Small Business Code For Unfair Dismissal: Employer’s Guide

Running a small business in Australia is rewarding, but people management can be one of the trickiest parts. If you ever need to let someone go, it’s natural to worry about unfair dismissal claims and whether there’s a special process you’re expected to follow.

There is. The Small Business Fair Dismissal Code sets out a clear, practical pathway for small business employers when ending employment. Used properly, it can help you make lawful, fair decisions and reduce the risk of disputes.

In this guide, we’ll explain what the Small Business Fair Dismissal Code is, who it applies to, how to use it step by step, and the documents and records you should have in place. We’ll keep it plain English and focused on what you need to do in practice.

What Is The Small Business Fair Dismissal Code?

The Small Business Fair Dismissal Code (the Code) is a set of rules under the Fair Work framework that guides small business employers on how to dismiss an employee fairly. If you comply with the Code, the Fair Work Commission will generally presume the dismissal was fair in an unfair dismissal case.

The Code covers two broad scenarios:

• Summary dismissal for serious misconduct, and
• Dismissal with notice for performance or conduct concerns (or other valid reasons).

It doesn’t change your other obligations under workplace laws. Instead, it gives small employers a simpler, structured way to meet them, so you can resolve issues confidently and respectfully.

Who Counts As A Small Business Employer?

Under the Fair Work Act, a small business employer is one with fewer than 15 employees at the time of dismissal.

The headcount uses a simple method, but there are a few important details to get right:

• Count all employees across your associated entities (not just one ABN or site).
• Include casuals only if they are employed on a regular and systematic basis.
• Do not count independent contractors.

Whether the business owner is counted depends on if they are also employed as an employee. The safest approach is to focus on the actual employees on your payroll and to include associated entities in your headcount.

Getting the headcount right matters. It affects whether you’re a small business employer for unfair dismissal, and it also affects other obligations (for example, the small business exemption from redundancy pay under the National Employment Standards, which generally applies if you have fewer than 15 employees on this same headcount basis).

When Does The Code Apply (And When Doesn’t It)?

The Code is relevant whenever a small business employer dismisses an employee who is eligible to bring an unfair dismissal claim. Two key thresholds determine eligibility:

• Minimum employment period: for small business employers, employees need at least 12 months’ continuous service before they can access unfair dismissal.
• Coverage: some employees aren’t covered (for example, high-income earners above the unfair dismissal high income threshold who are not covered by an award or enterprise agreement).

If an employee has not completed the minimum employment period, they generally cannot pursue unfair dismissal. In that case, the Code is less relevant to an unfair dismissal claim-but it’s still wise to follow fair process because other risks (like general protections or discrimination claims) can still arise.

If the employee has completed the minimum employment period and is eligible, the Commission will look closely at whether the dismissal was consistent with the Code. Using the Code properly-and documenting your steps-significantly strengthens your position if there’s a dispute.

How To Comply With The Code: Step‑By‑Step

Here’s a practical, small-business-friendly process for using the Code correctly. Think of it as your roadmap to fair and compliant decision-making.

1) Identify The Real Reason

• Is this about serious misconduct (e.g. theft, fraud, violence, serious safety breach)?
• Is it about performance or conduct that needs warning and an opportunity to improve?
• Is it a structural change-potentially a genuine redundancy?

Be honest and specific. Your reason needs to be valid and supported by evidence.

2) Collect Your Evidence

• Keep clear notes of incidents, concerns and conversations.
• Save emails, witness accounts, and any relevant documents.
• If performance is the issue, maintain dated records of targets, coaching, and progress.

If you need a structured process to manage underperformance, a tailored performance management process can help you stay consistent and fair.

3) Follow A Fair Meeting Process

• Invite the employee to a meeting and outline what you want to discuss.
• The Code doesn’t require you to offer a support person-but you must not unreasonably refuse one if the employee requests it.
• Explain the issue, share your evidence, and give the employee a chance to respond.

Take notes of what was discussed and any outcomes or next steps.

4) Give A Clear Warning (If Not Serious Misconduct)

• For performance or conduct concerns (not serious misconduct), give a clear written warning.
• Spell out what must improve, how improvement will be measured, and the timeframe.
• State that continued issues may lead to dismissal.

Where appropriate, provide reasonable support or training. Keep copies of warnings and any improvement plans you set.

5) Decide And Communicate

• Consider the employee’s response and any mitigating factors.
• If you decide to dismiss, ensure the reason is valid and the process aligns with the Code.
• Confirm the decision in writing, including notice (or payment in lieu of notice if you choose that option) and any final pay entitlements.

