The unfair dismissal regime under the Fair Work Act 2009 (Cth) (FW Act) protects certain employees from unfair dismissal. As an employer, you must be aware of what constitutes unfair dismissal and actively work to avoid it. Otherwise, employees that fulfil certain eligibility criteria can bring a claim for unfair dismissal against your business. The unfair dismissal regime is a popular avenue for redress for employees who wish to challenge their dismissal on the basis that it was harsh, unjust or unreasonable. We explain unfair dismissal in detail and key considerations to note as an employer.
What is Unfair Dismissal?
A person has been unfairly dismissed if the FWC is satisfied that the:
- person has been dismissed;
- dismissal was harsh, unjust or unreasonable;
- dismissal was not a case of genuine redundancy; and
- dismissal was not consistent with the Small Business Fair Dismissal Code.
What Does “Dismissed” Mean?
A dismissal occurs where:
- an employee is terminated on the employer’s initiative; or
- an employee resigns but is forced to do so because of the employer’s conduct (also known as a “constructive dismissal”).
What Makes a Dismissal Unfair?
For a dismissal to be unfair, it must be harsh, unjust or unreasonable.
A dismissal may be:
- unjust because the employee was not guilty of the alleged misconduct;
- unreasonable because the evidence did not support the employer’s conclusion; or
- harsh because the outcome is disproportionate to the gravity of the misconduct (i.e. the punishment does not fit the crime).
The FWC will consider the following factors when determining whether a dismissal is harsh, unjust or unreasonable:
- whether there was a valid reason for the dismissal relating to capacity or conduct;
- whether you notified the person of that reason;
- whether you gave the person an opportunity to respond;
- any unreasonable refusal of the employer to allow the person to have a support person present;
- if the dismissal related to unsatisfactory performance, whether your business had warned the person about that unsatisfactory performance before dismissal;
- whether a lack of human resources specialists impacted on the procedure followed when effecting the dismissal; and
- any other matters the FWC considers relevant.
What is a “Genuine Redundancy”?
It will not be an unfair dismissal where the employee was dismissed on account of genuine redundancy.
The FW Act defines a genuine redundancy in circumstances where an employer:
- no longer required the person’s job to be performed by anyone because of operational changes in the business;
- complied with any obligations under a modern award or enterprise agreement to consult with the employee about the redundancy; and
- considered/offered redeployment options.
What is the Small Business Fair Dismissal Code?
The small business fair dismissal code applies to a small business employer (i.e. employing fewer than 15 employees) when dismissing an employee. If the small business employer has followed the code when dismissing the employee, the FWC will deem the dismissal fair.
Who is Entitled to Make a Claim?
As an employer, your employees will only be eligible to file an unfair dismissal application if they have met certain criteria:
- they are an employee of a national system employer (i.e. the employee is a national system employee);
- the employee has completed the minimum period of employment;
- they earn less than the high-income threshold; and
- they are covered by a modern award or an enterprise agreement.
What is a National System Employer?
A national system employer is an employer covered by the national workplace relations laws.
A national system employer includes a trading, financial or foreign corporation (constitutional corporation). Most employers in the private sector are trading corporations, therefore deeming them as ‘national system’ employers for the purposes of the FW Act.
What is the Minimum Employment Period?
If you run a small business (fewer than 15 permanent employees), an employee will need to complete 12 months of service in your business before they can bring an unfair dismissal claim.
If you are not a small business, an employee must complete 6 months of service before they can bring an unfair dismissal claim.
What is the High-Income Threshold?
An employee who earns above the high-income threshold (currently $162,000 as of the time of writing) and is not covered by a modern award or enterprise agreement cannot bring an unfair dismissal claim.
Who is Covered by a Modern Award?
A modern award is an industrial instrument that outlines the minimum employment terms and conditions for workers in particular industries and occupations under the FW Act.
By looking at the coverage clause of the award in question, and the relevant award classifications, you can determine whether the award covers an employee.
What is the Time Limit for Bringing a Claim?
Your business does not need to worry about ex-employees from years past bringing a claim for unfair dismissal against your business. An eligible employee must only have 21 days to file an application with the Fair Work Commission (FWC) from the date of their dismissal.
What Does the Process Look Like?
The process for dealing with a claim for unfair dismissal is as follows.
- Employee lodges a Form 2 Unfair Dismissal Application (Application) with the FWC.
- An employer must file a Form 3 Employer Response to an Unfair Dismissal Application with the FWC within 7 days of receipt of the Application.
- The employer and employee must initially attend a telephone conciliation before the FWC. Here, the parties have an opportunity to settle the matter.
- If the matter is settled, the employer and the employee will execute the Terms of Settlement.
- If the matter is not settled, the matter will be listed for a hearing before the FWC.
What Remedies Can the FWC Order?
The available remedies for unfair dismissal applications include orders for an employee’s reinstatement (i.e. the employee returns to their job). In addition, or alternatively, the FWC may order your business to pay compensation.
Key Takeaways
As an employer, understanding the obligations you owe to your employees is essential. One of these obligations is to dismiss employees fairly. Otherwise, an employee can claim unfair dismissal, which is where you terminate employment with an employee in a harsh, unjust or unreasonable manner. Not all employees are eligible to make this claim – only those that:
- are an employee of a national system employer (i.e. the employee is a national system employee);
- have completed the minimum period of employment;
- earn less than the high-income threshold; and
- are covered by a modern award or an enterprise agreement.
To learn more about unfair dismissal or your options if an employee makes an unfair dismissal claim against your business, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A genuine redundancy occurs when a certain role is no longer required to be performed by anyone. This is commonly due to changes in business operations or a downturn in business revenue. An example of genuine redundancy is when a new machine or technology has automated a job, rendering the role obsolete. Another example is when your business has suffered a downturn in revenue, meaning you no longer have the capacity to employ someone.
If you run a small business with fewer than 15 employees, you can potentially defend claims of unfair dismissal. If you cannot demonstrate that your small business complied with the Code, then the Fair Work Commission will go on to consider whether or not the dismissal was harsh, unjust or unreasonable.
