Unfair Dismissal for Small Businesses in Australia: A Guide Under the Fair Dismissal Code

Contents

Small businesses in Australia face unique challenges when it comes to managing their workforce. One area of particular importance is ensuring that employee dismissals are handled correctly to avoid an unfair dismissal small business claim. In this guide, we’ll walk you through the key aspects of the Small Business Fair Dismissal Code, explain the legal requirements, and offer practical tips to protect your business while treating your employees fairly.

Understanding Unfair Dismissal in Small Businesses

An unfair dismissal claim arises when an employee believes they have been terminated without a fair process or without proper justification. Under Australian employment law—and especially for small businesses with limited resources—the rules can be different from those applying to larger organisations. For instance, employees must generally have completed 12 months of continuous service before they have the standing to lodge an unfair dismissal claim.

For small businesses, the Fair Work Ombudsman and the Fair Work Commission provide guidance and resources to help employers understand their obligations. By following a well-documented procedure, you can minimize the risk of costly disputes and legal action.

Overview of the Small Business Fair Dismissal Code

The Small Business Fair Dismissal Code was designed specifically to simplify the dismissal process for employers operating with fewer than 15 employees. This legislation recognises the constraints of small businesses—including limited HR resources—and provides a more flexible framework while still ensuring fairness.

Applicability and Purpose

The Code applies to small businesses, as defined by the Fair Work Act, where fewer than 15 employees are employed on a full-time equivalent basis. Its primary purpose is to reduce the administrative burden on small business employers when making dismissal decisions, without compromising the rights of employees.

Summary Dismissal for Serious Misconduct

One of the most notable features of the Code is the ability for employers to carry out summary dismissal. This means that if an employer reasonably believes that an employee’s conduct constitutes serious misconduct—such as theft, fraud, violence, or a serious breach of occupational health and safety procedures—the employee can be dismissed without notice.

It’s important to note that while employers are not required to report every allegation to the police, having such evidence can bolster your case. The key is to ensure that your belief is reasonable and that you have evidence to demonstrate compliance with the Code.

Procedural Requirements for Other Dismissals

For issues that do not warrant summary dismissal, the Code requires that employers follow a fair and documented process. This typically involves:

Providing a clear and valid reason relating to the employee’s conduct or capacity;
Issuing a warning, whether verbally or in writing;
Giving the employee an opportunity to respond to the concerns;
Allowing a reasonable time frame for the employee to improve their performance or correct the issue.

This process not only protects the business but also helps maintain a respectful work environment. Having a solid employment contract in place can set out expectations right from the start and reduce the potential for disputes.

Ensuring Compliance: Best Practices for Small Business Employers

Compliance with the Code is crucial to avoid an unfair dismissal claim. Small business employers should establish clear procedures tailored to their organisation size and document every step of the dismissal process. This might include:

Maintaining detailed records of performance issues and all warnings issued;
Completing written investigations and collecting witness statements where applicable;
Using checklists to ensure you meet each step of the process;
Training all managerial staff on the legal requirements and your internal policies.

Employers should also regularly review their practices against regulations affecting your corporation to ensure that no changes in the law leave you exposed. In some cases, consulting with a specialist may be beneficial to ensure you remain fully compliant.

Managing Dismissals to Avoid Unfair Dismissal Claims

Being consistent in your dismissal procedures is key. Even if you have valid reasons for dismissing an employee under the Code, failure to follow the proper process can leave your business vulnerable to an unfair dismissal claim.

Some practical steps include:

Ensuring that disciplinary procedures are clearly set out in your policies;
Allowing employees the opportunity to explain their side of the story during the warning or dismissal process;
Documenting all communications with the employee regarding performance issues or misconduct;
Considering alternatives such as additional training or a performance improvement plan for less serious matters.

This approach not only mitigates the risk of claims but also builds trust with your team.

