As an employer, dismissing employees can be a difficult process. As such, you must understand your obligations as an employer to avoid an unfair dismissal or unlawful termination claim. Unlawful dismissal and unfair termination describe a scenario where an employee has reasonable cause to challenge the basis upon which you fired them. This article will outline the key differences between ‘unfair dismissal’ and ‘unlawful termination’ and how to prevent these claims from being made against your business.
What Are Unfair Dismissal Claims?
When determining whether a dismissal is unfair, the court will consider whether it was ‘harsh, unjust or unreasonable’ in all the circumstances. When arriving at its decision, the court will consider whether:
- there was a valid reason for dismissal concerning the employee’s conduct or capacity, and the employee was notified of this;
- you gave the employee adequate time to respond to the above notice;
- you allowed the employee to have a support person present; and
- you communicated with the employee regarding their performance before their termination.
If your employee is not performing at the expected level, you may need to implement a performance improvement plan (PIP) to get them back on track. Our free PIP template will assist.
Unfair Dismissal and Small Businesses
Different rules apply to small businesses regarding unfair dismissal. The law will consider your business a small business if you have fewer than 15 employees at the time of termination,
Small businesses must prove they complied with the Small Business Fair Dismissal Code. The court will, therefore, consider whether:
- you provided a warning to the employee that if conduct/capacity did not improve, you would dismiss them;
- you gave the employee an adequate chance to respond to the warning and rectify behaviour; and
- the employee did not rectify their behaviour in the adequate time you gave them.
Was the Dismissal a Genuine Redundancy?
Additionally, an employee will not have access to an unfair dismissal claim where they have been made genuinely redundant. To satisfy the requirements of a genuine redundancy, you must:
- ensure that you no longer require the employee’s role in the business;
- consult with the employee regarding the redundancy; and
- ensure you have considered any redeployment opportunities to other areas of the business or your associated entities.
What is the Outcome of a Successful Unfair Dismissal Claim?
An unfair dismissal claim can only garner maximum compensation of 26 weeks’ worth of wages. However, this amount is capped at half of the high-income threshold at the time of the dismissal. This amount is indexed annually on July 1.
All employees under national workplace relations laws have access to unfair dismissal provisions. However, an employee will only be eligible to make an application once they have worked for your business for at least six months (or 12 months if you are a small business) and where they:
- earn less than the high-income threshold ($167,500 as of 1 July 2023); or
- are covered by a modern award or enterprise agreement.
An unfair dismissal claim must be applied within 21 days of dismissal. If you believe that a prior employee does not have the right to bring a claim for unfair dismissal, you may choose to raise an objection with the court.
What is Unlawful Termination?
There is a common misconception that ‘unfair dismissal’ and ‘unlawful termination’ share the same meaning. However, both are dealt with separately under the law.
Unlawful termination claims are available for employees where an employer ends their employment for a prohibited reason. Additionally, unlawful termination claims will only be available to employees who do not have access to an unfair dismissal claim and are not covered under the general protection provisions.
Prohibited reasons for termination include but are not limited to:
- illness or injury;
- participation in trade union activities outside of business hours;
- filing a complaint or legal proceedings against you;
- belonging to a certain race, sex or sexual orientation or having particular political views;
- having a disability, either physical or mental; or
- taking maternity leave.
As with applications for unfair dismissal, an employee must bring a claim for unlawful termination within 21 days of the termination. The Fair Work Commission will then hold a conference between all parties involved to resolve the dispute.
If the parties cannot resolve the issue, then the employee may apply in the Federal Circuit Court of the Federal Court of Australia. In that case, the remedies available include:
- reinstatement to their position;
- compensation; and
- civil penalties.
How Can Employers Avoid Unfair Dismissal and Unlawful Termination Claims?
To avoid being party to an unfair dismissal or unlawful termination claim, you should implement proper termination policies and seek legal advice where appropriate. As a general guide, the most appropriate way to lawfully dismiss an employee involves:
- carefully considering the reason for termination and ensuring these reasons are just and not protected by law;
- issuing verbal warnings regarding the reason for termination;
- providing written warnings;
- arranging a meeting with the employee to discuss the relevant allegations and issues with their performance;
- allowing the employee to respond to these allegations and warnings;
- discussing any suggestions the employee has to assist them in improving their performance;
- ensuring your employee is aware they may have a support person present for any discussions; and
- providing adequate notice of termination.
Key Takeaways
Unfair dismissal and unlawful termination describe a scenario where an employee has reasonable cause to challenge the basis on which you fired them. Some key things to note about these two concepts include that:
- unfair dismissal claims are available to employees where they believe their dismissal was harsh, unjust or unreasonable who are covered by the national workplace relations laws; and
- unlawful termination claims are available where an employer ends a worker’s employment for a prohibited reason by law, and the national workplace relations laws do not cover the employee.
If you need assistance understanding your employees’ rights after termination, 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
termination policies and seek legal advice where appropriate. As a general guide, the most appropriate way to lawfully dismiss an employee includes carefully considering why you want to terminate employment and ensuring these reasons are just and not prohibited by law. You should also follow a procedurally fair process and provide adequate notice of termination.
Unfair dismissal and unlawful termination describe a scenario where an employee has reasonable cause to challenge the basis for being fired. Unfair dismissal claims arise when employees believe their termination was harsh, unjust or unreasonable. Whereas unlawful termination claims arise where an employee believes they were terminated for a protected reason. However, unlawful dismissal applies to those covered by the national workplace relations laws, while unlawful termination does not. Additionally, unlawful dismissal applies to those covered by the national workplace relations laws, while unlawful termination does not.
We appreciate your feedback – your submission has been successfully received.
