Unfair dismissal and small business: how the Fair Dismissal Code works
Direct answer: If an employer is a small business employer - fewer than fifteen employees counted across the business and its associated entities - two things change. An employee needs twelve months of continuous service rather than six before they can bring an unfair dismissal claim at all, and if the employer followed the Small Business Fair Dismissal Code the dismissal is not unfair. Neither of those is automatic: the headcount and the compliance both have to be established, and the employer carries that burden.
Who counts towards the fifteen?
The headcount is a count of people, not of full-time equivalents. A business with twelve part-time employees is a business with twelve employees. The count is taken at the time of the dismissal and includes employees of the employer and of any associated entities, which is where employers with a group structure most often come unstuck - two related companies with nine employees each are not two small businesses.
The employee being dismissed is included in the count, as is any other employee dismissed at the same time. Casual employees are counted only where they are employed on a regular and systematic basis. That last point moves in both directions: a business that regards its casuals as excluded may find the count is higher than assumed, and a business relying on irregular casuals to reach fifteen may find the count is lower.
The twelve-month minimum employment period
For an employer that is not a small business employer, the minimum employment period is six months. For a small business employer it is twelve. An employee who has not completed it is not protected from unfair dismissal, and the application will not get past the initial jurisdictional stage no matter how the dismissal was handled.
Continuous service is not the same as time on the payroll. Unpaid leave generally does not count towards the period, transfers of business can preserve service, and casual service counts only where the engagement was regular and systematic with a reasonable expectation of continuing employment. Where a person moved from casual to permanent, the casual period often counts, and the difference can decide the case.
It also matters that the minimum employment period is only one of the doors. Even with twelve months of service, the employee must also be covered by a modern award or an enterprise agreement, or earn less than the high income threshold, which is indexed on 1 July each year.
What the Code actually requires
The Small Business Fair Dismissal Code separates two situations, and the requirements are quite different.
| Situation | What the Code requires |
|---|---|
| Summary dismissal - serious misconduct | The employer believes on reasonable grounds that the employee's conduct is sufficiently serious to justify immediate dismissal. Theft, fraud, violence and serious breaches of work health and safety are the examples given. Where the conduct may be criminal, the Code contemplates the employer reporting it to the police. |
| Any other dismissal | The employer must give the employee a reason why they are at risk of being dismissed, based on conduct or on capacity to do the job. The employee must be warned - verbally, though written is strongly preferable - that they are at risk of dismissal if there is no improvement. The employee must be given a reasonable chance to rectify the problem, including any training or instruction reasonably needed. The employee may have another person present at the discussions, other than a lawyer acting in a professional capacity. |
The Code is a shield, not a formality. Where an employer establishes compliance, the Commission does not go on to ask whether the dismissal was harsh, unjust or unreasonable - the claim ends there. Where the employer cannot establish it, the ordinary test applies in full.
Why employers lose cases they should win
Most small-business dismissals that fail do so on evidence rather than on merits. The employer had a real reason, gave a real warning and had a real conversation, but there is nothing in writing about any of it, and the employee's account of the same events is different. The Commission has to choose between two recollections, and the party with a contemporaneous note is usually the one it prefers.
The second common failure is the reason moving. A dismissal explained at the time as a downturn, and defended later as poor performance, invites the finding that neither was the real reason. The third is summary dismissal used for conduct that was genuinely a problem but not serious enough to justify going without notice - the belief has to be held on reasonable grounds, and grounds have to exist.
What a small employer should be able to produce
- The employment contract and any position description.
- A note of the headcount at the date of dismissal, including associated entities and regular casuals.
- Any warning given, and the date it was given.
- A note of the meeting at which the reason was put and the employee responded.
- Evidence of the training or opportunity to improve that was offered.
- For a summary dismissal, what was known at the time and why it was believed.
What an employee should not assume
Being dismissed by a small business does not end the question. Three things are worth testing before accepting that there is no claim.
- The headcount. Associated entities are counted. Regular casuals are counted. Fifteen is easier to reach than most people expect.
- Whether the Code was actually followed. The employer has to establish it. An employer who gave no warning and dismissed for performance has not complied, whatever the paperwork says afterwards.
- Whether unfair dismissal is the only option. A general protections claim has no minimum employment period and no small business variation, and discrimination complaints have their own pathways. Both have their own time limits, and the general protections limit for a dismissal is the same twenty-one days.
The time limit does not change
Whatever the size of the employer, an unfair dismissal application in the national system must be lodged within twenty-one days of the dismissal taking effect. In the Western Australian state system, which covers employees of unincorporated employers, the period is twenty-eight days from termination. Working out whether the Code applies is not a reason to let either run.
This guide is general information about the law in Australia and Western Australia and is not legal advice for your situation. Thresholds and monetary figures indexed each year should be checked as at the date of the dismissal.