Unfair Dismissal Claims in Australia: What SMEs Need to Know

By Natasha Silveira | 4 October 2026 | 11 min read

You let a sales rep go on a Friday. Three weeks later, an email arrives from the Fair Work Commission with a copy of an unfair dismissal application and a seven day deadline to respond.

For a lot of owners, that’s the first time they learn how unfair dismissal in Australia works for a small business. The rules aren’t hard, but they’re strict, and the time to get them right is before the termination meeting, not after the claim lands.

This guide explains what makes a dismissal unfair, who can claim, how the process runs from lodgement to decision, what a claim can cost and the practical steps that cut your risk.

What makes a dismissal unfair?

Under the Fair Work Act, a dismissal is unfair when the Fair Work Commission is satisfied of four things. The person was dismissed. The dismissal was harsh, unjust or unreasonable. It wasn’t consistent with the Small Business Fair Dismissal Code, if that applies. And it wasn’t a case of genuine redundancy.

Dismissal also covers a forced resignation. If an employee quits because you left them no real choice, the Commission can treat it as a dismissal.

To decide whether a dismissal was harsh, unjust or unreasonable, the Commission looks at a set list of factors:

• Was there a valid reason related to the employee’s conduct or capacity?
• Was the employee told the reason before the decision was made?
• Did they get a real opportunity to respond?
• Did you unreasonably refuse a support person at the meeting?
• For poor performance, were they warned first?
• How did the size of your business, and your lack of HR staff, affect the process?

The Commission has long described a valid reason as one that is sound, defensible and well founded. It doesn’t have to be the reason you would have chosen. It does have to be real, and you need to be able to prove it with more than your word.

Notice what this means. You can have a good reason and still lose if the process was unfair. The reverse is also true. A careful process won’t save a dismissal that had no valid reason behind it.

The last point helps small employers. The Commission accepts that a business with 12 staff and no HR manager won’t run a process like a bank. It still expects the basics of a fair hearing, though.

Who can make an unfair dismissal claim?

Not every former employee can claim. According to the Fair Work Ombudsman’s unfair dismissal guidance, an employee must have worked for at least six months, or at least 12 months if the employer has fewer than 15 employees.

They also need to earn below the high income threshold, which rose to $190,100 on 1 July 2026, or be covered by a modern award or enterprise agreement. A casual counts only if they worked on a regular and systematic basis and expected that work to continue.

Job endings are common. The ABS found that 2.1 million people left or lost a job in the year to February 2026. Most of those were resignations or contracts ending, not dismissals. But it shows how often employment changes hands, and how often the question of “was that fair?” can come up.

If you have fewer than 15 employees, you may also be able to rely on the Small Business Fair Dismissal Code. Our plain-English guide to the Small Business Fair Dismissal Code explains how to count staff and what the Code requires.

Unfair dismissal in Australia for small business: how a claim runs

Once a claim is lodged, the process follows a set path. The Fair Work Commission’s guide to the unfair dismissal process sets out each stage.

1. The employee lodges within 21 days of the dismissal taking effect.
2. You receive a copy and have 7 days to respond on Form F3.
3. You can raise a jurisdictional objection if the employee isn’t eligible.
4. A conciliation meeting is usually held about 5 weeks after lodgement.
5. If it doesn’t settle, a Commission Member holds a conference or hearing.
6. A decision usually follows within 12 weeks of the hearing.
7. Either side can appeal within 21 days of the decision.

The 21 day limit is strict. The Commission can accept a late claim only in exceptional circumstances, so a claim that turns up on day 30 is often your easiest win. Check the date the dismissal took effect before you do anything else.

Conciliation is where most claims end. It’s voluntary, confidential and usually run by phone with a staff conciliator. The Commission says three out of four cases resolve at that stage. That’s good news for your time, but it also means many employers pay something to make a claim go away, even when they think they’d win.

Common jurisdictional objections include that the employee hadn’t served the minimum period, earned above the threshold, resigned voluntarily or was made genuinely redundant. Raise them on the Form F3. Don’t assume the Commission will spot them for you.

What an unfair dismissal claim can cost

The Commission’s first remedy is reinstatement, putting the employee back in their job. It’s rarely ordered in small businesses, because the working relationship has usually broken down or the role no longer exists.

