Unlawful Termination In Australia: What Employers Need To Know

Ending someone’s employment is one of the hardest calls you’ll make as an employer. It’s also one of the riskiest if you get the law wrong.

In Australia, “unlawful termination” has a specific meaning under the Fair Work Act. It sits alongside other dismissal risks like unfair dismissal and general protections (adverse action). Knowing which regime applies, and running a fair, well-documented process, can save you time, stress and cost.

In this guide, we unpack what counts as unlawful termination, how it differs from unfair dismissal and general protections claims, the lawful grounds for dismissal, the red flags to avoid, and a practical process you can follow. We’ll also cover simple tools-contracts, letters and policies-that help you manage issues and exit employees lawfully.

What Is Unlawful Termination In Australia?

Unlawful termination happens when an employer dismisses an employee for a prohibited reason set out in the Fair Work Act. These are reasons the law says you cannot use to dismiss someone-regardless of performance or conduct.

Prohibited reasons include (not exhaustive):

• Temporary absence from work due to illness or injury (where the absence is protected).
• Discrimination based on protected attributes such as race, sex, age, disability, pregnancy, religion, sexual orientation or family/caring responsibilities.
• Union membership or participation in lawful industrial activity.
• Making a complaint or inquiry about employment (for example, raising a safety concern or asking about entitlements).
• Exercising a workplace right (for example, taking parental leave or carers leave) or proposing to exercise one.

If a prohibited reason is a real and operative reason for the dismissal, the termination may be unlawful.

Here’s the important nuance. The Fair Work Act provides two pathways that deal with prohibited reasons:

• General protections dismissal (often called adverse action), which most eligible employees use; and
• Unlawful termination applications, which are generally available to employees who are not eligible to bring a general protections claim (for example, certain employees outside the national system).

Because both pathways involve prohibited reasons, they are related-but they are not the same claim. Understanding which pathway applies in your situation matters for eligibility, evidence and remedies.

Whichever pathway applies, the Commission or court will look at your real reasons, not just the wording in your letter. That’s why contemporaneous notes, documents and a clear process are critical.

How Is It Different From Unfair Dismissal And General Protections?

Unlawful Termination

The focus is on whether a prohibited reason (for example, discrimination or a protected complaint) was a real reason for the dismissal. This pathway is generally used by employees who cannot bring a general protections claim, but who allege they were terminated for a prohibited reason.

Features include:

• Prohibited reason test drawn from the Fair Work Act (for example, protected temporary absence or union activity).
• Time limits apply (see below).
• Remedies can include compensation and, in some cases, reinstatement.

General Protections (Adverse Action) – Dismissal

General protections prohibit adverse action because a person has, or exercises, a workplace right, engages in industrial activity, or due to protected attributes. In dismissal cases, a key element is the employer’s reasons.

Features include:

• A prohibited reason must not be a reason for the decision.
• Reverse onus of proof: you may need to show, on evidence, that the prohibited reason was not a reason for dismissal. Good records are essential.
• Remedies can include compensation, penalties and sometimes reinstatement.

Unfair Dismissal

Unfair dismissal asks whether the dismissal was “harsh, unjust or unreasonable.” Even if your reason is lawful, the process can still be unfair.

The Fair Work Commission weighs factors commonly referred to as the section 387 factors, such as:

• Whether there was a valid reason related to capacity or conduct.
• Whether the employee was notified of the reason and had an opportunity to respond.
• Whether a support person was allowed at any meeting discussing dismissal.
• Any warnings and the size/sophistication of the employer’s HR processes.

Eligibility, Time Limits And Where Claims Are Made

• Eligibility differs across these claims. Many employees are eligible for unfair dismissal and general protections; the unlawful termination pathway is typically for those ineligible for general protections. If you’re unsure which regime applies, get advice before taking action.
• Strict time limits apply. In most cases, dismissed employees have 21 days from the date of dismissal to lodge an unfair dismissal, general protections dismissal, or unlawful termination application.
• The Fair Work Commission deals with unfair dismissal and general protections dismissal disputes and also receives unlawful termination applications under the Fair Work Act.

The takeaway: make sure both your reasons and your process stack up. That’s the best protection across all types of dismissal claims.

Lawful Reasons To Dismiss (And Red Flags To Avoid)

You can dismiss for legitimate reasons such as performance, capacity, misconduct or genuine redundancy-provided you follow a fair and compliant process. Here’s how to think about the main categories.

Performance Or Capacity

Where an employee cannot (or will not) perform their role to the required standard, dismissal can be lawful if you have a valid reason and follow a fair process. That usually means clear expectations, feedback and a reasonable opportunity to improve (often via a PIP).

For new hires, dismissal during probation still requires procedural fairness and the correct notice. If you need a refresher on managing risk during early employment, our guide to termination during probation outlines a sensible approach.

Misconduct (Including Serious Misconduct)

Misconduct can include policy breaches, dishonesty, harassment or other behavioural issues. Serious misconduct-such as theft or violence-can justify summary dismissal after a fair investigation.

When allegations are serious, it’s usually safer to remove the employee from the workplace while you investigate. Consider a temporary stand down or suspension (if your contract or policies allow) and follow a structured process. This is different from dismissal-see standing down an employee pending investigation for a practical framework.

Genuine Redundancy

A role is genuinely redundant when you no longer need anyone to perform it due to operational changes, and you’ve complied with any consultation obligations under an applicable award or agreement, and properly considered redeployment. If these elements aren’t met, a “redundancy” can be challenged as an unfair dismissal.