A well-drafted termination documents suite makes it much easier to communicate clearly and consistently.

6) Keep Your Records

• File your notes, warnings, meeting invitations and outcomes, and any evidence.
• If you use the government’s Small Business Fair Dismissal Code checklist, complete it at the time and keep it with your records.
• Store a copy of the dismissal letter and final pay calculation.

If a claim is made, your documentation is your best defence.

Special Cases: Serious Misconduct, Performance And Redundancy

Summary Dismissal For Serious Misconduct

You can dismiss immediately (without notice) for serious misconduct if you reasonably believe the conduct is serious enough to justify immediate dismissal. Examples include theft, fraud, assault, intoxication at work, or serious breaches of health and safety.

Act promptly but fairly. Consider any response the employee gives, and document your reasons and evidence. If you need to remove the employee from the workplace while you investigate, you may consider a short suspension on pay (check any applicable award or agreement) or stand down only in very limited circumstances permitted by law.

Dismissal For Performance Or Conduct (Non‑Serious)

For underperformance or ongoing conduct issues, the Code expects that you:

• Warn the employee clearly (preferably in writing).
• Give them a reasonable opportunity to improve.
• Not unreasonably refuse a support person if the employee asks for one.

Using a proper performance management process and well-drafted Employment Contract makes this much easier to manage and evidence.

Genuine Redundancy

Sometimes the role-not the person-no longer fits your business. A dismissal will be a genuine redundancy if:

• the job is no longer required to be done by anyone (because of changes in your operational requirements),
• you have met any consultation obligations in an applicable award or enterprise agreement, and
• redeployment within your business (or associated entities) was not reasonable in the circumstances.

For unfair dismissal, a genuine redundancy means the Commission will usually not find the dismissal unfair. Separately, small business employers are generally exempt from redundancy pay if they have fewer than 15 employees (on the same associated‑entity headcount basis), but you still need to follow a fair process. If redundancy is on the table, it’s wise to seek redundancy advice early.

Final Pay And Notice

When employment ends, you must provide the correct notice (or pay in lieu) and pay all outstanding entitlements on time. That typically includes wages, accrued annual leave, and any other applicable amounts. If you’re unsure how to calculate these, see our guide to calculating final pay.

Show Cause Letters And Procedural Fairness

Before moving to dismissal for performance or conduct (that is not serious misconduct), it’s good practice to write to the employee setting out your concerns and inviting a response. A well‑structured show cause letter supports procedural fairness and helps you make an informed decision.

Documents, Policies And Records To Have In Place

Good paperwork won’t run your business, but it will protect it. At a minimum, consider whether these documents are in place and up to date.

• Employment Contract: Sets clear duties, performance expectations, notice, and disciplinary processes. A tailored Employment Contract reduces misunderstandings and supports fair action if issues arise.
• Performance Management Framework: A consistent, documented approach to warnings and improvement plans helps you follow the Code. Our performance management process can be adapted to your workplace.
• Termination Templates: Letters for warnings, outcomes, notice or payment in lieu, and dismissal decisions keep communication clear. See our termination documents suite.
• Policies: Clear policies on conduct, safety, leave, bullying and harassment promote consistency and set expectations from day one.
• Record Keeping: Keep all evidence, warnings, checklists, meeting notes and decision documents. This is often what decides the outcome of a dispute.
• Final Pay Checklist: Ensure you’ve applied the right notice or payment in lieu and settled entitlements correctly to avoid separate underpayment issues.

If a concern escalates, having these materials ready will save time and reduce risk.

Key Takeaways

• The Small Business Fair Dismissal Code gives small employers a simpler, fair process for ending employment; if you follow it, a dismissal is generally presumed fair.
• Confirm you’re a small business employer by counting employees across associated entities and including only regular and systematic casuals in your headcount.
• For serious misconduct, you can dismiss immediately if you reasonably believe the conduct justifies it; otherwise, warn clearly, give a chance to improve, and don’t unreasonably refuse a support person.
• Genuine redundancy requires that the job is no longer required, consultation has occurred, and redeployment isn’t reasonable; small businesses are generally exempt from redundancy pay, but process still matters.
• Use clear documents-an Employment Contract, a consistent performance process, and robust termination templates-and keep thorough records.
• Finalise notice (or payment in lieu) and entitlements correctly, and use a reliable method for calculating final pay.

If you’d like a consultation on handling unfair dismissal issues under the Small Business Fair Dismissal Code, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.