Small Business Fair Dismissal Code

As a small business owner, you might just realise an employee who is not the right fit for your organisation. You scratch your head and decide it is time to let go of him or her. Sacking people is hard; what is worse, if you do it wrongly, you might end up jumping out of the frying pan into the
fire—being liable for unfair dismissal.

Pursuant to section 394 of the Fair Work Act 2009 (Cth) (‘the Act’), an employee may lodge an application for an unfair dismissal remedy against your business through the Fair Work Commission (‘the Commission’). A successful application will entitle the applicant to receive the amount of remuneration up to 26 weeks of his or her pay or half the amount of the ‘high income threshold’ immediately before the
dismissal (whichever is lower). The ‘high income threshold’ is adjusted annually on 1 July and stands at $153,600 currently.

To ensure a dismissal is fair, a small business employer needs to comply with the Small Business Fair Dismissal Code (‘the Code’) when dismissing an employee. The Code purports to recognise the special circumstances of small business employers by providing separate, simple rules of dismissal for them to follow. One such special circumstance is the absence of dedicated human resources specialists or expertise.

The Application of The Code

he Code came into operation on 1 July 2009. It applies to small business
employers with fewer than 15 employees. Small business employees can only make a claim for unfair dismissal upon 12 months of continuous employment with the employer. If an employee is dismissed after this period and the employer has followed the Code, then the dismissal will be deemed to be fair. By contrast, the minimum service period is only six (6) months for non-small business employees.

If small business employers fail to comply with the Code, they will be subject to the unfair dismissal provisions of the Act as those provisions apply generally. According to section 385 of the Act, this means that the Commission will make a finding of unfair dismissal if it is satisfied that:

  1. the dismissal was harsh, unjust or unreasonable; and
  2. the dismissal was not a case of genuine redundancy.

For small business employers, compliance with the Code in effect serves as a defence against an unfair dismissal claim. That is why it is of utmost importance to follow the Code when terminating an employee’s employment.

Summary Dismissal

Under the Code, it is fair for an employer to dismiss an employee without notice or warning (summary dismissal) when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures.

‘Summary dismissal’ is a complex legal concept. To properly understand it, small business employers should at least pay heed to the following aspects:

  • For a dismissal to be considered fair, it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police.
  • The scope of ‘serious misconduct’ could potentially go beyond the categories of ‘theft, fraud, violence and serious breaches of occupational health and safety procedures’ as identified in the Code. It has been found that sending emails that disparaged the Managing Director to another staff member and a business contact of the employer amounted to serious misconduct (McKenna v Home Theatre Group Pty Ltd T/A Home Theatre Group [2012] FWA 9309). The same finding has been drawn on an employee’s conduct of using the employer’s resources and time to operate a competing business (Jones v Solarbright Home Improvements Trading as Solarbright Country [2015] FWC 5854). Nevertheless, small business employers need to be aware that the exact scope of serious misconduct is not clearly defined.
  • The Commission does not need to make a finding on whether the alleged misconduct occurred. Instead, it must focus on whether the employer had a reasonable belief that the conduct of the employee was serious enough to warrant immediate dismissal. And that belief does not need to be correct – it only needs to be ‘reasonable’.
  • In determining whether the employer holds that reasonable belief, the Commission must consider the experience and resources of the small business concerned.
  • The employer’s post-dismissal conduct might be relevant. For example, in Saar Markovitch v Krav Maga Defence Institute Pty Ltd T/A KMDI [2019] FWC 7365, the employer summarily dismissed an employee upon a finding that the employee engaged in conduct that involved a serious breach of health and safety procedures. But at the time of dismissal, the employer still expected and required the employee to work for further two weeks. Given that, the Commission held there was no reasonable belief that employee’s conduct was sufficiently serious to justify immediate dismissal. Thus, it is important to ensure a consistent approach be taken in summarily dismissing an employee.

Other Dismissal

If small business employers are not able to apply the ‘summary dismissal’ provisions of the Code, they would need to comply with the ‘other dismissal’ provision. Such a need arises typically when an employer seeks to fire an employee who underperforms or does not have the capacity to perform the job. In that case, the small business employer should:
• Give the employee a reason why he or she is at risk of being
dismissed. The reason must be a valid reason based on the
employee’s conduct or capacity to do the job.
• Warn the employee verbally or preferably in writing that he or she
risks being dismissed if there is no improvement.
• Provide the employee with an opportunity to respond to the
• Give the employee a reasonable chance to rectify the problem,
having regard to the employee’s response. As part of the inquiry,
the Commission will consider whether the employer has given
sufficient time for the employee to rectify the problem. In Puri v
Sydney Strata Pty Limited [2012] FWA 7317, a period of less than
three weeks was considered sufficient. Nevertheless, time
sufficiency will be determined on a case-by-case basis, as the
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circumstances of each case differ.
• If needed, provide the employee additional training and clearly
communicate with the employee on the relevant job expectations.
Procedural Matters
In discussions with an employee in circumstances where dismissal is
possible, the employee can have another person present to assist.
However, the other person cannot be a lawyer acting in a professional
A small business employer will be required to provide evidence of
compliance with the Code if the employee makes a claim for unfair
dismissal to the Commission, including evidence that a warning has been
given (except in cases of summary dismissal). Evidence may include a
completed checklist, copies of written warning(s), a statement of
termination or signed witness statements.
RN LEGAL has assisted many clients with employment-related matters.
RN LEGAL has the experience, expertise, and resources to help you with
such matters. Contact RN LEGAL on (02) 9191 9293 or
if you, or someone you know, requires advice or assistance in relation
to any aspect of employment