When reinstatement isn’t right, the Commission can order compensation. It’s capped at the lower of 26 weeks’ pay or half the high income threshold. From 1 July 2026, that half is $95,050. The Commission can’t award anything for shock, distress or humiliation. It compensates lost income only.

In practice, awards are far below the cap. The Commission’s own page on compensation for unfair dismissal says the median is between five and seven weeks’ pay.

That number hides the real cost, which usually comes from three places:

• Settlement money paid at conciliation to avoid a hearing.
• Owner and manager time spent on responses, documents and meetings.
• Advice costs, since each side generally pays its own legal fees.
• Team disruption while the claim runs and witnesses are needed.

For a five person team, losing the owner for a week of claim work can cost more than the settlement. Prevention is far cheaper than defence.

Practical steps to reduce your risk before you dismiss

Most unfair dismissal claims are won or lost in the weeks before the termination meeting. These steps line up with the factors the Commission checks.

Check eligibility first

Confirm the employee’s start date, pay and award coverage, and count your headcount properly. If they haven’t served the minimum period, the risk of an unfair dismissal claim is low. Other claims may still apply.

Make the reason specific

Write the reason down in plain words, with dates and examples. “Late eleven times between July and September” is a reason. “Poor attitude” isn’t, unless you can show what it looked like.

Warn before you act

For performance or minor conduct issues, give a written warning that says the job is at risk, then allow a fair time to improve. Our guide to performance warning letters covers what each warning should include.

Hold a real meeting

Invite the employee in writing, state the concern and offer a support person. Then listen. If you’ve already decided, the opportunity to respond wasn’t real, and the Commission will see that.

Get final pay right

Pay notice or pay in lieu, unused annual leave and any other entitlements on time. Mistakes here create a second claim. Talk to whoever runs your payroll services before the meeting, not after.

Where small employers get caught out

The same handful of mistakes turn up in claim after claim. None of them need a lawyer to fix. They need a pause before you act.

The forced resignation

Cutting someone’s shifts to nothing, or telling them to “resign or be sacked”, can count as a dismissal. If the employee had no real choice, the Commission can treat the resignation as your decision. Treat it like any other dismissal, with a reason and a fair process.

The text message termination

Ending employment by text, email or a message on the rostering app removes the chance to respond. It also tells the Commission the decision was rushed. Meet in person or by video, then confirm in writing.

The redundancy that isn’t

Calling a performance problem a redundancy is a common shortcut. If you hire someone into the same role a month later, the redundancy wasn’t genuine, and the claim gets much stronger. Our guide to genuine redundancy in Australia explains the tests.

The probation myth

Many owners think probation gives them a free pass. What matters is the minimum employment period in the Fair Work Act, not the probation clause in your contract. A six month probation at a business with 20 staff lines up with the law. A nine month probation won’t stop an employee claiming once they pass six months.

Each of these can be avoided with a short checklist and one honest question before the meeting: could I explain this decision to a stranger, using only the documents on file? If the answer is no, slow down.

What to do if a claim arrives

Don’t ignore it, and don’t call the former employee to argue about it. Work through these steps instead.

• Diarise the deadline. The Form F3 is due 7 days after you receive the application.
• Check eligibility. Look at service length, pay, award coverage and the lodgement date.
• Gather the file. Warnings, meeting notes, rosters, emails and the termination letter.
• Decide your settlement range. Know your limit before conciliation, not during it.

At conciliation, the conciliator won’t decide who’s right. They’ll test both sides and look for a deal. If you settle, put it in writing with a release, confidentiality terms and an agreed reference if one is part of the deal.

Watch for a second claim too. If the employee says they were dismissed because of a complaint, an injury or a protected attribute, they may run a general protections claim instead. That claim works differently, with no minimum service period and no compensation cap, so get advice early.

For the full termination sequence, from valid reason to final pay, see our guide on how to terminate an employee legally in Australia. VeiraMal’s outsourced HR services support businesses in Melbourne, Sydney and Hobart through dismissals and claims. If you want a quick read on a claim or a dismissal you’re planning, call VeiraMal directly or send a message through the contact form.

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