Small Business Fair Dismissal Code: A Plain-English Guide

By Natasha Silveira | 3 October 2026 | 11 min read

You run a cafe with nine staff. One barista has been late eleven times in two months, and a regular has complained about her attitude twice.

You’d like to let her go, and you’ve heard the Small Business Fair Dismissal Code gives small employers their own rules. It does. The Code is a short federal document, and if you follow it, the dismissal is treated as fair. Follow it loosely and it gives you no protection at all.

This guide explains who the Code covers, what it asks of you, where owners trip up and the paperwork that proves you followed it.

What is the Small Business Fair Dismissal Code?

The Small Business Fair Dismissal Code is a set of rules made under the Fair Work Act for employers with fewer than 15 employees. If the Fair Work Commission is satisfied that a dismissal was consistent with the Code, the employee hasn’t been unfairly dismissed, and their claim fails.

That makes the Code a defence, not a permission slip. It doesn’t stop an employee lodging a claim. It gives you a way to have that claim thrown out early, as long as you can show you met each requirement. The Commission checks the Code first, before it looks at the wider question of fairness.

The full text of the Code fits on two pages, with a checklist attached. It covers two situations. The first is summary dismissal, where conduct is serious enough to end employment on the spot. The second is every other dismissal, usually for poor performance or repeated misconduct, where a warning process is needed first.

The Code has applied in its current form since 1 January 2011. There have been calls to change it, including a 2019 review by the Australian Small Business and Family Enterprise Ombudsman, but the wording employers rely on today is the same. Read it in full before you act. It’s short for a reason.

Who the Code applies to

The Code is only available to a small business employer, which the Fair Work Act defines as an employer with fewer than 15 employees at the time of the dismissal. The headcount rules matter, because many owners count wrongly.

According to the Fair Work Ombudsman’s unfair dismissal guidance, you count:

• Every employee employed at the time of the dismissal.
• The employee being dismissed, and anyone else dismissed at the same time.
• Regular and systematic casual employees, but not all casuals.
• Employees of associated entities, such as a related company you also control.

That last point catches business owners with two or three linked companies. Each company might have eight staff, but together they can push you over the line. Our guide to the HR obligations that change once you pass 15 employees covers this in more detail.

The Code also sits alongside a longer qualifying period. Employees of a small business generally need 12 months of service before they can claim unfair dismissal, compared with six months for larger employers.

This affects a lot of employers. The Australian Small Business and Family Enterprise Ombudsman reports that small businesses made up 97.3 per cent of all Australian businesses in June 2025, with 34 per cent of all businesses employing between one and 19 people.

Summary dismissal: when you can act straight away

The Code says it’s fair to dismiss without notice or warning when you believe on reasonable grounds that the employee’s conduct is serious enough to justify immediate dismissal. It lists theft, fraud, violence and serious breaches of occupational health and safety procedures as examples of serious misconduct.

The key words are reasonable grounds. You don’t need to prove the employee did it beyond doubt. You do need to show your belief was reasonable when you made the decision. In practice, that means you looked at the evidence before acting, not after.

Before a summary dismissal, work through these questions:

• What exactly happened, and when?
• What evidence do you have, such as CCTV, till records or witness accounts?
• Has the employee had a chance to give their side?
• Would a reasonable employer see this as serious enough to end employment today?

The Code also says it’s sufficient, though not essential, to report an allegation of theft, fraud or violence to the police. Reporting isn’t required. But if you do report it, that supports the case that you took the conduct seriously.

Be careful with the grey areas. Swearing at a colleague once, a single late shift or a heated argument usually won’t meet the bar. Treating them as serious misconduct is one of the fastest ways to lose a claim.

If the facts aren’t clear yet, you don’t have to decide on the spot. Many employers stand the employee down on full pay for a day or two while they gather evidence and hear the employee’s side. That short pause often makes the difference between a reasonable belief and a rushed one.

