Unfair Dismissal Claims in Australia: Eligibility, Process and Employer Risks

What Is Unfair Dismissal?

Under section 385 of the Fair Work Act a person has been unfairly dismissed if the Fair Work Commission is satisfied that:

• the person was dismissed;
• the dismissal was harsh, unjust or unreasonable;
• the dismissal was not a case of genuine redundancy; and
• where the employer was a small business, the dismissal was not consistent with the Small Business Fair Dismissal Code.

Each limb is separately contested. An employer who proves a redundancy was genuine, for example, wins the matter even where the process was flawed.

Who Can Bring an Unfair Dismissal Claim?

Only an employee who is protected from unfair dismissal may apply. To be protected, the employee must:

• be a national system employee — which covers the overwhelming majority of Australian private sector employees, and (in Victoria) public sector employees referred to the national system;
• have completed the minimum employment period; and
• either be covered by a modern award or an enterprise agreement that applies to the employment, or earn an annual rate of earnings less than the high income threshold.

Casual employees can be protected where they have been employed on a regular and systematic basis with a reasonable expectation of continuing employment on that basis. Casual misclassification is therefore a real employer risk — see our companion article on employee or contractor classification.

The Minimum Employment Period

The minimum employment period is six months for employers with 15 or more employees, and twelve months for small business employers. Service is generally continuous and includes most periods of authorised leave.

An employee dismissed inside the minimum employment period cannot bring an unfair dismissal claim — but they may still bring a general protections claim alleging adverse action because of a workplace right, or a discrimination claim, neither of which require a minimum period of service. The "we're inside six months so we can dismiss without process" assumption is one of the most expensive mistakes Australian employers make.

The High Income Threshold

The high income threshold is set by the Commission and indexed each 1 July. An employee whose annual rate of earnings exceeds the threshold and who is not covered by a modern award or applicable enterprise agreement is excluded from unfair dismissal — though, again, general protections and discrimination rights remain.

"Earnings" for this purpose is broader than salary alone and includes the agreed money value of non-monetary benefits, but excludes commissions, bonuses, incentive payments and superannuation contributions. Many employers assume a senior executive is above the threshold and discover, on a careful calculation, that they are not.

Award and Enterprise Agreement Coverage

Coverage is determined by reference to the award or agreement and the work the employee actually performs — not the words on the contract or the way the role is described internally. A "Manager" title does not exclude modern award coverage if the substantive duties fall within the classification structure. Where coverage exists, the employee is protected from unfair dismissal regardless of income.

Small Business Employers

A small business employer is one with fewer than 15 employees at the time of the dismissal, counted on a simple headcount basis (including associated entities and regular and systematic casuals — not full-time equivalents).

Small business employers are governed by the Small Business Fair Dismissal Code. Compliance with the Code, evidenced by a completed Code Checklist, is generally a complete defence to an unfair dismissal claim. The Code distinguishes between summary dismissal for serious misconduct and other dismissals, and requires (among other things) a valid reason, a warning, an opportunity to respond, and the chance to improve.

Harsh, Unjust or Unreasonable

The central test. Section 387 of the Fair Work Act requires the Commission to take into account:

• whether there was a valid reason related to capacity or conduct;
• whether the employee was notified of that reason;
• whether the employee was given an opportunity to respond;
• whether the employee was unreasonably refused a support person;
• for performance dismissals, whether the employee was warned about unsatisfactory performance before the dismissal;
• the size of the enterprise and the degree to which it is likely to have impacted on the procedures followed;
• the absence of dedicated HR expertise; and
• any other matters the Commission considers relevant.

"Harsh" looks at the impact on the employee; "unjust" looks at whether the employee was guilty of the conduct alleged; "unreasonable" looks at whether the decision was open on the evidence. A dismissal can satisfy any one of these limbs and be set aside.

Valid Reason for Dismissal

A valid reason is one that is sound, defensible and well-founded, and related either to the employee's capacity (their ability to do the work) or to their conduct (including misconduct and persistent unsatisfactory performance). It must exist as an objective fact — the Commission decides for itself whether the conduct occurred and whether it justified dismissal. A genuine but mistaken belief is not enough.

