Small Business Fair Dismissal Code: Employer Guide (Australia)

If you’re running a small business, you’ve probably felt the tension between “I need to act quickly” and “I don’t want this to turn into a legal nightmare.”

Ending someone’s employment is one of the most stressful parts of employing staff - and for good reason. In Australia, an employee may be able to bring an unfair dismissal claim if the termination isn’t handled properly.

That’s where the Small Business Fair Dismissal Code can make a big difference. If you’re a small business employer, the Code can provide a clear framework to follow and may give you a defence to an unfair dismissal claim if it applies and you’ve complied with it.

In this practical guide, we’ll walk you through what the Code is, when it applies, how to use it step-by-step, and what paperwork you should keep so you can make confident decisions (without getting buried in process).

What Is The Small Business Fair Dismissal Code (And Why Does It Matter)?

The Small Business Fair Dismissal Code (often referred to as the small business fair dismissal code) is a set of rules that outlines how a “small business employer” can dismiss an employee in a way that is more likely to be considered fair for unfair dismissal purposes.

In plain terms, the Code is designed to recognise the reality of small business operations: you often don’t have a full HR team, you need practical steps, and you still need to comply with workplace laws.

What The Code Does (And Doesn’t) Do

• It does: give you a practical roadmap for dismissals (especially where performance or conduct is an issue), including when you may be able to dismiss immediately for serious misconduct.
• It does not: give you a “free pass” to dismiss for any reason. You still need a valid reason and a fair process.
• It does not: override other obligations (like discrimination laws, general protections, workplace safety duties, or modern award requirements).

Importantly, the Code is most relevant as a defence to an unfair dismissal claim. Following it can significantly reduce risk, but it’s not a guarantee that a termination will be dispute-free (for example, claims can still arise under general protections or discrimination laws).

Does The Code Apply To Your Business And Your Employee?

Before you rely on the Code, you need to confirm it applies to you and to the employee you’re terminating.

Are You A “Small Business Employer”?

Generally, a small business employer is an employer with fewer than 15 employees.

This headcount is not always as simple as counting your full-time employees. Depending on the circumstances, it can involve:

• full-time and part-time staff
• regular and systematic casuals
• employees of associated entities (in some cases)

If you’re near the threshold, it’s worth getting advice before you assume the Code applies, because the “small business” status can be contested in a claim.

Is The Employee Eligible To Make An Unfair Dismissal Claim?

The Code is most relevant where there is a risk of an unfair dismissal claim. That risk depends on eligibility factors like:

• the employee’s minimum employment period
• their earnings and coverage (for example, award or enterprise agreement coverage)
• whether they were actually “dismissed” (as opposed to resigning)

For small business employers, the minimum employment period is generally 12 months (rather than 6 months for larger employers). This is one reason why termination decisions during the early stages of employment should still be handled carefully - including if you’re considering a dismissal during probation (see termination during probation).

Also note: the Code is about unfair dismissal risk. It generally won’t be the framework you rely on for a genuine redundancy (which is assessed under separate rules and criteria). If you’re ending employment because the role is no longer required, you’ll usually need to consider the genuine redundancy requirements instead.

How To Use The Small Business Fair Dismissal Code In Practice

The Code tends to operate in two broad dismissal categories:

• summary dismissal (immediate termination, typically for serious misconduct), and
• dismissal with notice (more common where performance, capacity or repeated conduct issues are involved).

In both categories, your documentation and your “fairness steps” matter.

1) Be Clear On The Reason For Dismissal

Before you do anything, identify what the real reason is. Common reasons include:

• ongoing poor performance
• repeated lateness or failure to follow reasonable directions
• misconduct (such as bullying, breaches of policy, or unsafe behaviour)
• serious misconduct (which may justify summary dismissal)

Avoid vague reasons like “not a good fit” if the underlying issue is performance, conduct, or workplace behaviour. You want a reason you can explain clearly and support with evidence.

2) Use Warnings And A Chance To Improve (Where Appropriate)

For most non-summary dismissals, the Code expects that the employee will be:

• warned that their job is at risk if they don’t improve, and
• given a reasonable opportunity to improve.

In real life, this could mean one clear formal warning, or it might mean multiple warnings depending on the issue and the role. The key is that the message must be unambiguous: this is serious and your employment may end if it continues.

If you’re unsure what is “enough” warning in your situation, it’s worth reading up on how many warnings before dismissal and then tailoring a process that fits your workforce and the employee’s role.

