Unfair Dismissal: A Business Owner's Worst Nightmare (And How to Avoid It)

If you’re a business owner in Australia, the mere mention of "unfair dismissal" no doubt increases the stress levels. The thought of a disgruntled employee lodging a claim against you can feel like an administrative nightmare, not to mention the potential cost to your business.

The reality is, many business owners are unknowingly making mistakes that increase their risk of facing an unfair dismissal claim. 

So, let's take a look at what unfair dismissal really means, what business owners often get wrong, and how to protect yourself from costly mistakes. Trust me, a little proactive effort up front can save you a whole lot of headaches down the track. 

What Is Unfair Dismissal? 

An unfair dismissal occurs when an employee is terminated in a way that is harsh, unjust, or unreasonable. The Fair Work Act 2009 sets out clear guidelines around this, but many employers still make simple errors that could land them in hot water. It’s not just about whether an employee deserves to be fired; it's also about whether the process you followed was fair and reasonable, also referred to as 'procedural fairness'. 

Key questions to consider are: 

- Was the employee given a chance to respond? 

- Did you follow a fair process? 

- Was the dismissal proportional to the issue? 

In short, it’s not just about the reason for the dismissal, it’s also about how you go about it. 

Common Mistakes Business Owners Make 

Unfortunately, some business owners make costly mistakes that could have been avoided. Here are the biggest mistakes I see time and time again: 

1. Firing Employees Without Proper Documentation 

   One of the most common (and costly) mistakes is failing to document everything. Verbal warnings, written warnings, performance reviews, and the reasons for termination should all be documented. Without a paper trail, you’ve essentially got no evidence to back up your claims if the termination is challenged. 

   
   

   It’s not enough to have a verbal conversation with an employee and think you’ve done your due diligence. Make sure that everything is put into writing. If you don’t have this evidence, the Fair Work Commission will most likely not rule in your favour.

   
   

2.  Immediate Dismissal Without Warning 

   As tempting as it might be to "fire on the spot" after an employee messes up, doing so can lead to an unfair dismissal claim. While it’s sometimes necessary to let someone go immediately, especially in cases of serious misconduct, this should not be your go-to method. Instead of acting in the heat of the moment, take a step back. If it's a serious issue consider standing the employee down, then review the circumstances.

   
   

   You must follow a process, which includes investigating the issue, notifying the employee of concerns, and giving them an opportunity to explain themselves. Firing someone on the spot without giving them that opportunity can easily be seen as unjust. 

   
   

3.  Not Giving Employees a Chance to Respond  

   The Fair Work Commission places a huge emphasis on procedural fairness. What does this mean? It means that you must allow the employee a fair opportunity to respond to the allegations or issues before making a decision. 

   
   

   This process gives your employee the chance to present their side of the story, which could reveal important context you might have overlooked. Failing to follow this step is a fast track to an unfair dismissal claim. 

   
   

4. Failure to Communicate Expectations Clearly 

   You can't hold employees accountable for things they didn’t know about. Without clear and documented performance expectations, policies, and codes of conduct, how can you expect employees to meet your standards? 

   
   

   Be transparent and clear from the start. Position descriptions, performance expectations, and regular performance reviews are crucial. When an employee is dismissed for underperformance, you need to be able to show that you’ve clearly communicated your expectations and provided the employee with the tools and feedback needed to succeed. 

   
   

The Cost of Getting It Wrong 

It’s easy to think that an unfair dismissal claim is just a minor inconvenience. The truth? It could cost you thousands, potentially tens of thousands of dollars, depending on the claim. And that’s not even counting the time and resources you’ll lose managing the situation. 

Beyond the financial costs, unfair dismissal claims can damage your business’s reputation. Word gets out, Fair Work will most likely publish the details, and employees might start to feel anxious about their own job security. Worse still, media attention (especially if you’re a larger business) could create a PR nightmare. 

So, what's the best way to avoid this altogether?

How to Avoid Unfair Dismissal Claims: Practical Steps for Business Owners

1. Create Clear Policies and Procedures 

Set the stage for success by establishing clear policies for your business. This includes everything from conduct and performance expectations to the disciplinary process. Make sure these policies are communicated to all employees and are easy to follow.  

2. Document Everything 

Every performance review, warning, and discussion should be documented. You need to show that you’ve followed the process, and this documentation is your proof that you’ve acted reasonably and fairly. No documentation = No evidence. 

3. Provide Regular Feedback 

It’s much easier to dismiss an employee who’s been underperforming if you’ve provided clear, constructive feedback over time. Performance management is not about “surprising” your employee with their failings at the time of dismissal. It’s about ensuring they know exactly where they stand, giving them the chance to improve.  

4. Use a Structured Process 

If you’re facing a performance or misconduct issue, don’t rush the process. Investigate thoroughly, ensure the employee has the chance to respond, and make sure any disciplinary action is proportional to the issue at hand. A structured process protects both you and the employee.  

 5. Consult an HR Professional

Don’t wait until it goes pear shaped. If you’re unsure whether your termination process is solid, or are concerned about an unfair dismissal claim, I can help. Getting advice early could save you significant time and money in the long run. Trust me, prevention is far cheaper than a lengthy legal battle. 

I work with small and medium businesses to make HR easier, safer, and less stressful. 

Book a free discovery call today. Let’s make managing staff the least of your worries. 

Get in Touch

Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225  

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The content provided on this website serves as a general information resource on the subjects discussed, and should not be considered tailored to specific individual circumstances or a replacement for legal counsel. While we exert significant effort to ensure the accuracy of our information, HR Consulting TAS cannot ensure that all content on this website is consistently accurate, exhaustive, or current. Recommendations by HR Consulting TAS and any information acquired from this website should not be regarded as legal advice.