Unfair Dismissal Act: Australian Employer’s Compliance Guide

Ending someone’s employment is never easy. As an Australian employer, getting dismissals right isn’t just about avoiding legal risk - it’s also about treating people fairly and protecting your reputation as a responsible business.

If you’re wondering what counts as unfair dismissal, how the law actually works (spoiler: there isn’t a law called the “Unfair Dismissal Act”), and the practical steps you should follow to stay compliant, this guide is for you.

We’ll break down what “harsh, unjust or unreasonable” means in practice, who can make a claim, the process and remedies, and the playbook you can use to reduce risk from day one.

What Is Unfair Dismissal (And Is There An “Unfair Dismissal Act”)?

There’s no legislation called the “Unfair Dismissal Act.” In Australia, unfair dismissal rules sit in the Fair Work Act 2009 (Cth) and are administered by the Fair Work Commission (FWC).

Broadly, a dismissal can be unfair if it’s harsh, unjust or unreasonable. In practice, the Commission looks at whether there was a valid reason related to an employee’s capacity or conduct, whether you followed a fair process, and whether the dismissal wasn’t a case of genuine redundancy.

Unfair dismissal is distinct from a lawful redundancy or a dismissal for serious misconduct where a fair process has been followed. Getting that process right is critical to your legal position.

Who Is Eligible To Claim Unfair Dismissal?

Not every worker can bring an unfair dismissal application. Key eligibility criteria generally include:

• Minimum employment period: At least 6 months’ service, or 12 months for a small business (fewer than 15 employees).
• Coverage and income threshold: The employee must be covered by a modern award or enterprise agreement, or earn less than the high-income threshold. If they earn above that threshold and are not award/EA-covered, they usually can’t apply.
• National system employer: Most private sector employers and their employees are covered by the national workplace relations system.
• Casual employees: Casuals need to have been employed on a regular and systematic basis with a reasonable expectation of continuing employment.
• Dismissal by the employer: The employment must have been ended by the employer. A resignation can still count if the employee was effectively forced to resign due to the employer’s conduct (constructive dismissal).

Small businesses also have a specific framework - the Small Business Fair Dismissal Code - which, if followed, gives additional protection against unfair dismissal claims. Even within the Code, you still need to act reasonably and keep solid records.

What Makes A Dismissal “Harsh, Unjust Or Unreasonable”?

The Commission weighs a set of statutory factors when deciding if a dismissal meets this test. In simple terms, ask yourself two questions: did you have a solid reason, and did you follow a fair process?

• Valid reason: There should be a sound, defensible reason related to the employee’s capacity (ability to do the job) or conduct (behaviour), supported by evidence.
• Notification and response: You should clearly tell the employee the reasons and give a genuine opportunity to respond.
• Support person: If requested, reasonable allowance for a support person to be present in meetings.
• Performance warnings: For underperformance (not misconduct), prior warnings and a chance to improve are important indicators of fairness.
• Size and HR support: The size of your business and the availability of dedicated HR support are taken into account when assessing process.
• Other relevant matters: The Commission can consider anything it thinks relevant to fairness in the circumstances.
• Not a genuine redundancy: If the job genuinely no longer exists, you’ve met consultation obligations and redeployment isn’t reasonable, the matter is typically outside unfair dismissal jurisdiction.

For a deeper dive into how these factors are applied, it’s worth reading how section 387 of the Fair Work Act frames the fairness test, and what qualifies as a genuine redundancy under section 389.

The Unfair Dismissal Process In Australia

If an eligible employee believes they were unfairly dismissed, they can lodge an application with the FWC. Here’s the typical path:

1. Strict time limit: The application must be lodged within 21 days of the dismissal taking effect. Extensions are rare.
2. Employer response: You’ll be notified and asked to file a response with your position and supporting evidence.
3. Conciliation: Most matters go to a phone conciliation where a neutral conciliator helps the parties explore settlement. Many cases resolve here.
4. Conference/hearing: If the case doesn’t settle, it may proceed to a determinative conference or hearing where the Commission decides the outcome.

Remedies: Reinstatement is the primary remedy. If reinstatement isn’t appropriate, the Commission can award compensation - capped at the lesser of 26 weeks’ pay or half the high-income threshold. Compensation is designed to account for lost pay and is reduced for failure to mitigate loss. It does not cover distress or punitive damages.

