Small Business Fair Dismissal Code

Ending employment in compliance with the Small Business Fair Dismissal Code

Terminating the employment of an employee is something that most businesses need to do at some stage. The Small Business Fair Dismissal Code (the Code) sets out the rules for small business owners to follow when dismissing employees.

When you’re considering dismissing an employee, you need to carefully consider your obligations under the Code to protect your business from unfair dismissal claims made to the Fair Work Commission. 

What is a “small business”?

Under the code, a small business is one which employs less than 15 employees. This count includes casual employees who are employed on a regular and systematic basis. 

When does the Code apply?

The code applies to employees who have been employed for more than 12 months. If an employee is dismissed after this 12-month period, they may bring an unfair dismissal claim if you have not complied with the Code.

However, employers should keep in mind that other legal actions are available to employees in the first 12 months, and the code provides useful guidance to avoid dismissal-related liabilities.

The three main types of dismissals and their requirements under the Code

Australian employment law recognises 3 types of terminating employment:
1. Summary dismissal without notice
2. Dismissal due to poor conduct (with notice)
3. Redundancy

The Code provides a framework for how these forms of termination will be treated for small businesses.

1) Summary dismissal (without notice)

A summary dismissal occurs when an employer has reasonable grounds of sufficiently serious misconduct by an employee. This conduct means the employee can be dismissed without any notice or warning. To be sufficiently serious, the conduct may involve theft, fraud, violence (including threats or violence) or serious breaches of occupational health and safety procedures. A police report of the alleged theft or violence is evidence of sufficiently serious misconduct to consider the dismissal fair, although it is not necessary. 

2) Dismissal due to conduct or poor performance (with notice)

These types of dismissals are based on the employee’s behaviour or capacity to do the job. These dismissals require:

  • Verbal or (preferably) written warning of the risk of being dismissed without behavioural/performance improvement, including the reason their job is at risk;
  • The employee is given a reasonable chance to respond and to improve the issue – the provision of training to assist the employee to improve and/or clearly informing the employee of the expectations for the job will go towards the fairness of the dismissal. 
  • If the issue is not improved after a reasonable time and the dismissal proceeds, the employee must be told of the reason for dismissal and given an opportunity to respond.

3) Redundancy

A redundancy occurs when an employee’s position is no longer required (e.g. new technology, operational changes) or the business is suffering from a downturn. A small business does not need to pay redundancy payments. For a redundancy to be genuine, it requires:

  • Compliance with any requirements about the redundancy in the modern award, enterprise agreement or other industrial agreement which applies to the employment;
  • Consideration of whether the employee could have been redeployed in the business or an associated business.

Procedural requirements

There are 2 main processes that must be complied with.

  1. Notice: Dismissals due to conduct/capacity and redundancies require notice of termination. A written notice should be provided in clear, plain words and provide a date of termination/redundancy. 
  2. In any discussions with an employee where dismissal is a possibility, the employee can have another person present to support them. However, that person cannot be a lawyer acting in a professional capacity. 

Tips for compliance

  • Provide written warnings and written notices of termination / redundancy;
  • Keep detailed records of:
    • All warnings given to employees;
    • The amount of time the employee was given to improve;
    • The assistance (training, mentorship, discussions about the role) provided to an employee to improve their performance.
  • Give the employee the opportunity to have a support person in discussions about their employment and have a second person in the room to witness the discussion.

Takeaway

After the first 12 months of employment, a small business is open to unfair dismissal claims. Depending on the type of dismissal, there are different obligations on the employer. Whenever you are considering dismissing an employee, refer to the Code, keep detailed records of your actions and the employee’s actions and seek legal advice. 

If you need advice on how to comply with the Small Business Fair Dismissal Code, get in touch with us via the contact form or by calling 1300 337 997.

About Brigid Nelmes

Brigid NelmesBrigid is a legal intern at OpenLegal, working with our legal content team. She is currently completing her Bachelor of Laws and Bachelor of Arts (International Studies) at the University of Technology Sydney. Her interests are in digital/privacy and startup law.