Unfair Dismissal: Small Business Fair Dismissal Code Compliance

Letting someone go is one of the hardest parts of running a small business. You want to do the right thing by your team while protecting your business from claims and disputes.

In Australia, the unfair dismissal rules are different for small business employers. If you have fewer than 15 employees, the Small Business Fair Dismissal Code gives you a clear framework to follow. When you comply with the Code, you greatly reduce the risk of an unfair dismissal finding.

In this guide, we’ll explain what unfair dismissal means for small businesses, who is covered, how the Small Business Fair Dismissal Code works in practice, and the steps you can take to make a lawful, fair and defensible decision.

What Is Unfair Dismissal For Small Business Employers?

Unfair dismissal is when an employee is dismissed in a way that is harsh, unjust or unreasonable under the Fair Work Act 2009 (Cth). For small business employers (fewer than 15 employees at the time of dismissal), the Small Business Fair Dismissal Code applies. If you follow the Code, the dismissal will usually be considered fair.

In deciding whether a dismissal was harsh, unjust or unreasonable, the Fair Work Commission looks at factors set out in section 387 of the Fair Work Act - including whether there was a valid reason, whether you notified the employee and gave them a chance to respond, and whether a support person was allowed to be present.

The key for small business employers is to line up your process with the Code and keep good records of the steps you take.

Who Is Covered And When Can Claims Be Made?

Not every employee can make an unfair dismissal claim. Before you start a dismissal process, check whether the employee is eligible.

• Small Business Definition: You’re a small business employer if you have fewer than 15 employees (headcount), including casuals employed on a regular and systematic basis.
• Minimum Employment Period: For small business employers, the employee must have completed at least 12 months of service before they can bring an unfair dismissal claim.
• Coverage Limits: High-income employees who aren’t covered by an award or enterprise agreement may be excluded if they earn above the high-income threshold (indexed annually).
• Time Limit: Employees generally have 21 days from the date of dismissal to lodge a claim with the Fair Work Commission.

Keep in mind that an unfair dismissal claim is different to other types of claims (for example, general protections/adverse action). Even if someone isn’t eligible for unfair dismissal, you still need to avoid unlawful reasons for dismissal (such as discrimination, exercising workplace rights or temporary absence due to illness/injury).

How The Small Business Fair Dismissal Code Works

The Small Business Fair Dismissal Code is a practical, step-by-step guide for small employers. If you follow it and can show evidence you did so, the dismissal is more likely to be found fair.

Summary Dismissal For Serious Misconduct

You can dismiss immediately for serious misconduct (for example, theft, fraud, assault, or serious safety breaches) if you reasonably believe, on the information available at the time, that the conduct was serious enough to justify immediate dismissal.

Best practice is to conduct a quick but fair investigation, let the employee respond to the allegations, and document what you considered before deciding. If relevant, consider whether the matter should be reported to police.

Dismissal With Notice (Performance or Conduct Issues)

Where the issue is performance or less serious conduct, the Code expects a procedurally fair process before dismissal with notice or payment in lieu. This generally includes:

• A valid reason linked to performance or conduct.
• A clear warning that the employee’s job is at risk if things don’t improve.
• Reasonable support and time to improve (e.g. targets, training, check-ins).
• A chance for the employee to respond and a fair consideration of that response.
• Allowing a support person to be present at any significant meeting if requested.

Using a written performance plan and a formal warning letter helps you evidence these steps. A well-structured Show Cause Letter can also be a useful tool before making a final decision to terminate.

Record Keeping And The Checklist

The Code is backed by a checklist. Fill it in, attach your supporting documents (warnings, meeting notes, emails, witness statements, investigation notes), and keep it on file. Good records are your best defense if a dispute arises later.

A Practical, Compliant Dismissal Process For Small Businesses

Every situation is different, but the following framework helps small businesses make fair, defensible decisions aligned with the Code.

1) Identify The Issue And Gather Facts

Be clear about the concern and the impact on your business. Collect documents, speak with relevant people and consider whether a short, paid pause is appropriate while you look into serious allegations. In more serious cases, you may consider standing down an employee pending investigation to protect safety and integrity.

2) Put The Allegations Or Concerns In Writing

Send the employee a letter explaining the concerns, provide any supporting material you are relying on, and invite them to a meeting to respond. Make it clear they can bring a support person if they wish.

3) Meet, Listen And Consider The Response

In the meeting, outline the issues, ask open questions, and genuinely consider the response. Adjourn to reflect if needed. If the concerns are about performance, consider a performance improvement plan with clear expectations and timeframes.

4) Issue A Formal Warning (If Appropriate)

Where the Code expects warnings, make sure the warning letter is clear that continued underperformance or misconduct may lead to termination. Set realistic improvement steps and follow up.

