Wrongful Dismissal Vs Unfair Dismissal: What’s The Difference?

If you’ve just lost your job, the terms “wrongful dismissal” and “unfair dismissal” can sound similar - but in Australian law they mean different things and lead you down very different legal paths.

Knowing the difference helps you choose the right option, meet strict deadlines and understand what outcomes are realistic. It also helps employers manage risk and handle terminations lawfully and fairly.

In this guide, we unpack what each term means in Australia, who’s eligible, how the processes and remedies differ, and what practical steps you can take next.

What Do “Unfair Dismissal” And “Wrongful Dismissal” Mean?

Unfair Dismissal (Fair Work Act)

Unfair dismissal is a statutory claim under the Fair Work Act 2009 (Cth). An employee can apply to the Fair Work Commission (FWC) if they believe their dismissal was “harsh, unjust or unreasonable”. The FWC looks at factors like whether there was a valid reason related to capacity or conduct, whether the employee was notified of that reason, and whether they had a chance to respond.

The Commission assesses these factors with reference to section 387, which lists what it must consider (including procedural fairness, prior warnings for performance issues, and any other relevant matters).

Wrongful Dismissal (Breach Of Contract)

“Wrongful dismissal” is different - it’s a common law claim for breach of the employment contract. It’s about whether the employer followed the contract’s terms (for example, giving the correct notice, using a valid termination clause, or following agreed procedure). It is not about broader fairness.

If an employer fires someone without the required notice or fails to follow an essential contractual process, the former employee may claim damages equal to what they would have earned during the notice period (and sometimes other contractual entitlements). These claims are usually brought in court, not the FWC.

Who Is Eligible To Claim In Australia?

Eligibility For Unfair Dismissal

To bring an unfair dismissal claim to the FWC, an employee must typically meet these thresholds:

• Minimum employment period: at least 6 months continuous service, or 12 months if the employer is a small business (fewer than 15 employees).
• Coverage: either covered by a modern award or enterprise agreement, or (if award/agreement-free) earn below the high-income threshold (indexed annually).
• Be an employee: independent contractors aren’t eligible.

There are several exclusions. For example, a dismissal will not be unfair if it is a “genuine redundancy”. The Fair Work Act sets out the test for genuine redundancy in section 389 - including whether the employer no longer required the job to be done, complied with consultation obligations, and whether redeployment was reasonable.

Other common exclusions include the end of a fixed-term contract, some casual engagements that weren’t regular and systematic (and without a reasonable expectation of continuing work), and certain probationary terminations. That said, dismissals during a probation period can still raise legal risks if not handled properly.

Eligibility For Wrongful Dismissal

Wrongful dismissal is available to employees whose contracts were breached on termination. There’s no statutory minimum service period or income threshold. However, the claim is limited to breaches of the contract itself (for example, notice or process). It doesn’t allow a court to decide whether the dismissal was “harsh” or “unreasonable” overall.

Because it’s a contract claim, the time limit is the general limitation period for contract actions (commonly up to six years, depending on jurisdiction). That’s a longer window than unfair dismissal, but the remedy is usually narrower (see below).

Key Differences: Process, Time Limits And Remedies

Where You File

• Unfair dismissal: File an application with the Fair Work Commission. The FWC typically conducts conciliation, then a conference or hearing if not resolved.
• Wrongful dismissal: File a court claim (often a state court or the Federal Circuit and Family Court, depending on the case). These proceedings are more formal and can carry more cost risk.

Deadlines And Time Limits

• Unfair dismissal: Strict 21-day deadline from the date of dismissal to lodge with the FWC. Missing it can be fatal unless there are exceptional circumstances.
• Wrongful dismissal: Standard contract limitation period (often up to six years). This is not a reason to delay unnecessarily, but it provides more time than the FWC path.

What You Need To Prove

• Unfair dismissal: You must show the dismissal was harsh, unjust or unreasonable under the Fair Work Act criteria (the employer then explains its reasons and process).
• Wrongful dismissal: You must show the employer breached the contract (for example, failed to give the right notice or follow a contractual process).

Remedies And Compensation

• Unfair dismissal: The primary remedy is reinstatement (with continuity of service). If that’s not appropriate, compensation may be awarded - generally capped at the lower of 26 weeks’ pay or one half of the employee’s annual earnings (subject to the statutory cap).
• Wrongful dismissal: Damages are typically limited to the notice period (or pay in lieu) and any contractual benefits lost in that period (for example, a bonus that would have fallen due). Courts don’t award compensation for hurt, humiliation or broader “unfairness” in these claims.

Costs And Complexity

• Unfair dismissal: The FWC process is designed to be quicker and lower-cost than court. Costs awards are uncommon.
• Wrongful dismissal: Court proceedings can be slower and more expensive. Costs often follow the event (the loser may pay part of the winner’s costs), which can be a significant risk.

Can You Do Both?

You generally can’t double recover. In practice, most dismissed employees choose the path that best fits their situation and goals. If you have potential overlapping claims, get advice early to map out the best strategy and to avoid missing the 21-day FWC deadline.

Employer Checklist: How To Reduce The Risk Of An Unfair Or Wrongful Dismissal Claim

Whether you’re managing performance or considering termination for misconduct or redundancy, a clear, fair process is your best risk management tool. Here’s a practical approach.