Red Flags That Turn A Lawful Dismissal Into A Risky One

• Suspicious timing-for example, shortly after a complaint, a request for flexible work, or a protected absence.
• No valid reason communicated to the employee before termination.
• No chance for the employee to respond to allegations.
• Inconsistent application of policies (treating similar conduct differently without justification).
• Calling it “redundancy” when the role still exists or you’ve already decided to refill it.

If any of these red flags are present, pause and reassess your process before proceeding.

A Fair Dismissal Process: Step-By-Step For Employers

Process is often where employers go wrong. A fair, transparent and well-documented process will help you defend both unlawful/general protections and unfair dismissal claims.

1) Identify The Issue And Gather Facts

Be specific. What conduct, performance or capacity issue is in play? Gather evidence such as timesheets, emails, customer complaints and performance data.

If allegations are serious, decide whether a short stand down or suspension is appropriate while you investigate, applying any contractual or policy rules. Keep messages to the employee factual and neutral.

2) Invite The Employee To A Meeting (With Notice Of Concerns)

Send a letter or email outlining the concerns in clear, neutral language and invite the employee to a meeting. Let them know they may bring a support person.

Attach or list the key documents you’ll rely on so they can meaningfully respond. In more serious cases, you can follow up with a formal show cause letter setting out the allegations and potential outcomes.

3) Run A Procedurally Fair Meeting

Explain the concerns, step through the evidence and invite their response. Ask open questions. Take notes. Be open to new information or mitigating circumstances.

If new issues arise, adjourn to investigate rather than deciding on the spot. This shows you are genuinely considering the employee’s response.

4) Consider Responses And Decide On An Outcome

After the meeting, weigh the information and decide whether to:

• Provide further training, support or a performance improvement plan.
• Issue a written warning and monitor improvement.
• Terminate employment with notice (or make a lawful payment in lieu of notice), or summarily dismiss for serious misconduct following a fair investigation.

Ensure any outcome aligns with the contract, your policies and any applicable award or enterprise agreement.

5) Communicate The Decision And Finalise

Issue a written termination letter. Clearly set out the reason, notice period (or pay in lieu), and any entitlements payable (for example, accrued annual leave). Include practical steps such as return of property, confidentiality reminders and any post-employment restraints if applicable.

If you pay out notice, check your obligations around tax and superannuation. The position can be technical-review the guidance on payment in lieu and superannuation, and consider whether termination payments attract super in your scenario.

6) Keep Records

File notes, letters, meeting invites and evidence. If a claim is lodged, contemporaneous records are often the difference between a quick resolution and a drawn-out dispute.

Practical Tools To Reduce Risk (Before, During And After Termination)

Sometimes termination is the right outcome. Other times, there are safer pathways that protect your business and relationships. These tools help you stay on the right side of the law and reduce the chance of a dispute.

Clear Contracts And Policies

A well-drafted Employment Contract sets the foundation-duties, reporting lines, standards, policies, notice and termination rights. Pair this with up-to-date workplace policies (conduct, performance, bullying/harassment, leave, IT) and regular training so expectations are clear.

Probationary Periods

Probation (commonly 3–6 months) allows you to assess capability and fit. It does not remove the need for a fair process or correct notice, but it can affect eligibility for certain claims. If concerns arise early, act promptly and follow a measured approach consistent with probation termination best practice.

Stand Down Or Suspension While Investigating

If allegations are serious, standing the employee down while you investigate is usually safer than rushing to dismiss. Apply your contract and policies, keep communications neutral, and follow the principles in standing down an employee pending investigation.

Payment In Lieu, Garden Leave And Exit Terms

Depending on circumstances, you may use payment in lieu of notice, allow the employee to work out their notice on reduced duties, or place them on garden leave if your contract permits. Each option has practical and legal implications-including tax and super-so check the detail before confirming terms.

Mutual Separation And Deeds Of Release

In some cases, a commercial resolution makes sense. An Employee Separation Agreement or a properly drafted Deed of Release and Settlement can bring closure by setting out final payments, confidentiality, non-disparagement and a release of claims. Tailor these documents to your situation and ensure the employee has the opportunity to obtain independent advice.

Process Checkpoints To Avoid Unlawful Termination

• Document legitimate reasons clearly and consistently. Separate prohibited reasons from your decision-making.
• Stress-test timing against any protected activity or absence to reduce “cause and effect” inferences.
• Follow a fair process aligned with the section 387 factors-notify, allow a response, consider with an open mind.
• Keep letters and meeting notes factual and neutral; avoid emotive language.
• Retain records-if it’s not documented, it’s harder to prove.

Key Takeaways

• Unlawful termination is about prohibited reasons for dismissal under the Fair Work Act; most employees use general protections for these issues, while the unlawful termination pathway exists for those ineligible for general protections.
• Unfair dismissal is different-it focuses on whether the dismissal was harsh, unjust or unreasonable, even when the reason is otherwise lawful.
• Lawful grounds to dismiss include performance/capacity, misconduct and genuine redundancy-but a poor process or suspicious timing can still create significant risk.
• Run a fair process: identify a valid reason, notify the employee, allow a response, consider all material, and decide consistently with the section 387 factors.
• Use practical tools to manage risk-strong contracts and policies, measured investigations and show cause steps, and considered use of payment in lieu or garden leave when permitted.
• If you negotiate an exit, use an Employee Separation Agreement or Deed of Release tailored to the circumstances, and double‑check tax and super settings for any termination payments.
• Time limits are short (usually 21 days). Good records and a sound process are your best defence across unlawful termination, general protections and unfair dismissal claims.

If you’d like a consultation on managing termination risks and processes in your workplace, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.