Other dismissals: the warning process

Most dismissals in small businesses aren’t summary dismissals. They’re about poor performance or repeated minor misconduct, like the late barista. For these, the Code sets out a clear process.

1. Tell the employee why they’re at risk of being dismissed.
2. Make sure the reason relates to their conduct or capacity to do the job.
3. Warn them, verbally or preferably in writing, that dismissal may follow.
4. Give them an opportunity to respond to the warning.
5. Give them a reasonable chance to fix the problem, with support if needed.

A reasonable chance depends on the problem. Punctuality can improve within a couple of weeks. A skill gap may need training and a longer review period. The Code doesn’t set a fixed timeframe, so pick one you could defend in front of a Commission member.

The Code also lets the employee bring another person to discussions where dismissal is possible. That person can’t be a lawyer acting in a professional capacity. Offer this in writing when you invite them to the meeting. Our guide to performance warning letters explains what a written warning should include.

Small business fair dismissal code compliance: the records that prove it

If an employee lodges a claim, the Code says you’ll need to provide evidence that you complied with it. For any dismissal that isn’t a summary dismissal, that includes evidence that a warning was given. The Code suggests a completed checklist, copies of written warnings, a statement of termination or signed witness statements.

This is where most small businesses fall short. The Ombudsman’s 2019 review of the Code found a lack of small business awareness of the Code and its requirements. It also noted that in 2017 to 2018, just 10 applications were dismissed because the termination was consistent with the Code. That’s out of 13,595 unfair dismissal claims lodged that year.

The Code only protects employers who can prove they followed it. Build the file as you go:

• The completed Code checklist, signed and dated.
• Meeting invitations showing the reason and the support person offer.
• Notes of each meeting, including what the employee said.
• Copies of every warning, with proof they were received.
• Evidence of the conduct, such as rosters, emails or incident reports.
• For summary dismissal, the evidence you relied on and any police report.

Write notes on the day. Notes created after a claim arrives look like they were written to fit the outcome.

Where small businesses trip up

The Code is short, but the same mistakes come up again and again. Most of them happen in the week before the dismissal, when owners are frustrated and want the problem gone.

Counting staff wrongly

Owners often leave out regular casuals or staff in a related company. If your true headcount is 15 or more, the Code doesn’t apply at all, and the six month qualifying period does. Check the number before you rely on the Code.

Warnings nobody can prove

A quiet word in the kitchen isn’t a warning unless the employee understood their job was at risk. If it was verbal, confirm it by email the same day.

Deciding before the meeting

If the termination letter is printed before the employee has had a chance to respond, the opportunity to respond wasn’t real. Listen, take notes and consider what they say.

Calling it serious misconduct when it isn’t

Summary dismissal is for conduct that is truly serious. Using it to skip the warning process for ordinary performance problems is a common reason claims succeed.

If you can see your business in one of these, it’s better to fix the process now than in front of the Commission. A short call with an adviser before the meeting costs far less than a settlement after it.

What the Code doesn’t protect you from

The Code only answers one question: was the dismissal unfair under the Fair Work Act’s unfair dismissal rules? Other claims sit outside it.

• General protections claims, where the employee says they were dismissed for a prohibited reason, such as making a complaint or taking leave.
• Discrimination claims under federal or state anti-discrimination laws.
• Underpayment claims for notice, unused annual leave or other final pay entitlements.
• Breach of contract claims where the employment contract sets its own process.

Following the Code doesn’t change your notice obligations either. Unless it’s a summary dismissal, the employee is still entitled to notice or pay in lieu under the National Employment Standards. Check the figures with whoever runs your payroll services so final pay is right the first time.

For the full sequence, from valid reason to final pay, see our guide on how to terminate an employee legally in Australia.

VeiraMal’s outsourced HR services help small businesses in Melbourne, Sydney and Hobart run warning and dismissal processes that line up with the Code. If you want a quick read on a situation you’re managing now, call VeiraMal directly or send a message through the contact form.

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