Procedural Fairness

Even where a valid reason exists, the dismissal may be harsh, unjust or unreasonable because of how the decision was made. The minimum procedural steps are:

• put the reason for possible dismissal to the employee in writing, with enough particularity that the employee can meaningfully respond;
• give the employee a reasonable opportunity to respond before the decision is made;
• allow a support person at any meeting where dismissal is a possible outcome;
• for performance matters, ensure prior warnings have been given and a chance to improve provided; and
• genuinely consider the response before deciding.

For a deeper treatment, see our companion articles on procedural fairness in workplace investigations and the most common workplace investigation mistakes.

Serious Misconduct and Summary Dismissal

Where the alleged conduct meets the definition of serious misconduct in the Fair Work Regulations 2009, the employer may dismiss summarily — without notice or payment in lieu. But "may" is doing a lot of work. The conduct must be proved on the balance of probabilities, properly investigated, and the employee must still be given a fair opportunity to respond. Many employers lose unfair dismissal cases where the underlying conduct is established but the process fell short. For the detail, see our article on serious misconduct termination. Where suspension on pay is appropriate pending investigation, see suspension pending investigation.

Performance Management Dismissals

Performance dismissals are where employers most often come undone. The Commission expects:

• clearly defined performance standards (KPIs, position description, observable behaviours);
• objective evidence that the standards have not been met;
• prior warnings that identify the deficiency, the required improvement, the support available and the consequence of not improving;
• a reasonable opportunity to improve, with genuine support; and
• a formal show-cause step before any dismissal decision.

Skipping the warning step, or issuing a "final warning" that is the first the employee has heard of the issue, is the most common procedural failure in performance dismissals.

Misconduct Dismissals

For conduct-based dismissals the employer's burden is to prove the conduct on the balance of probabilities and to show that the conduct, in the circumstances, justified dismissal. A proper investigation, a written show-cause letter that identifies each allegation, attached evidence where possible, a support person, time to respond, and a decision letter that engages with the response — these are the building blocks of a defensible dismissal.

Genuine Redundancy

A redundancy is "genuine" under section 389 only where:

• the employer no longer requires the job to be performed by anyone because of changes in operational requirements;
• the employer has complied with any consultation obligation in the applicable modern award or enterprise agreement; and
• it would not have been reasonable to redeploy the employee within the enterprise or an associated entity.

Consultation must be genuine and must occur before a final decision is made — not a briefing after the fact. Redeployment must be actively investigated; reasonable redeployment to a lower-paid role with the employee's consent is preferable to dismissal. Where any limb of the test fails, the redundancy is not "genuine" and the employer must defend the dismissal on its merits.

The Fair Work Commission Process

Unfair dismissal claims follow a tightly scheduled process designed to resolve most matters quickly:

1. Application (Form F2) — filed by the employee with the Fair Work Commission within 21 days of the dismissal taking effect, with a modest filing fee.
2. Employer response (Form F3) — usually due seven days from service. The response sets out jurisdictional objections, the employer's account of the dismissal and any preliminary remedy position.
3. Conciliation — most commonly a telephone conciliation conducted by a Commission conciliator within a few weeks of filing.
4. Arbitration — if the matter does not settle, it is listed for hearing before a Commission Member, with statements, documents and submissions filed in advance.
5. Decision and remedy — the Member decides whether the dismissal was unfair and, if so, what remedy to order.
6. Appeal — limited rights of appeal to a Full Bench, with leave required and a high threshold.

Time Limits

The 21-day filing limit is strict. The Commission has power to extend time, but only in exceptional circumstances — illness, misrepresentation by the employer or the like. Employers should diarise the 21-day window from the date the dismissal took effect (usually the last day of employment, not the date notice was given), and remain alert to the fact that an out-of-time application can still be accepted on extension.

Conciliation

Conciliation is confidential and "without prejudice" — statements made cannot be used against the parties in arbitration. The conciliator's role is to test each side's case and explore settlement, not to decide the merits. Outcomes typically include some combination of a modest settlement payment, an agreed statement of service, a non-disparagement clause and a deed of release. A significant majority of unfair dismissal claims resolve at this stage.

Employers should approach conciliation with proper instructions, a realistic settlement range, and authorised decision-makers available. Attending without authority — or treating it as a fishing expedition — is a wasted opportunity that almost always increases legal cost downstream.

