Employer's Guide to Unfair Dismissal in Australia (2026)

An unfair dismissal claim can land in your inbox within days of terminating an employee. The Fair Work Commission receives thousands of these applications every year, and the process moves fast - you'll typically have just seven days to respond after being notified of a claim.

This guide walks you through what unfair dismissal actually means for employers, who is eligible to bring a claim, what the Fair Work Commission looks for when deciding a case, and how to build a process that holds up if challenged.

What Is Unfair Dismissal?

Under the Fair Work Act 2009, a dismissal is unfair if it was harsh, unjust, or unreasonable. The Fair Work Commission assesses this by looking at whether you had a valid reason connected to the employee's capacity or conduct, whether you notified the employee of that reason, and whether the employee was given an opportunity to respond.

It is important to understand that "unfair" does not mean "unlawful" - they are separate legal concepts. An unfair dismissal deals with whether the process and reason for termination were reasonable. An unlawful termination or general protections claim deals with whether the dismissal was for a prohibited reason (such as exercising a workplace right). A dismissal can be lawful but still unfair if the process was inadequate.

The maximum compensation the Fair Work Commission can award for unfair dismissal is capped at 26 weeks' pay (or half the high income threshold, whichever is lower). Reinstatement is also a remedy, though it is ordered less frequently.

Who Can Bring an Unfair Dismissal Claim?

Not every terminated employee is eligible. The Fair Work Act sets out specific eligibility criteria that must all be met before the Commission will hear a claim.

Minimum employment period

The employee must have completed the minimum employment period before their dismissal took effect. This is 12 months if you are a small business employer (fewer than 15 employees at the time of dismissal, including casual employees employed on a regular and systematic basis). For all other employers, the minimum period is six months.

The high income threshold

Employees earning above the high income threshold who are not covered by a modern award or enterprise agreement cannot bring an unfair dismissal claim. This threshold is adjusted annually by the Fair Work Commission - check the current figure on the Commission's website, as it changes each financial year.

If your employee is covered by a modern award or an enterprise agreement, the high income threshold does not apply. They can bring a claim regardless of their earnings.

National system employer

The employer must be a national system employer. In practice, this covers most private sector employers in Australia (all constitutional corporations). State government employees and some local government employees in certain states may fall outside this system.

The 21-day filing deadline

An employee must lodge their unfair dismissal application within 21 calendar days of the dismissal taking effect. Late applications can be accepted in exceptional circumstances, but the Commission applies this strictly.

Employer takeaway: Do not assume you are safe simply because an employee earns a high salary or has been employed for a short period. Always check award coverage and count the headcount carefully - casual employees on regular and systematic engagements are included in the small business count.

What the Fair Work Commission Considers

When the Commission assesses whether a dismissal was harsh, unjust, or unreasonable, it is required to consider all of the following factors under section 387 of the Fair Work Act.

Valid reason

Was there a valid reason for the dismissal related to the employee's capacity or conduct? A valid reason must be sound, defensible, and well-founded - not capricious, fanciful, or spiteful. If the reason is performance-based, you need to show the employee knew the standard expected and was given an opportunity to improve. If the reason is conduct-based, you need to show the conduct actually occurred and warranted dismissal.

Notification and opportunity to respond

Was the employee notified of the reason for dismissal? Were they given a genuine opportunity to respond to the reason? This is not a tick-the-box exercise. The Commission expects that you told the employee clearly what the issue was, gave them reasonable time to prepare a response, listened to their response with an open mind, and genuinely considered their response before making the final decision.

Support person

Was the employee unreasonably refused a support person during discussions about the dismissal? Note that the support person's role is to provide emotional support and witness the conversation - they are not an advocate. You cannot refuse a reasonable request for a support person, but you are not required to delay proceedings indefinitely.

Warnings

If the dismissal related to unsatisfactory performance, was the employee warned about their performance before being dismissed? This typically means a documented performance improvement process, not just verbal feedback in passing.

Business size and HR resources

The Commission considers the size of your business and whether you have dedicated HR expertise. A large employer with an HR department is held to a higher standard of process than a small business owner managing employees directly. However, small business size does not excuse a fundamentally flawed process - it adjusts the standard, not the obligation.

Other relevant matters

This is a broad category that allows the Commission to consider anything else relevant. Common factors include the employee's length of service, their disciplinary history, and whether there were mitigating circumstances.

The Small Business Fair Dismissal Code

If you are a small business employer (fewer than 15 employees at the time of dismissal), you can rely on the Small Business Fair Dismissal Code as a defence to an unfair dismissal claim - provided you followed it.

The Code provides two pathways, depending on whether the dismissal is for misconduct (summary dismissal) or for other reasons (such as performance or operational needs).

For summary dismissal, you must have genuinely believed the employee's conduct was sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence, and serious breaches of workplace safety.

For other dismissals, you must have given the employee a reason why they were at risk of being dismissed, provided them with an opportunity to respond, and given them a genuine warning (which could be verbal for small businesses). If a reasonable person in your position would have also dismissed the employee in those circumstances, the dismissal is likely to be consistent with the Code.

Keep evidence. Even under the Small Business Code, the Commission will want to see that you actually followed these steps. File notes, written warnings, meeting records, and correspondence all matter.

