Introduction to unfair dismissal

What is an 'unfair dismissal'?

Unfair dismissal is defined under s 386 of the Fair Work Act 2009 (Cth) ("the Act"). Section 386 provides:

A person has been unfairly dismissed if the Fair Work Commission is satisfied that:

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

Elements of an unfair dismissal

Under s 390(1)(a) of the Act, the Fair Work Commission ("FWC") may not grant a person a remedy in respect of an unfair dismissal, unless it is satisfied that, at the time of being dismissed, the person in question was 'protected from unfair dismissal'.

Under s 382, an employee is 'protected' if they (1) have completed the 'minimum employment period'; and (2) must be either covered by an award or enterprise agreement, or have annual earnings that are less than the 'high income threshold'.

In addition to satisfying these requirements, the employee will need to show that they have been dismissed within the meaning of s 386.

Satisfying the elements

(1) Minimum employment period (s 383 of the Act)
The minimum employment period required by s 383 of the Act is ordinarily six months. This is dated from the date the employee commenced employment to the time the employee was given notice of their dismissal, or immediately before the dismissal itself (which ever occurred first). In the case of a 'small business employer' (less than 15 full-time equivalent employees), this period is twelve months.

Under s 384(1) of the Act, an employee's period of employment is generally determined by the 'continuous service' they have completed with their employer, as defined under s 22 of the Act. Periods of unauthorised absence and unpaid leave (whether authorised or not) are not counted towards an employee's continuous service (this does not include periods of leave as prescribed by the Fair Work Regulations 2009 ("the Regulations") such as annual leave and personal / sick leave).

This position was confirmed in Webster v Toni and Guy Port Melbourne Pty Ltd [2010] FWA 4540, with the court determining that unauthorised absences or periods of leave do not generally break an employee's continuity of service. Rather, these absences will not count towards the employees' length of service and will be sufficient to prevent an employee reaching the minimum service needed to make a claim under s 386. For example, if an employee has been employed for 6 months but had 2 weeks of unpaid leave the employee would not have completed the minimum 6 months of service even though that unpaid leave will not have broken the employee's continuity of service.

In respect of casual employment, s 384(2)(a) makes it clear that a period of casual employment will not count towards the minimum period unless the employment was on a 'regular and systematic basis' and the employee had a reasonable expectation of ongoing employment on that basis (Ponce v DJT Staff Management Services Pty Ltd [2010] FWA 2078).

(2) High income threshold (s 333 of the Act)
Under the Act, an employee is eligible to bring an unfair dismissal claim (regardless of how much they earn) if they are covered by a modern award, or, if an enterprise agreement applies. If there is no award coverage and no enterprise agreement applies, an employee can only bring a claim if the sum of their 'annual rate of earnings' at the time of dismissal, is less than the 'high income threshold'. The High Income threshold is currently $133,000 per annum and is calculated pursuant to the Regulations. We note that this figure will most likely increase by $2,000 to $5,000 in July 2015.

In calculating an employee's 'annual rate of earnings', it is necessary to consider the definition of 'earnings' under s 332 of the Act. An employee's earnings extends beyond wages and includes any 'non-monetary' benefits to which the employee is entitled in return for performing their work i.e. the use of a car as part of a salary package. An employee's earnings are not taken to include reimbursements, or any payment 'the amount of which cannot be determined in advance'. This would include commissions, incentive-based payments, bonuses, and overtime. Despite this, the FWC has the discretion to include a 'non-monetary benefit', should it be satisfied it is appropriate to.

(3) Unfair dismissal (s 385 of the Act)
Section 385(a) of the Act – the employee must have been 'dismissed'. Dismissed is defined under s 386(1).

Section 386(1)(a) of the Act – the employee's employment must be terminated at the 'employer's initiative' i.e. the employment relationship is not 'voluntarily' ended by the employee (Mohazab v Dick Smith Electronics Pty Ltd (No 2) (1995) 62 IR 200).

However, pursuant to s 386(1)(b) of the Act where an employee who has resigned but was forced to do so because of conduct engaged in by his or her employer will amount to termination by the employer, and is otherwise known as 'constructive dismissal'. It would be enough that the employer had seriously breached its obligations in such a way that resignation could be regarded as a 'probable result' of the employer's action (O'Meara v Stanley Works Pty Ltd [2006] AIRC 496).