5) Decide On Outcome And Communicate It

If dismissal is the outcome, confirm whether it’s summary dismissal (serious misconduct) or dismissal with notice. Ensure you comply with applicable notice periods under the Fair Work Act, any award or the employment contract. If you elect not to work out the notice, consider payment in lieu of notice.

6) Finalise Termination Documents And Final Pay

Provide a termination letter, set out final pay inclusions, and ensure any property is returned. Many employers standardise their letters and checklists using a tailored suite of termination documents to keep the process consistent.

7) Special Cases: Probation, Redundancy And Ill Health

• Probation: You should still act fairly and reasonably. A shorter process may be appropriate, but be mindful of discrimination or adverse action risks. Learn more about termination during probation.
• Redundancy: This is about the role no longer being required, not performance. A genuine redundancy has its own steps (consultation, exploring redeployment, correct redundancy pay if applicable) and is separate to unfair dismissal.
• Medical Grounds: Be cautious. Obtain medical information lawfully, consider reasonable adjustments, and avoid rushing to termination where an employee may be temporarily unfit for work.

Common Risk Areas And How To Avoid Them

Small business owners often tell us they were “doing the right thing” but still ended up in a dispute. Here are common pitfalls and how to steer clear of them.

Not Having A Valid Reason

Unfair dismissal decisions start with whether you had a valid reason connected to conduct or capacity. Be specific. “Poor attitude” isn’t persuasive; “failure to meet sales targets despite support and clear warnings” is better. Keep evidence of targets, feedback and outcomes.

Skipping Procedural Fairness

Even if there’s a valid reason, skipping process can make the dismissal unfair. The Commission looks closely at whether you notified the employee, gave them a chance to respond and allowed a support person. Align your process with the Code and the factors in section 387.

Confusing Misconduct With Performance

Serious misconduct may justify summary dismissal, but be careful to label it correctly and investigate first. For performance issues, give a warning with a real opportunity to improve. A clear, written Show Cause Letter can help you separate allegations from conclusions and invite a fair response.

Getting Notice Wrong

Minimum notice depends on service length and can be extended by an award or contract. Check the correct notice periods and consider whether payment in lieu of notice or garden leave suits your situation.

Poor Documentation

If it isn’t documented, it’s hard to prove later. Keep notes of meetings, copies of warnings, evidence of performance issues and your completed Code checklist. Standardising forms and letters with your own termination documents will save time and reduce risk.

Using Redundancy As A Shortcut

Redundancy is about the role, not the person. If you’re really addressing performance or conduct, use the Code process. If it’s genuinely a restructure, follow the redundancy rules (consultation, redeployment, redundancy pay where applicable).

Rushing Serious Allegations

If you suspect theft, harassment or safety breaches, move quickly but fairly. Consider a short paid stand-down, gather facts, put allegations to the employee and record your reasoning before deciding. The option of standing down an employee pending investigation can be important for safety and integrity.

FAQs For Small Business Employers

Do I Have To Use The Small Business Fair Dismissal Code?

It’s not mandatory, but it’s strongly in your interests to follow it. The Commission will consider whether you complied with the Code when assessing any unfair dismissal claim. Compliance can be decisive.

Can I Dismiss Immediately For Serious Misconduct?

Yes, if you reasonably believe the conduct is serious enough to justify immediate dismissal (e.g. theft, fraud, assault, serious safety breaches). Investigate promptly, put the allegations, consider the response and document your reasoning.

What If The Employee Is On Probation?

You should still act fairly, clearly communicate concerns, and avoid any unlawful reasons for dismissal. A shorter process may be appropriate, but don’t skip the basics - see more on termination during probation.

What If The Employee Lodges A Claim Anyway?

Respond to the Fair Work Commission on time, provide your documents (Code checklist, warnings, notes, investigation material) and seek advice early. Many matters resolve through conciliation if you have a strong, well-documented process.

Key Takeaways

• If you have fewer than 15 employees, the Small Business Fair Dismissal Code applies to your business and gives you a practical roadmap to a fair termination.
• Always identify a valid reason connected to performance or conduct, and follow a fair process that aligns with the Code and the factors in section 387 of the Fair Work Act.
• For serious misconduct, immediate dismissal may be justified - but investigate promptly, put allegations to the employee and document your reasoning.
• For performance or minor conduct issues, provide clear warnings, support, time to improve, and allow a support person at key meetings.
• Get the mechanics right: correct notice or payment in lieu of notice, accurate final pay, and well-kept records using standardised termination documents.
• Good documentation - warnings, meeting notes, investigation records and the Code checklist - is your best protection if a dispute arises.

If you’d like a consultation on unfair dismissal and applying 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.