3) Consider A Support Person

A practical fairness step (and a good risk management move) is to allow the employee to bring a support person to key meetings - especially where termination is being discussed.

The Code doesn’t mean you must run a formal courtroom-style process. But giving the employee a chance to respond, and allowing a support person, can help show you acted reasonably.

4) Keep Notes And Confirm Key Points In Writing

Small businesses often get caught out because they did the right things, but didn’t write them down.

A good rule: if it’s important enough to rely on later, it’s important enough to document.

At minimum, keep:

• dated file notes of meetings
• copies of warnings (or emails confirming the warning)
• performance plans or training records (if relevant)
• any employee responses

Where formal written steps are needed, tools like show cause letters can be useful to structure the process and clarify what the employee needs to respond to.

When Can You Dismiss Immediately Under The Code?

One of the most searched questions about the small business fair dismissal code is whether it allows you to dismiss someone on the spot.

Sometimes, yes - but only in limited situations.

Summary Dismissal And “Serious Misconduct”

The Code allows for summary dismissal if you reasonably believe the employee engaged in serious misconduct.

Examples often include theft, fraud, violence, or serious safety breaches. In practice, “serious misconduct” issues can also include:

• serious breaches of workplace health and safety rules
• harassment or serious bullying
• intoxication at work where it creates risk
• serious breaches of confidentiality or trust

The key phrase is reasonably believe. You don’t have to prove it “beyond doubt,” but you should be able to show you had a sound basis for the belief.

Do You Need An Investigation First?

Often, yes - at least enough investigation to form a reasonable view of what happened.

For example, you may need to interview witnesses, review CCTV (if used lawfully), examine system logs, or obtain written statements.

If the matter is serious and still being assessed, you might consider whether there is any lawful basis to stand the employee down while you investigate. Stand down powers are limited and can depend on the Fair Work Act, any applicable modern award or enterprise agreement, and the circumstances - so this needs to be handled carefully. See standing down an employee pending investigation.

Even where summary dismissal is on the table, it’s still wise to give the employee a chance to respond to the allegations (unless there’s a compelling reason not to). This can be the difference between an “understandable decision” and a “process failure.”

Notice, Final Pay And Practical Exit Steps

Even if you follow the small business fair dismissal code carefully, you still need to handle the “exit admin” properly. This is where disputes often flare up, because employees focus heavily on pay and entitlements when leaving.

Notice Of Termination

For dismissals that are not summary dismissals, you generally need to provide notice (or pay in lieu of notice), depending on:

• the Fair Work Act rules
• the employee’s contract
• any applicable modern award or enterprise agreement

If you’re paying notice out instead of having the employee work it, make sure you structure it correctly (including checking any extra obligations). This is often called payment in lieu of notice.

Final Pay Checklist

While the exact amounts depend on the employee’s entitlements and instrument coverage, final pay commonly includes:

• hours worked up to the last day
• unused annual leave
• any applicable leave loading (if required)
• outstanding allowances, commissions, or reimbursable expenses (where applicable)

If you have any uncertainty, it’s better to clarify it before paying - underpayments can create separate legal issues, even if the dismissal process itself was fair.

Return Of Property And Access

Don’t forget operational steps that protect your business, such as:

• collecting keys, devices, and uniforms
• ending system access (email, CRM, accounting platforms)
• confirming ongoing confidentiality obligations

These points are much easier to manage if you’ve got a clear Employment Contract in place from the start, setting expectations around conduct, confidentiality, and exit processes.

Key Takeaways

• The Small Business Fair Dismissal Code is a practical framework that can help small business employers manage dismissals more confidently and can operate as a defence to an unfair dismissal claim where it applies and is followed.
• Before relying on the Code, confirm you are a small business employer and understand whether the employee is eligible to bring an unfair dismissal claim (including the 12-month minimum employment period for small business employers).
• For performance and most conduct issues, the Code expects clear warnings and a real opportunity for the employee to improve - and you should document these steps.
• Summary dismissal may be possible for serious misconduct, but you still need a reasonable basis for your belief and (in many cases) at least a basic investigation and an opportunity for the employee to respond.
• Even with a fair process, you must handle notice, final pay, and exit steps properly to prevent follow-on disputes. The Code also isn’t the main framework for genuine redundancy situations, which have their own legal test.

If you’d like help applying the Small Business Fair Dismissal Code to your situation or preparing your termination documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.