The Role of Documentation and Support in Unfair Dismissal Cases

Documentation is your best friend in protecting your business against an unfair dismissal claim. Keeping comprehensive records—including performance reviews, written warnings, and evidence of any misconduct—can make all the difference if a claim is brought before the Fair Work Commission.

A legally binding contract won’t prevent every dispute, but it does help in clarifying the terms of employment and outlining the procedures that the employer will follow. Further, if you decide to review and redraft contracts periodically, you can ensure that your processes are up-to-date with the latest legal requirements.

When Could a Dismissal Be Considered Unfair?

A dismissal may be considered unfair if the process outlined in the Code is not followed properly, or if the dismissal isn’t justified on reasonable grounds. Here are some common pitfalls:

Lack of Evidence: If you dismiss someone based on allegations that cannot be reasonably substantiated, this may lead to an unfair dismissal claim.
Inadequate Warning: For less serious misconduct, failing to provide a clear warning or enough time to correct behaviour can be problematic.
Failure to Follow Internal Procedures: Even if the dismissal is justified, a deviation from established internal policies may result in a claim of unfair dismissal.
Not Allowing Support: Denying the employee the opportunity to have a support person present during disciplinary meetings may be seen as a breach of procedural fairness.

Remember, an employee who has worked for your business for at least 12 months is eligible to apply for an unfair dismissal remedy. This makes it all the more important to follow the correct procedures meticulously.

Genuine Redundancy and Small Business Dismissals

Not every termination is a dismissal in the context of misconduct or performance issues. When a position genuinely becomes redundant due to business downsizing or restructuring, this is generally exempt from unfair dismissal claims. However, caution is needed. If you refill the role soon after declaring it redundant, this may be interpreted as evidence that the redundancy was not genuine.

Regardless of the circumstances, thorough documentation and clear communication are essential. Employees should be informed of the reasons for redundancy, and alternative roles or redeployment options should be considered where feasible.

Practical Tips for Small Business Employers

Here are some practical tips to help you manage dismissals fairly and avoid potential legal pitfalls:

Implement Clear Policies: Ensure that all employees are aware of the dismissal procedures and the grounds for termination. This can be included as part of your onboarding process—especially important if you are operating as a sole trader or under a simple business structure.
Communicate Often: Regular performance reviews and feedback sessions help maintain open communication, reducing the likelihood of sudden or unexpected dismissals.
Keep Records: Document every step—from initial warnings to the final decision. These records are crucial if an employee challenges the dismissal.
Seek Professional Advice: When in doubt, consult a professional. It can be invaluable to choose a small business lawyer who understands the nuances of Australian employment law.
Be Consistent: Apply your policies uniformly across all employees to avoid claims of discrimination or unfair treatment.

Legal Documents and the Importance of a Solid Employment Contract

One of the most effective ways to avoid disputes is to have a solid employment contract in place from the outset. This document should clearly outline employee obligations, disciplinary procedures, and the process for handling terminations.

A well-drafted contract not only clarifies expectations but also provides you with the necessary legal backing should a dispute arise. It is equally important to review and update your contracts regularly, ensuring they comply with current legislation and reflect any changes in your business operations.

Knowing what makes a contract legally binding can help you avoid missteps that could later become the subject of an unfair dismissal claim.

Key Takeaways

The Small Business Fair Dismissal Code applies to businesses with fewer than 15 employees, streamlining dismissal procedures while protecting employee rights.
Summary dismissal is allowed for serious misconduct if the employer has a reasonable belief, but proper evidence and adherence to the process are critical.
For non-serious misconduct, a fair warning process—including clear documentation and the opportunity for improvement—is essential.
Maintaining thorough records and a solid employment contract are key in defending against unfair dismissal claims.
Consistent communication, clear policies, and seeking expert legal advice can protect your business and ensure fair treatment for all employees.

By understanding and adhering to the provisions of the Small Business Fair Dismissal Code, you not only minimise the risk of legal disputes but also create a fair and respectful work environment that can contribute to the long-term success of your business.

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

Alex Solo

Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.

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