawful directions or repeated breaches of policy. Serious misconduct is more severe (e.g. theft, fraud, serious safety risks) and can justify immediate dismissal in some cases.

A fair process in misconduct cases typically includes an impartial investigation, giving the employee details of the allegations, and a chance to respond. In some situations, keeping the workplace safe and the process fair may involve standing down an employee pending investigation on appropriate terms.

Redundancy

If you no longer need anyone to do a particular job due to operational changes, you may be dealing with a redundancy rather than performance or conduct issues. A “genuine redundancy” requires you to satisfy specific criteria, including consultation obligations and an assessment of whether redeployment is reasonable.

If it is a genuine redundancy, the employee cannot bring an unfair dismissal claim. The test for a genuine redundancy is set out in section 389 of the Fair Work Act - this summary of section 389 outlines the key elements employers must satisfy.

Process Matters

Even where you have a valid reason, a poor process can tip the balance towards “harsh, unjust or unreasonable.” Common process problems include insufficient notice of the concerns, not providing relevant evidence, not allowing a support person, failing to consider the employee’s explanation, or pre-determining the outcome.

Using a clear, step-by-step process helps you stay compliant and balanced. Many employers use show cause letters to clearly explain the concerns and invite a formal response before deciding on next steps.

How Should Employers Manage A Lawful Termination?

Below is a practical roadmap you can adapt to your workplace. The exact steps will vary based on the issue and any applicable industrial instrument or policies.

1) Identify The Issue And Gather Facts

• Clarify whether the concern is performance, conduct, capacity, or a structural change.
• Collect relevant documents, witness accounts, and any objective metrics.
• Check the employee’s contract, workplace policies and any applicable award/enterprise agreement.

2) Communicate The Concerns And Hear The Response

• Notify the employee of the specific issues, the possible outcomes, and their right to a support person.
• Provide the evidence you are relying on where appropriate.
• Invite a written and/or verbal response, and genuinely consider what the employee says.

3) Decide On Proportionate Action

• For performance issues, consider a documented improvement plan and reasonable time to improve.
• For misconduct, consider the findings of any investigation and whether the allegations are substantiated.
• Make a decision that is proportionate to the issue, and document the reasons.

4) Provide Notice Or Payment In Lieu

If termination is the outcome, ensure you give the correct notice period (or pay the equivalent instead of notice) according to the National Employment Standards, the contract and any applicable industrial instrument. This guide to payment in lieu of notice explains how it works and when it’s appropriate.

In some cases, keeping the employee away from the workplace during the notice period may be appropriate - often called garden leave - as long as their contractual rights are observed.

5) Final Pay And Exit Documents

• Calculate and pay all final entitlements (e.g., outstanding wages, unused annual leave and any other applicable amounts).
• Collect property, revoke access, and confirm any ongoing obligations (like confidentiality and post-employment restraints).
• Issue well-drafted termination letters and keep records of the process and decision.

6) Learn And Improve

Review what worked and what didn’t. Strong foundations - such as a clear Employment Contract and consistent policies - make performance management and terminations more predictable and less risky.

Common Tricky Scenarios (And How To Reduce Risk)

Real workplaces throw up nuanced questions. Here are common scenarios and how to approach them carefully.

Probationary Periods

Probation allows you to assess suitability early, but it’s not a free pass to dismiss without process. You should still act fairly and in line with the contract and any applicable instrument. This overview of termination during probation outlines typical steps and practical considerations.

Misconduct Allegations And Suspension

When dealing with serious allegations (e.g., safety breaches or harassment), start with safety and fairness. Consider whether a temporary stand down is needed, conduct an impartial investigation, give the worker the details, and allow a response before deciding. The guidance on standing down pending investigation sets out the legal guardrails.

Performance Management Isn’t A Surprise

Performance concerns should be timely and specific - not saved up for the end. Use clear KPIs, regular check-ins and warnings where needed. A structured approach helps employees succeed and gives you evidence if dismissal is ultimately necessary.

Genuine Redundancy Vs Performance Issues

Don’t mix redundancy and performance. If the role is genuinely no longer required, follow consultation requirements and assess redeployment options. If the concern is about how someone performed in a role that still exists, follow a performance management pathway instead. The section 389 summary on what makes a genuine redundancy is a helpful checklist.

