Unlawful Termination vs Unfair Dismissal in Australia: Key Differences

Ending someone’s employment is one of those moments in business where “doing what feels fair” isn’t always the same as “doing what’s legally safe”.

If you employ staff, you’ve probably heard the terms unfair dismissal and unlawful termination used interchangeably. They’re not the same thing, and the difference matters. The risks, the process, the time limits and even who can bring a claim can look quite different.

This guide breaks down unlawful termination vs unfair dismissal from an Australian employer’s perspective, so you can make confident decisions, reduce your legal exposure, and run a more stable workplace.

Why The Difference Matters For Employers

From a small business point of view, the main reason you should understand the difference between unlawful termination vs unfair dismissal is that each type of claim can be triggered by different facts.

That means:

• you can “win” on one claim type and still be at risk on the other;
• a termination that feels justified can still be legally problematic if the real reason for termination is prohibited; and
• your documentation and process may need to prove different things depending on the claim.

In practice, this comes up most often when you’re managing performance, misconduct, restructure/redundancy, or attendance issues (including medical issues).

If you’re operating without strong foundations like a clear Employment Contract, consistent policies, and well-kept records, termination risk increases quickly - especially when emotions are running high and time is short.

What Is Unfair Dismissal In Australia?

Unfair dismissal is about whether the dismissal was harsh, unjust or unreasonable. In other words, even if you had a reason to end employment, the question becomes: did you handle it fairly?

Unfair dismissal claims are typically dealt with through the Fair Work Commission (FWC), and strict time limits apply (in most cases, an application must be lodged within 21 days of the dismissal taking effect).

What Employers Are Usually Assessed On

While each case turns on its own facts, unfair dismissal often focuses on:

• Whether there was a valid reason related to the employee’s capacity or conduct
• Whether the employee was told the reason and given a chance to respond
• Whether you gave warnings (especially in performance cases)
• Whether the process was procedurally fair (e.g. not ambushing the employee, allowing a support person where relevant)
• Whether the dismissal outcome was proportionate to the issue

For example, if an employee is underperforming, it’s usually not enough to say “they weren’t meeting expectations”. You generally want a clear paper trail: performance discussions, measurable expectations, reasonable time to improve, and warnings if there’s no improvement.

Who Can Bring An Unfair Dismissal Claim?

Not every employee can bring an unfair dismissal claim.

Eligibility depends on factors including:

• minimum employment period (generally 6 months, or 12 months for small business employers)
• coverage and earnings threshold (for some employees)
• whether the employee was genuinely dismissed (as opposed to resigning)

There is also a Small Business Fair Dismissal Code that may apply if you’re a small business employer, but it’s important to apply it carefully and keep good records of what you did and why.

Common Employer Triggers For Unfair Dismissal Risk

From our experience, these are classic risk areas:

• terminating quickly without investigation or warnings (except for very serious misconduct)
• poor documentation (verbal feedback only, no written warning record)
• inconsistent treatment (one employee is fired, another is “given a pass” for the same behaviour)
• rushed restructure that looks like a dismissal in disguise

If you’re making changes to roles or hours as part of performance management or business needs, it’s worth understanding your options first, including reducing employee hours and what you can and can’t do lawfully.

What Is Unlawful Termination (And How Is It Different)?

Unlawful termination is different because it focuses on the reason for termination.

Even if you follow a “fair” process, you can still face legal risk if the termination happens for a prohibited reason.

In practice, what people call “unlawful termination” is often raised through a few different legal pathways, including:

• the Fair Work Act’s general protections (adverse action) provisions;
• anti-discrimination laws (Commonwealth and state/territory); and
• the Fair Work Act’s specific unlawful termination provisions in limited circumstances.

Put simply, the key question is often: Was the employee dismissed because of something the law protects?

Examples Of “Protected” Reasons That Can Create Risk

There are several common “watch-outs” for employers, including where termination is connected to:

• temporary absence due to illness or injury
• pregnancy, parental responsibilities or carer responsibilities
• race, sex, age, disability, religion, sexual orientation or other protected attributes
• union membership or industrial activity
• exercising workplace rights (e.g. making a complaint, requesting leave, asking about pay)

This is where the distinction between unlawful termination vs unfair dismissal becomes very real: unfair dismissal asks “was it harsh/unjust/unreasonable?”, while unlawful termination asks “was it for a prohibited reason?”

For example, dismissing an employee because you’re frustrated they’re taking sick leave can create serious risk - even where the business is genuinely struggling. Managing absence issues requires care, especially around evidence requirements and entitlements, including questions like sick days without a certificate.

Medical Issues Are A Common Risk Area

Employers often need to manage legitimate concerns about safety, attendance, and capacity to perform a role. But if medical issues are involved, you should be cautious about jumping straight to termination.

In many cases, you may need to consider steps like:

• seeking appropriate medical information (not the employee’s entire medical history)
• considering reasonable adjustments
• assessing whether the employee can perform the inherent requirements of the role

Sometimes employers ask: “Can I request medical clearance before someone returns?” The answer is often “yes, in the right circumstances”, but it needs to be handled correctly - see medical clearance.