Because timelines are tight and the process is evidence-driven, getting tailored advice early can help you respond appropriately. If you need support, our employment lawyer team can guide you through the steps or represent you at conciliation.

Practical Steps To Reduce Unfair Dismissal Risk

The best protection is prevention. Build fair, consistent practices long before any employment issue arises.

1) Set Up The Right Documents

• Employment Contract: Make sure every employee has a clear, up-to-date Employment Contract covering duties, expectations, probation, performance standards, notice, and grounds for summary dismissal.
• Workplace Policies/Staff Handbook: A well-structured Staff Handbook sets out conduct, performance management, disciplinary procedures, complaint handling, bullying/harassment and social media rules.
• Performance Management Process: Map out a practical process for reviews, warnings and improvement plans. Where issues escalate, our performance management process framework can help apply a fair, step-by-step approach.
• Termination Templates: Prepare show cause templates, outcome letters and checklists so you’re not drafting under pressure. A good show cause letter is often the difference between a robust process and a vulnerable one.

2) Use A Fair, Transparent Process

• Set out the concerns in writing: Share the specifics and evidence with the employee and invite a written and/or meeting response.
• Offer a support person: If they ask, allow a support person to attend key meetings.
• Consider their response: Genuinely weigh what the employee says and any mitigating factors before deciding on the outcome.
• Keep detailed records: Notes, timelines, emails, witness statements and meeting minutes can make or break your defence later.
• Communicate the outcome: Confirm the decision in writing, including reasons, the effective date, notice arrangements, and any right of reply.

3) Manage Misconduct And Investigations Carefully

• Don’t jump to conclusions: For alleged misconduct, conduct a fair and prompt investigation. Preserve and review evidence, interview relevant witnesses, and allow a response from the employee.
• Consider suspension or stand down: In appropriate cases, you may temporarily remove the employee from duties while you investigate. For guidance on process and risks, see standing down an employee pending investigation.
• Serious misconduct: If you reasonably believe serious misconduct occurred (e.g. theft, violence), immediate termination may be justified - but you still need a procedurally fair and well-documented process.

4) Handle Performance Issues Step-By-Step

• Be specific: Explain the performance gaps against clear role expectations.
• Set measurable targets and support: Provide timeframes, training or coaching, and a plan to improve.
• Warn before dismissal: For performance issues (as distinct from misconduct), a reasonable opportunity to improve - with documented warnings - is critical to fairness.

5) Get Redundancies Right

• Genuine business reasons: The position must genuinely no longer be required due to changes in operational requirements.
• Consultation and redeployment: Where a modern award or EA applies, consult properly and explore reasonable redeployment options.
• Document the process: Keep a clear paper trail of your business case, consultation steps and redeployment efforts to demonstrate a genuine redundancy.

If you’re considering structural changes, review the test for genuine redundancy and get tailored redundancy advice. For timing and entitlements, check your notice period obligations and when payment in lieu of notice is appropriate.

Related Claims To Watch For

Unfair dismissal is common, but it’s not the only risk when employment ends. Be aware of:

• General protections claims: Allegations that an employee was dismissed because of a workplace right, industrial activity, or a protected attribute (e.g. making a complaint about safety). These claims follow a different process and reverse the onus of proof.
• Discrimination claims: Federal or state-based discrimination regimes can apply based on protected attributes such as disability, sex, age or race.
• Breach of contract: Claims that you didn’t follow contractual terms (e.g. notice or bonus entitlements) and common law obligations.

Each pathway has different tests, time limits and remedies, so getting advice early helps you respond appropriately and avoid missteps.

Key Takeaways

• There is no “Unfair Dismissal Act” - the rules live in the Fair Work Act and are applied by the Fair Work Commission.
• Eligibility depends on service period, coverage or the high-income threshold, and (for casuals) regular and systematic employment with a reasonable expectation of ongoing work.
• A fair dismissal needs a valid reason and a fair process; for redundancies, ensure they are genuine and consultation and redeployment have been addressed.
• FWC remedies prioritise reinstatement; compensation is capped at the lesser of 26 weeks’ pay or half the high-income threshold.
• Reduce risk with clear documents (Employment Contract and Staff Handbook), a consistent performance management process, careful investigations, and detailed records.
• Watch out for other pathways like general protections and discrimination - they involve different legal tests and risks.

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