1) Be Clear On The Reason (And Evidence)

• Performance or capacity: Set targets, provide support and training, and document issues and improvement plans.
• Conduct: Investigate objectively, collect evidence, and keep records. For serious allegations, consider standing down an employee (if permitted) while you investigate.
• Redundancy: Ensure the role is genuinely no longer required, consult as required, and consider redeployment. The test in section 389 is critical.

2) Follow Procedural Fairness

• Give the employee the allegations or concerns in writing.
• Allow a reasonable opportunity to respond and consider that response before deciding.
• For performance issues, ensure prior warnings where appropriate (this is a factor under section 387).

When you’re managing misconduct or serious performance concerns, a structured show cause letter process helps you demonstrate fairness and careful decision-making.

3) Use Contractual Rights Properly

• Notice: Check the contract and relevant award or agreement for the correct notice period. If you decide to pay rather than have the employee work through, make sure the amount of payment in lieu of notice is right.
• Garden leave: If the contract allows, you can consider garden leave to keep the employee away from clients or sensitive information while still on payroll.
• Policies: Apply your internal policies consistently and fairly (they can be evidence of process).

4) Consider A Clean Exit

In some cases, both parties benefit from documenting the end of employment, outstanding entitlements and mutual releases. A well-drafted separation agreement can reduce the risk of post-termination disputes and set clear expectations.

5) Keep Timing Front Of Mind

Remember the employee has a 21-day window for unfair dismissal applications. Acting promptly and communicating clearly (including providing a termination letter with reasons and entitlements) can help resolve issues early.

Employee Options: Which Path Should You Take?

Choosing between unfair dismissal and wrongful dismissal depends on your employment status, income, contract terms, and goals. Here’s a simple way to think about it.

If You Want Your Job Back (Or Compensation Up To The Cap)

An unfair dismissal application to the FWC is usually the right forum if you meet eligibility rules. The FWC can order reinstatement, continuity of service and back pay. If reinstatement isn’t appropriate, it can order compensation up to the statutory cap.

The test focuses on fairness as well as the reason for termination (capacity, conduct, redundancy) and whether the employer provided proper process. The Commission’s factors are laid out in section 387.

If The Employer Breached Your Contract

If you were terminated without the required notice, or your contract promised a specific process that wasn’t followed, a wrongful dismissal claim may be available. These claims focus on the contract, not general fairness, and are usually about money equivalent to notice and related contractual benefits.

Other Possibilities

Depending on the circumstances, other claims might be relevant - for example, a general protections (adverse action) application if you were dismissed because you exercised a workplace right, or unlawful termination based on discriminatory grounds. These paths have different tests and remedies, so getting legal advice quickly is wise, especially within the 21-day window that applies to several Fair Work applications.

What To Do First

• Collect the paperwork: employment contract, termination letter, warnings, performance plans, emails and notes of meetings.
• Check the clock: if you’re considering an unfair dismissal application, count the 21 days carefully.
• Be clear on goals: reinstatement, a clean break with compensation, or enforcing contractual rights.
• Get advice: a short consult can help you assess eligibility, prospects and strategy (including whether to pursue conciliation, settlement terms or litigation).

Practical Questions We’re Often Asked

Does Paying In Lieu Of Notice Prevent An Unfair Dismissal Claim?

No. Paying in lieu satisfies the notice requirement, but the FWC can still consider whether the dismissal was harsh, unjust or unreasonable overall. Make sure you calculate any payment in lieu of notice correctly under the contract and any applicable award or agreement.

Can I Dismiss During Probation Without Risk?

Probation periods reduce unfair dismissal risk because of the minimum employment period, but they’re not a free pass. You still need to comply with your contract, pay correct entitlements, and avoid discriminatory or prohibited reasons. It’s smart to follow a fair process even for probation period terminations.

What If It’s A Redundancy?

Redundancy can be a fair reason for dismissal if it’s genuine under section 389. That means the role is no longer required, you’ve met consultation obligations, and redeployment isn’t reasonable. If it’s not genuine, the dismissal may still be open to challenge.

Should We Offer A Settlement?

Sometimes a pragmatic, confidential settlement is the best path for both sides. Consider documenting it with a tailored separation agreement that addresses pay, releases, restraints and return of property. This can save time, stress and legal costs.

Key Takeaways

• Unfair dismissal is a Fair Work Commission claim about whether a dismissal was “harsh, unjust or unreasonable” - it has a strict 21-day deadline and potential remedies like reinstatement or capped compensation.
• Wrongful dismissal is a court claim for breach of contract, typically focused on notice and contractual processes, with damages generally limited to the notice period and related benefits.
• Eligibility for unfair dismissal depends on service length, income thresholds and award/agreement coverage; genuine redundancy under section 389 is excluded.
• Employers can reduce risk by setting a valid reason, following fair process (see section 387 factors), using correct notice or payment in lieu of notice, and documenting outcomes.
• Employees should act quickly, gather documents and choose the path that matches their goals (reinstatement vs enforcing contractual rights).
• Clear letters (including a well-structured show cause letter where appropriate) and, if needed, a separation agreement can help resolve matters efficiently.

If you would like a consultation on handling an unfair or wrongful dismissal situation in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.