If the situation is moving toward ending employment due to long-term incapacity, it’s also worth reading about termination on medical grounds, because these matters tend to be fact-specific and highly sensitive.

Unlawful Termination vs Unfair Dismissal: A Side-By-Side Comparison

If you’re trying to quickly understand unlawful termination vs unfair dismissal, this comparison helps frame the difference.

1) What The Claim Is “About”

• Unfair dismissal: The dismissal outcome and process (harsh, unjust or unreasonable).
• Unlawful termination: The underlying reason for termination (was it prohibited by law?).

2) Who Can Make A Claim

• Unfair dismissal: Only eligible employees (minimum employment period and other thresholds apply).
• Unlawful termination: Can apply more broadly, depending on the legal basis (for example, general protections and anti-discrimination laws can cover many workers).

3) What Evidence Usually Matters

• Unfair dismissal: Your process evidence (warnings, meeting notes, investigation steps, chance to respond).
• Unlawful termination: Your decision-making evidence (why you terminated, what was discussed, timing around leave/complaints, consistency with how you treat others).

4) What Employers Often Get Wrong

Here are the patterns we commonly see in small businesses:

• Assuming “probation” means no risk: A probationary employee may be ineligible for unfair dismissal, but you can still face general protections, discrimination, or other unlawful termination-related risk.
• Focusing only on conduct/performance: If the timing suggests the termination followed a complaint, leave request, or medical issue, the “real reason” can be questioned.
• Using the wrong termination pathway: A redundancy treated as performance management (or vice versa) can unravel quickly under scrutiny.

Even when you’re ending employment for practical reasons, the way you communicate and document the situation can make a big difference.

Practical Steps To Reduce Termination Risk (Before You End Employment)

Most termination disputes don’t start because you intended to do the wrong thing. They start because you’re busy, the issue has been building for months, and when it hits a tipping point, you act quickly.

If you want to reduce risk across both unlawful termination vs unfair dismissal, here are steps that typically make the biggest difference.

1) Get The Basics Right From Day One

A clear, tailored employment agreement is one of the simplest ways to prevent misunderstandings about expectations, duties, pay, performance standards, notice, and termination processes.

In many workplaces, termination disputes become harder because the role expectations were never clearly documented, or your business is relying on informal arrangements that don’t reflect what’s actually happening day-to-day.

2) Keep Consistent Records (Even When Things Feel “Minor”)

We get it - documenting issues can feel awkward, especially in small teams where relationships are close.

But if performance or behaviour becomes a bigger issue later, you’ll want records that show:

• what happened (facts, not assumptions)
• when it happened
• what you discussed with the employee
• what support or training you offered (if relevant)
• what improvement you expected and by when

This kind of documentation is often the backbone of defending an unfair dismissal claim.

3) Be Careful With Stand Downs And Suspensions

If you suspect serious misconduct or you need to investigate, you might consider standing an employee down or suspending them.

These steps can help you manage immediate workplace risk, but they can also create legal exposure if handled incorrectly (especially around pay, process and communication).

If this is on your radar, it’s worth reviewing standing down an employee pending investigation so you’re clear on the boundaries before taking action.

4) If Restructure Is Involved, Check Whether It’s Actually A Redundancy

Sometimes you’re ending employment because the business has changed - a client contract ended, revenue dropped, or you’re automating tasks.

In those cases, you might be dealing with redundancy rather than performance. If you label something as redundancy but keep essentially the same role (or replace the employee), you increase the risk of claims.

Where redundancy does apply, ensure you understand your potential obligations, including notice and entitlements. Tools like a redundancy calculator can help you estimate payments, but you’ll still want advice on the correct process and documentation for your situation.

5) Handle Notice Correctly (And Document It)

If you’re ending employment and you want the employee to finish immediately, you may consider paying out the notice period instead of requiring them to work it.

This can be a practical way to reduce risk and protect the workplace, but it needs to be done correctly - for example, ensuring you calculate the right amount and confirm the termination date clearly. This is often referred to as payment in lieu of notice.

Key Takeaways

• Unfair dismissal focuses on whether the dismissal was harsh, unjust or unreasonable, often turning on the fairness of your process and whether there was a valid reason.
• Unlawful termination focuses on the reason for termination - even a “fair” process can still create risk if the dismissal relates to protected attributes or workplace rights.
• Understanding the difference between unlawful termination vs unfair dismissal helps you identify the right pathway (performance, misconduct, redundancy, medical capacity) and document the right evidence.
• Strong foundations (clear contracts, consistent policies, and written records) dramatically reduce termination risk and make workplace expectations easier to manage.
• Medical issues, complaints, leave requests and investigation-related terminations are common high-risk areas where employers should slow down and seek advice.

This article is general information only and not legal advice. If you’d like help managing a termination or reviewing your employment documents and process, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.