Small Business Considerations

Small businesses have specific rules (including a different minimum employment period). Processes can be proportionate to your size, but fairness still counts: be clear, document your steps, and keep an open mind when hearing the employee’s response.

Communication And Respect

Even when dismissal is justified, how you communicate matters. A respectful process reduces conflict, protects culture and reputation, and will often reduce the likelihood of claims.

What Remedies Can The Fair Work Commission Award?

If the FWC finds a dismissal was unfair, it can order:

• Reinstatement - putting the employee back in their job (or an equivalent job) where appropriate.
• Compensation - capped amounts apply (there are limits based on earnings and a statutory maximum).
• Other orders - such as continuity of service or lost pay adjustments.

The FWC focuses on fairness over punishment - so the remedy is chosen to address the impact of the unfair dismissal, not to penalise the employer.

Build Strong Foundations To Reduce Unfair Dismissal Risk

Preventing unfair dismissal claims starts well before any termination. Consider these practical building blocks.

Clear Contracts And Policies

• Employment Contracts that set expectations around duties, performance, notice, confidentiality and post-employment restraints.
• Fair and consistent workplace policies on performance, conduct, investigations, bullying and harassment, social media and use of company property.
• Induction and training that ensures staff actually understand the rules and how to raise concerns.

When contracts and policies are current and consistently applied, they guide managers and help ensure process steps aren’t missed. If you’re hiring or updating documents, ensure your Employment Contract aligns with your policies and any applicable industrial instrument.

Fair Performance And Conduct Processes

• Address issues early with specific feedback and documented goals.
• Use proportionate warnings and timelines for improvement where appropriate.
• For allegations of misconduct, keep investigations impartial and allow a genuine right of reply.
• Use structured communications, such as formal invitations to meetings and well-drafted notices (including show cause letters), before deciding on dismissal.

Plan For The Exit

• Calculate notice and any payment in lieu accurately, and prepare termination letters that summarise the reasons and entitlements.
• Consider whether placing the employee on garden leave during notice is suitable and permissible under the contract.
• For restructuring, confirm whether it is a genuine redundancy and manage consultation properly.

Document Everything

Contemporaneous notes, emails confirming discussions, copies of warnings, investigation records, and signed acknowledgements of policy training can be vital. Documentation helps show what you did and why - which is exactly what the FWC looks for.

Practical FAQs

Is A Performance Improvement Plan (PIP) Required?

There’s no one-size-fits-all rule mandating PIPs, but providing clear expectations, support and reasonable timeframes to improve is a core ingredient of a fair process for capability issues. In many cases, a documented plan is the simplest way to demonstrate that fairness.

Can We Terminate During Probation Without Risk?

Probation reduces some risks and may affect eligibility for unfair dismissal, but it doesn’t remove your obligation to act fairly or comply with the contract and any applicable instrument. Follow the guidance in the probation termination overview to stay on safe ground.

Do We Have To Let Employees Bring A Support Person?

The FWC considers whether an employee had an opportunity for a support person at significant meetings. While you don’t have to organise one, unreasonably refusing a request can weigh against you in an unfair dismissal case.

Is Redundancy A Safe Option If Performance Is Poor?

No. Redundancy is about the role no longer being required, not performance. If the work still needs to be done, redundancy is unlikely to be genuine. Keep these pathways separate and refer back to section 389 when assessing a genuine redundancy.

Key Takeaways

• Unfair dismissal hinges on whether a termination was harsh, unjust or unreasonable - a fair reason and a fair process are both essential.
• Eligibility rules apply (service periods, coverage and timing), and genuine redundancies fall outside unfair dismissal if legal criteria are met.
• For performance or conduct issues, notify the employee of the concerns, share relevant information, allow a real response and consider proportionate outcomes.
• Get the mechanics right at termination: correct notice or payment in lieu, accurate final pay, and clear documentation of reasons.
• Strong foundations - clear Employment Contracts, fair policies, and consistent processes - are the best protection against unfair dismissal risk.
• Complex situations like investigations or restructuring need extra care. Use tools such as show cause letters, and confirm whether a genuine redundancy applies before proceeding.

If you’d like a consultation on navigating unfair dismissal and setting up the right employment processes, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.