Solid Legal Protection Without the Expense

Call Us - 1800 608 088

When can a small business legally dismiss an employee?

If you own and operate a small business, you might feel overwhelmed about the laws relating to the hiring and firing staff, particularly in times of economic uncertainty and instability.

Employee dismissal

The Small Business Fair Dismissal Code of Conduct helps you manage employee dismissal properly.

The situation has been clarified somewhat by the Small Business Fair Dismissal Code and Checklist made available by the Fair Work Commission.

The purpose of the Code and Checklist is to assist the small business employer to determine whether the termination of the services of an employee is lawful.  An employer can be satisfied that – if he/she has followed the Code when dismissing an employee – the dismissal will be deemed fair.

The Code and Checklist – A Summary

The Code applies to all small businesses at which fewer than 15 staff members are employed based on a simple headcount.

Dismissal within the first 12 months of employment

A small business employer may dismiss an employee within the first 12 months of their employment, for which an employee cannot make an unfair dismissal claim.

For all other dismissals, if the employer has followed the Code, then the dismissal is considered fair.

Business downturn or redundancy

Employers have the right to dismiss staff due to business downturn, or if the job is no longer needed or relevant.  However, the redundancy must be genuine.

A recent case highlighting this point, found an employer (although not a small business employer) used a “sham” redundancy to dismiss a “difficult” employee.(1)  In this instance, a fine of $37,000 was ordered to be paid by the employer, to serve as a warning to others against using “sham” redundancies to unfairly dismiss employees.

If you are unsure about what constitutes a valid redundancy, refer to section 389 of the Fair Work Act.  Section 389 provides clarification as to what is, or is not, a genuine redundancy.  You can also seek more information from or by contacting Fair Work on 13 13 94.

The Checklist (see below) is also of benefit when considering whether to make a staff member redundant.

Immediate dismissal

An employer has various grounds to dismiss an employee effective immediately, without prior notice or warning.  This includes serious transgressions such as violence, fraud, theft and health and safety breaches.

Dismissals based on employee’s performance or capacity to do the job

For other dismissals, for example, those based on the employee’s performance or capacity to perform the work, a warning (preferably written) must be issued stating that the employee is at risk of being dismissed.  The warning must also state a valid reason for the potential dismissal and that the employee risks being dismissed if the issue is not rectified.  The employee must be given the opportunity to respond and correct the problem, which may involve receiving additional training by the employer or detailed explanation and identification of the employee’s role and expectations.

Keeping records

It is advisable for employers to keep detailed records relating to employment of staff, particularly, where a staff member is being dismissed.

The need for detailed records is crucial in the event that an unfair dismissal claim is ever made against the small business employer.  In this case, the employer will need to demonstrate that the termination was fair and in compliance with the Code.

Records should include details of all conversations with the employee, copies of all correspondence particularly written warnings and notices to the employee and completed Fair Dismissal Code Checklist (see below).

In addition it is good practice to keep written records of employment agreements and any workplace policies so that the employee understands their obligations and what is expected of them within the workplace.

The Checklist

The Checklist is a tool devised by Fair Work Australia to assist small business employers in determining whether a dismissal is fair and in compliance with the Code and the Fair Work Act.

The completed Checklist is also helpful as a stored record of the reasons for the employer’s decision in terminating an employment, the surrounding circumstances, and for future reference.

You can access a copy of the Small Business Fair Dismissal Code and Checklist here

(1) National Tertiary Education Union v Royal Melbourne Institute of Technology [2013] FCA 451