Section 385(b) of the Act – the dismissal must have been 'harsh, unjust or unreasonable'. In considering whether the dismissal was 'harsh, unjust or unreasonable', the FWC must consider the relevant factors outlined under s 387:

  • whether there was a valid reason for the dismissal related to the person's capacity or conduct (including its effect on the safety and welfare of other employees); and
  • whether the person was notified of that reason; and
  • whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and
  • any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and
  • if the dismissal related to unsatisfactory performance by the person--whether the person had been warned about that unsatisfactory performance before the dismissal; and
  • the degree to which the size of the employer's enterprise would be likely to impact on the procedures followed in effecting the dismissal; and
  • the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and
  • any other matters that the FWC considers relevant.

In considering these factors, the presence of a valid reason for dismissal is not conclusive. An employer may have a perfectly good reason for dismissing a worker, but the dismissal may be deemed unfair because of the way it was handled (as highlighted in the 4 cases discussed below).

(4) Compliance with Small Business Fair Dismissal Code
Section 385(c) of the Act – the dismissal was not consistent with the Small Business Fair Dismissal Code ("the Code"). The Code applies to small business employers and provides that:

  • A dismissal will be deemed to be fair whenever the employer has reasonable grounds to believe that the employee was guilty of serious misconduct, such as theft, fraud, violence or serious breaches of occupational health and safety requirements. It is 'sufficient, though not essential' that the employer reports the allegation to the police or some other relevant authority'.
  • For other dismissals, an employee must be given a valid reason that is based on their conduct or capacity. This must be preceded by a warning, preferably but not necessarily in writing, that they risk being dismissed if there is no improvement. The employee must also be given an opportunity to respond to the warning and a reasonable chance to rectify the problem.
  • Employees can have another person present to assist them in any 'circumstances where dismissal is possible'. But that person cannot be a lawyer acting in a professional capacity.
  • If the employee lodges an unfair dismissal complaint with the FWC, the small business employer will be required to 'provide evidence of the compliance with the Code'. That may include 'a completed Checklist, copies of written warning(s), a statement of termination or signed witness statements'.

Please refer to the annexed Checklist, which the Federal Government released as a tool to help small business employers comply with the Code. We recommend all small business owners use this checklist when terminating staff as the completed checklist will be contemporaneous evidence and as such hold much more weight than an employer merely asserting at a later date that the Code was complied with.

(5) Genuine Redundancy
Section 385(d) of the Act – the dismissal was not a case of 'genuine redundancy'. As outlined under s 389(1), a dismissal will fall into the category of 'genuine redundancy' if the employer no longer required the employee's job to be performed by anyone because of changes in the operational requirements of the employer's enterprise. What matters for this purpose is whether the employee's position has been abolished; there may still be a redundancy even if some of the tasks formerly performed by the employee have been redistributed.

Even in a case of 'genuine redundancy', it is important for employers to have complied with the obligations under an award or enterprise agreement to consult the employee about the redundancy (Campbell Australasia Pty Ltd v McNay [2010] FWARB 6048).

Before terminating an employee by way of redundancy, employers must make reasonable efforts to redeploy the individual. If it would have been reasonable to redeploy the employee within the employer's enterprise or an associated business of the employer, but no such redeployment occurred, the dismissal will not be a genuine redundancy (s389(2) Fair Work Act 2009).


For an unfair dismissal claim to be successfully brought, an employee must (1) meet the minimum employment period; and (2) be covered by an award or enterprise agreement, or have earnings less than the high income threshold. Once an 'eligible employee' has alleged the termination was unfair, the onus lies on the employer to prove that the termination was not unfair for the purposes of s 386 of the Act.

The content of this paper is a general guide only, and should not be relied on as legal advice. Individual cases were selected as examples to assist you in gaining a better understanding of the issues and should not be considered exhaustive on the topic.

Precautions have been taken to ensure the information is accurate as at the time of publication, but Gavin Parsons and Associates does not guarantee, and accepts no legal liability whatsoever arising from or in connection with, the accuracy, reliability, currency or completeness of any material contained in this paper.

This paper is not to be used as a substitute source of legal advice. If you, your colleagues or clients are confronted with an unfair dismissal claim, or a situation where you are terminating an employee who is notoriously difficult and likely to bring an unfair dismissal claim, we strongly recommend that appropriate legal advice relevant to the particular circumstances be obtained.

Gavin Parsons

Date posted: 2015-07-01