Terminating an employee in Australia can have significant legal and financial implications for an employer. However, employers can mitigate risk by understanding and complying with their legal obligations and approaching employee terminations in a fair way. This article discusses the key considerations for employers when contemplating employee termination, with a focus on the Small Business Fair Dismissal Code.

Compliance with Contracts, Awards and the NES

Before dismissing an employee, employers should review all employment contracts, and any modern awards or enterprise agreements that may affect the termination process. These agreements often contain strict provisions relating to notice periods, termination procedures, and severance pay.

The National Employment Standards (NES) in the Fair Work Act also set out the statutory requirements for notice and redundancy pay.

Consistent Processes

Employers must ensure that their dismissal practices apply consistently across the workforce, while abiding by specific requirements under different contracts and awards. Inconsistencies in how dismissals are handled within an organisation may lead to claims of unfair treatment. Prudent employers should establish a standard process for terminating employees. This should clearly set out the steps to follow in consideration of factors such as the employee’s performance, conduct, and any mitigating circumstances. Ideally these processes should be available to all staff in a written policy document.

Unfair Dismissal

Unfair dismissal occurs when an employee is dismissed from their job in a “harsh, unjust or unreasonable” manner. It is important to understand that a dismissal may be deemed unfair, even if the employer believes it was warranted. To avoid an unfair dismissal claim, employers must ensure that they have a valid reason for the termination based on the conduct or performance of the employee, follow appropriate procedures which are fair, keep excellent documentation, and seek legal advice if they are unsure of the process.

For poor performance, employees must be issued with at least one warning, preferably in writing, and a proper opportunity to improve their performance.  The warning must make it clear that the employment may be terminated if there is insufficient improvement.

Employees who believe they have been unfairly dismissed may file a claim with the Fair Work Commission (FWC). If the FWC decides that a dismissal was unfair, they may order that the employee be reinstated to their former position or compensated by the employer for the economic loss caused by the termination. The FWC will not order compensation for any pain or suffering caused by the unfair dismissal.

The first step in an unfair dismissal claim is a conciliation conference where the parties have an opportunity to resolve the dispute early.  If a settlement cannot be reached, the matter will be listed for a hearing before the FWC for a decision to be made.

Genuine Redundancy

Redundancy is a valid reason for termination when a position is no longer required due to changes in the operational needs of the business. However, employers must demonstrate that the redundancy is genuine and that they have explored all reasonable options to redeploy the affected employee within the organisation. Proper consultation with the employee during redundancy processes is crucial. If the employment is covered by a modern award or enterprise agreement, the consultation provisions in the applicable industrial instrument must be followed.

Employees who believe that a redundancy was not genuine may file an unfair dismissal claim with the FWC.

Small Business Code

The Small Business Fair Dismissal Code applies to businesses with fewer than 15 employees when terminating an employee. The Code precludes small business employees from making a claim for unfair dismissal in the first 12 months following their engagement.

For employees with more than a year of service, the Code sets out a simple and clear process to follow when dismissing an employee and aims to provide a defence against unfair dismissal claims. If a small business employee is terminated, the dismissal will be deemed to be fair so long as the employer follows the Code.

Summary Dismissal

It is fair for a small business employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, assault, sexual harassment and intoxication at work.  Serious misconduct can also include wilful and deliberate behaviour that is inconsistent with continuing the employment and causes serious risk to work health and safety or to the reputation, viability or profitability of the employer’s business.

Dismissals based on conduct or capacity

In cases other than serious misconduct, a small business employer must give employees appropriate warnings before being dismissed. This must include providing the employee with an opportunity to respond to the warning and a reasonable chance to rectify the problem. This might involve the employer providing additional training and ensuring the employee understands the employer’s job expectations. Documenting the performance management process can be valuable evidence if an employee later challenges a termination.

Termination Meetings

When conducting a termination meeting, employers should handle the situation with sensitivity and respect. The meeting should be held in a private and neutral location, and a witness should be present to ensure transparency and prevent potential misunderstandings about the content of the conversation.  It is also good practice to let the employee know they can have a support person present at any termination meetings.


In any termination process, documentation is crucial. Keeping accurate records of performance discussions, warning letters, performance improvement plans, and any other relevant communications can be essential when defending an unfair dismissal claim. These records can demonstrate that the employer has followed a fair and reasonable process.

It is also a requirement of the NES that an employer must provide written notice of any termination, applying the relevant notice periods (whether that is statutory notice, or the notice contained in the employment contract) or pay in lieu of notice.


Terminating an employee is seldom an easy task and can have significant legal and financial implications for a business. To minimise the risk of an unfair dismissal claim, employers should ensure that they understand and comply with their legal obligations. Having clear policies and processes in place, keeping comprehensive records and seeking legal guidance and advice can help mitigate risk.

This is general information only, and we recommend seeking professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on (02) 5127 5261 or email [email protected].