Arbitration

If conciliation does not resolve the matter it proceeds to arbitration. The Commission is not bound by the rules of evidence and procedure that apply in court, but statements are sworn or affirmed, witnesses can be cross-examined, and the Member's decision is reasoned and published. Final hearings are often conducted by video and typically take one to three days.

Reinstatement

Reinstatement is the primary remedy under the Fair Work Act. The Commission may order the employer to reinstate the employee to the former position or to a comparable one, together with orders maintaining continuity of service and, where appropriate, requiring payment for lost earnings. Reinstatement is more common than is often assumed, particularly in genuine cases of procedural unfairness.

Compensation

Where reinstatement is inappropriate, the Commission may order compensation, capped at the lesser of six months' pay or half the high income threshold. Compensation is calculated by reference to the wages the employee would have earned but for the dismissal, adjusted for contingencies and discounted for any misconduct contributing to the dismissal. Damages for hurt, distress or humiliation are not available in unfair dismissal compensation.

Employer Risks Beyond the Cap

The compensation cap can lull employers into a sense of limited exposure. It is misleading. The real costs of an unfair dismissal claim include:

• legal fees (often $20,000–$80,000 for a matter that runs to arbitration);
• management and HR time consumed by preparation;
• witness disruption and the reputational impact on remaining staff;
• any settlement payment at conciliation;
• the risk that the same factual matrix supports a general protections claim in the Federal Circuit and Family Court, where compensation is uncapped; and
• flow-on discrimination, bullying or workers' compensation claims arising from the dismissal process.

Practical Steps After Receiving an Application

1. Diarise the deadlines. Note the F3 response date and conciliation date the moment service is effected.
2. Preserve documents. Issue a hold-on-destruction direction for emails, Slack/Teams messages, CCTV, HR file notes, performance records, show-cause correspondence and decision documentation.
3. Identify witnesses. The decision-maker, the investigator, the support person observer and any direct witnesses to the conduct. Take preliminary statements while memories are fresh.
4. Take advice. Brief an employment lawyer before filing the F3 — concessions or omissions in the response are very difficult to walk back later.
5. Test jurisdiction. Was the employee within the minimum employment period? Above the high income threshold and award-free? Genuinely a contractor? A genuine redundancy? Jurisdictional knockouts resolve matters quickly and cheaply.
6. Settle the strategy. Decide whether to defend, negotiate or settle at conciliation, and what authority the attending representative will have.
7. Communicate internally. Brief leaders who need to know, contain communications, and instruct staff not to discuss the matter externally.

Reducing the Risk Before You Dismiss

The cheapest unfair dismissal claim is the one that is never filed. The practical risk-reduction steps before any dismissal are:

• confirm jurisdiction (minimum period, threshold, award coverage, small business status);
• identify the proposed reason with precision and test whether it is genuinely "valid";
• run a procedurally fair process — written allegations, evidence, support person, response, considered decision;
• document each step contemporaneously, not after the event;
• consider whether warnings, performance support, or redeployment would be reasonable alternatives;
• consider whether suspension on pay is appropriate pending investigation; and
• obtain advice early in any borderline or contested case, including dismissals of long-serving employees or those who have recently exercised a workplace right.

When Legal Advice Should Be Obtained

Early — and certainly before:

• dismissing for misconduct, particularly where summary dismissal is contemplated;
• dismissing a long-serving employee or one with a clean record;
• terminating during or shortly after an injury, complaint, leave request or other workplace right being exercised (general protections territory);
• making one or more positions redundant, particularly where any selection between employees is required;
• dismissing inside the minimum employment period in borderline circumstances;
• negotiating a settlement, deed of release or "agreed departure"; and
• responding to any Fair Work Commission application.

Parke Lawyers acts for Australian employers on the full range of unfair dismissal matters — from the show-cause stage through to Fair Work Commission representation and, where required, related general protections, adverse action and discrimination defence. For broader employer advice, see our employment law for employers and litigation & dispute resolution pages, and our broader commercial & business law practice.

Related Reading

• Can an Employer Terminate Employment for Serious Misconduct?
• Procedural Fairness in Workplace Investigations
• Workplace Investigations: Common Mistakes
• Suspension Pending Investigation
• Employee or Contractor? The Risks of Getting It Wrong

Frequently Asked Questions