Building a Defensible Dismissal Process

Whether or not you qualify as a small business, the fundamentals of a defensible process are the same.

Before you begin the process

Document the performance or conduct issues as they arise - not just when you are ready to terminate. Keep contemporaneous file notes recording dates, specific examples, and any conversations you had with the employee. Vague or retrospective documentation is significantly less persuasive.

The performance management pathway

If the issue is underperformance, your process should include a clear conversation with the employee about the gap between expected and actual performance, a documented performance improvement plan with specific, measurable goals and a reasonable timeframe, regular check-in meetings during the improvement period with notes, and a final review meeting with a clear outcome.

Do not skip straight from first conversation to termination. The Commission expects a genuine opportunity to improve, and the length of that opportunity should be proportionate to the role and the nature of the performance issue.

The misconduct pathway

If the issue is conduct-related, investigate before you decide. This means putting the allegations to the employee in writing, giving them a reasonable opportunity to respond (typically in a meeting, with the option to bring a support person), considering their response genuinely, and making a decision based on the evidence.

For serious misconduct, you may be justified in terminating without paying a notice period - but even then, you should still conduct an investigation and give the employee an opportunity to respond before the decision is made. The "summary" in summary dismissal refers to notice, not process.

The decision and communication

Once you have made the decision to terminate, communicate it clearly and in writing. The termination letter should state the reason for dismissal, the effective date, the notice period (or payment in lieu), details of final pay and entitlements, and information about returning company property.

Common Mistakes Employers Make

These are the patterns we see most often in unfair dismissal claims that succeed against employers.

No documented warnings. Verbal feedback alone is difficult to prove. Even in a small business, a brief dated file note or email confirming a conversation provides evidence that the employee was warned.

Rushing the process. Deciding to terminate and acting on the same day, without investigation or an opportunity to respond, is the single most common procedural failure.

Confusing performance and conduct. Performance issues require an improvement process. Conduct issues require an investigation process. Applying the wrong process to the wrong issue undermines your position.

Pre-determined outcomes. If you invite an employee to a "show cause" meeting but have already drafted the termination letter, the Commission will view the meeting as a sham. The opportunity to respond must be genuine.

Ignoring mitigating circumstances. Long-serving employees, employees with personal difficulties, or employees who can show the behaviour was out of character may warrant a different outcome. The Commission expects you to consider mitigating factors.

What to Do When You Receive an Unfair Dismissal Claim

If a claim is filed against you, the Commission will notify you and provide a copy of the application. You will typically have seven days to lodge a response. Here is what to do in that window.

Day 1-2: Gather all documentation related to the employee's employment: their contract, position description, performance reviews, warning letters, file notes, investigation records, the termination letter, and any correspondence. Identify the decision-maker - the person who made the termination decision - and confirm their recollection of events while it is still fresh.

Day 3-5: Prepare your response to the Commission. This should address each of the section 387 criteria outlined above, supported by documentary evidence.

Day 6-7: Review the response for completeness and file it with the Commission.

The first step in the Commission's process is usually a conciliation conference - a confidential, without-prejudice mediation facilitated by a Commission conciliator. Many unfair dismissal claims resolve at this stage through a negotiated outcome, which often involves a monetary settlement and a statement of service.

If conciliation does not resolve the matter, it proceeds to a hearing before a Commission member, where evidence is tested and a decision is made.

Frequently Asked Questions

Can I dismiss an employee during their probation period without risk of an unfair dismissal claim?

If the employee has not completed the minimum employment period (six months, or 12 months for small businesses), they are not eligible to bring an unfair dismissal claim. However, they may still be able to bring a general protections claim, which has no minimum employment period. Probation does not remove all legal risk.

Is a verbal warning enough?

It can be, particularly for small businesses - the Small Business Fair Dismissal Code specifically allows verbal warnings. However, a verbal warning is only useful if you can prove it happened. Follow up any verbal warning with a brief file note or email confirming what was discussed.

What if the employee resigned - can they still claim unfair dismissal?

Potentially, yes. If the employee can demonstrate that they had no real choice but to resign because of something the employer did (or failed to do), the Commission may treat the resignation as a constructive dismissal. This is sometimes called "forced resignation."

How much could an unfair dismissal claim cost my business?

The maximum compensation is 26 weeks' remuneration or half the high income threshold, whichever is lower. However, the real cost includes legal and advisory fees, management time spent preparing and attending proceedings, and the operational disruption. Most claims that proceed past conciliation cost employers significantly more in time and distraction than in any eventual payout.

What is the difference between unfair dismissal and general protections?

Unfair dismissal examines whether the process and reason for termination were reasonable. General protections examines whether the termination was motivated by a prohibited reason - such as the employee exercising a workplace right, their race, sex, or disability, or their temporary absence due to illness. General protections claims carry uncapped compensation and a reverse onus of proof on the employer. They are a fundamentally different (and often more serious) legal risk.

Need help with an unfair dismissal matter? Whether you are building your termination process or responding to a claim, ClearER's employment relations specialists can help. Call us on 1300 99 22 16 or book a consultation.

This guide is general information only and is not legal advice. Employment law is complex and fact-specific - always seek tailored advice for your situation. Last updated: March 2026.