Nobody starts a business thinking they’ll end up in front of the Fair Work Commission. But unfair dismissal claims are more common than most employers expect, and they usually catch people off guard because the rules aren’t always intuitive. It’s rarely the dismissal decision itself that causes problems, it’s what happened (or didn’t happen) in the lead-up to it.
If you’re about to let someone go, or you’ve just had a claim land on your desk, here’s what you need to know.
What Counts as Unfair Dismissal Under The Fair Work Act?
Unfair dismissal happens when an employee is dismissed in a way that’s harsh, unjust, or unreasonable. That could mean there wasn’t a valid reason for the termination, the process wasn’t fair, or both.
It’s a specific legal test, and it’s easy to assume you’re in the clear when you’re not. The Fair Work Commission looks at the full picture, not just the final decision, so even a dismissal with a solid underlying reason can be found unfair if the process leading up to it was rushed or unclear.
Unfair dismissal vs unlawful termination vs general protections
These three get mixed up constantly, so here’s the difference in plain terms:
| Claim type | What it covers |
| Unfair dismissal | The dismissal itself was harsh, unjust or unreasonable |
| Unlawful termination | Dismissal for a prohibited reason (e.g. discrimination, temporary absence due to illness) |
| General protections | Dismissal linked to a workplace right, like taking leave or making a complaint |
Each pathway has different eligibility rules, different time limits, and different remedies, which is why getting advice before you act matters more than most employers realise. It’s also worth knowing that an employee can sometimes run more than one of these unfair dismissal claims at once, which makes getting the process right from the start even more important.
Who’s Protected From Unfair Dismissal Claims?
Not every employee can bring a claim, and knowing where the line sits can save you a lot of stress.
The minimum employment period
An employee generally needs to have worked for you for at least six months before they’re eligible to claim, or 12 months if you’re a small business (under 15 employees). Casuals only count toward this if their employment has been regular and systematic, meaning an irregular casual arrangement may not build up eligibility in the same way. This is a detail that trips up a lot of employers who assume casuals are automatically excluded altogether, when that’s not quite right.
The high income threshold
If an employee isn’t covered by an award or enterprise agreement and earns above the high income threshold (currently $190,100 as of 1 July 2026), they generally can’t bring an unfair dismissal claim.
This figure is adjusted every year on 1 July, so it’s worth checking before you rely on it, particularly if you’re managing dismissals close to the financial year boundary when the threshold shifts.
What Counts as a Valid Reason for Dismissal?
A valid reason usually relates to the employee’s conduct or capacity to do the job, things like poor performance, misconduct, or an inability to meet the inherent requirements of the role. It has to be sound, defensible, and not just a matter of preference.
A personality clash or a general feeling that “it’s not working out” won’t cut it on its own. There needs to be something concrete behind the decision.
What Does Procedural Fairness Require?
This is where most unfair dismissal claims are won or lost. Procedural fairness means the employee knew
- why they were being dismissed
- Had a chance to respond
- Wasn’t blindsided by a decision that had already been made.
It also means giving the employee a reasonable opportunity to have a support person present in any relevant discussions, and considering their response before finalising anything.
Skipping this step is one of the most common (and most avoidable) mistakes employers make, often because they’ve already mentally committed to the outcome before the conversation even starts.
What Happens If An Unfair Dismissal Claim Succeeds?
If the Fair Work Commission finds in the employee’s favour, the usual remedies are reinstatement or compensation. Reinstatement isn’t always practical, particularly where the working relationship has broken down, so compensation is the more common outcome.
How compensation gets calculated
Compensation is capped at the lesser of 26 weeks’ pay or half the high income threshold at the time of dismissal (currently $95,050). The Commission also considers things like the employee’s efforts to find new work, their length of service, and any misconduct that contributed to their own dismissal.
It’s worth noting that compensation isn’t intended to punish the employer. It’s meant to reflect what the employee actually lost, which means the final figure is often lower than employers expect, but the legal costs and time involved in getting there can still add up quickly.
How Can Employers Reduce the Risk of a Claim?
This is really the heart of any unfair dismissal advice for employers, and most of it comes down to habits rather than one big fix:
• Document performance issues as they happen, not after you’ve already decided to terminate.
• Follow a clear, consistent process every time, not just when it’s convenient.
• Give employees an opportunity to respond before any final decision is made.
• Keep records of every conversation, warning, and meeting.
• Get advice before you act, not after the claim arrives.
If you’re wondering how to avoid unfair dismissal claims altogether, the honest answer is that you can’t eliminate the risk completely, but you can dramatically reduce it by treating the process as seriously as the decision itself. A useful habit is to ask yourself, before any dismissal, whether you could clearly explain your reasoning and process to someone outside the business.
If the answer’s uncertain, that’s usually a sign to slow down and get advice. This is exactly the kind of thing our experienced HR consultants can help you get right before it becomes a problem.
The Small Business Fair Dismissal Code Explained
If you employ fewer than 15 people, the Small Business Fair Dismissal Code gives you a simpler framework to follow. As long as you can show you complied with the Code, summary dismissal (for serious misconduct) or dismissal with notice can both be considered fair, even without the more detailed process larger employers are expected to follow.
That said, “simpler” doesn’t mean “no process at all,” and plenty of small businesses still get caught out by skipping documentation altogether. Even under the Code, you’ll need to show you had a reason, connected to conduct or capacity, and that you followed a reasonable process.
Verbal warnings without any record, or a termination decision made on the spot with no discussion, are still common ways small businesses find themselves at the Commission despite thinking the Code gave them more room than it actually does.
Our Unfair Dismissal Advice For Employers? Get Ahead of the Risk
Unfair dismissal claims are far easier to prevent than to defend. If you’re not confident your dismissal process would hold up under scrutiny, it’s worth getting advice before you’re in the middle of a situation, not during one.
Whether that means bringing in HR outsourcing support for the day-to-day, or having access to our HR hotline for employers for quick, referenced answers when something urgent comes up, getting it right the first time is always cheaper than fixing it after the fact.
Book a consultation with HR Expertise today and make sure your next dismissal doesn’t turn into a claim.
Cedric has 13+ years of demonstrated experience as a senior HR generalist with a broad commercial and project-driven background within leading global organisations across a range of industries. He is qualified with an MBA from the Australian Institute of Business (AIB), an Advanced Diploma of Management specialising in Human Resources and an HR Consulting – Business Partnering course from the Australian Human Resources Institute (AHRI).