In the 2023-24 financial year, the Fair Work Commission (FWC) received 14,772 unfair dismissal claims, a significant rise from the 11,012 claims lodged in 2022-23. With an increasing number of employees pursuing legal action, it is vital employers adopt strategies that minimise the risk of successful unfair dismissal claims.
What is unfair dismissal?
Under the Fair Work Act 2009, an employee is unfairly dismissed if the dismissal is harsh, unjust, or unreasonable. To lodge a claim, employees must meet the following criteria:
- Have completed six months of continuous service (or 12 months for businesses with less than 15 employees).
- Be covered by an award or enterprise agreement, or earn less than the high-income threshold (currently $175,000).
The FWC considers several factors when determining if a dismissal is unfair, including:
- Whether there was a valid reason for the dismissal related to the employee's conduct or capacity.
- If the employee was notified of the reason and given an opportunity to respond.
- Whether the employee had been warned about performance issues before dismissal.
- If procedural fairness was followed.
- The size of the business and whether there were HR personnel involved.
Unfair dismissal claims can result in employees being reinstated or employers being ordered to pay compensation. Even unsuccessful claims can still be costly in terms of time and money.
Strategies to minimise unfair dismissal risks
1. Establish clear workplace policies
Employers should implement written policies for managing underperformance and misconduct. Clear, consistently applied policies demonstrate to employees the expectations and consequences of breaching them. These policies should be reviewed regularly and communicated to all staff. It is important that employees are given the opportunity to improve their performance before dismissal is considered.
2. Adopt a structured performance management process
For employees showing signs of underperformance, employers should:
- Provide clear, constructive feedback on areas needing improvement.
- Offer support or additional training as necessary.
- Set reasonable timeframes for improvement.
- Keep detailed written records of all performance reviews and warnings.
3. Closely monitor employees during probation
Most employment contracts include a probationary period (typically six months), during which employees can be dismissed for any lawful reason, subject to notice. Employees with less than six months of service cannot lodge an unfair dismissal claim, making the probationary period a key opportunity for employers to assess whether an employee is suitable for continued employment.
However, employees with less than six months' service can still initiate other legal proceedings (e.g., general protections claims). As such, employers should provide reasons for dismissals during probation to avoid potential legal challenges.
4. Ensure procedural fairness
Procedural fairness (or "natural justice") requires employers to provide employees with an opportunity to respond to concerns about their conduct or performance before dismissal. Employers should outline concerns in writing and invite employees to respond, in writing and verbally. The dismissal decision should be postponed until the employee has had the chance to respond.
Failure to follow procedural fairness can lead to an unfair dismissal ruling, with potential reinstatement or compensation orders (or both).
5. Comply with the Small Business Fair Dismissal Code
For businesses with less than 15 employees, the Small Business Fair Dismissal Code provides a checklist for dismissals. It states that:
- Employees can be dismissed without notice for serious misconduct.
- If there is no serious misconduct, employees must be informed of their risk of dismissal and given a chance to improve.
Adhering to this code reduces the risk of unfair dismissal claims in small businesses.
6. Ensure redundancies are genuine
When making an employee redundant, employers must ensure:
- The redundancy is real (i.e., the role is no longer required).
- The employee is consulted before the redundancy is finalised.
- Redeployment opportunities within the business are considered.
Failure to comply with these steps can lead to the FWC determining the redundancy as non-genuine, resulting in an unfair dismissal.
7. Maintain accurate documentation
Employers should keep detailed records throughout the employee lifecycle, particularly regarding performance or conduct issues. These records can be crucial in defending against unfair dismissal claims, as they demonstrate the rationale behind dismissal decisions.
8. Seek legal advice
Dismissing an employee can be complex, and mistakes can be costly. Seeking legal advice before taking dismissal action ensures compliance with employment laws and helps mitigate the risk of unfair dismissal claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
