Most claims in relation to termination of employment fall into three categories:
- unfair dismissals under the Fair Work Act 2009 (Cth) (‘FW Act’);
- dismissals prohibited under the FW Act; and
- common law claims for wrongful dismissal.
This section deals with unfair dismissals under the FW Act and common law claims for wrongful dismissal. (For information about dismissals prohibited under the FW Act, see ‘General protections’ in ‘Protections in the Fair Work Act’.)
This chapter does not discuss claims under other legislation relating to termination of employment (e.g. the Competition and Consumer Act 2010 (Cth)) and equal opportunity legislation (see Chapter 11.1: Discrimination and human rights).
Unfair dismissal under the Fair Work Act
Unfair dismissal criteria
Under section 385 of the FW Act, a person has been ‘unfairly dismissed’ if all of the following apply:
- the person has been dismissed;
- the dismissal was harsh, unjust or unreasonable;
- the dismissal was not consistent with the Small Business Fair Dismissal Code; and
- the dismissal was not a genuine redundancy.
Has the person been dismissed?
For the purpose of section 385 of the FW Act, a person has been dismissed if they:
- were terminated at the employer’s initiative; or
- were forced to resign because of the employer’s conduct or course of conduct (s 386 FW Act).
For the purpose of the unfair dismissal provisions, a person is not considered to be dismissed if:
- they were employed under a contract of employment for a specified period, or a specified task, or a specified season, and the employment ended at the end of the period, task or season;
- they were employed under a training arrangement for a specified period or for the period of the training and the employment ended at the end of the training; or
- they were demoted but the demotion did not involve a significant reduction in their remuneration or duties (s 386 FW Act).
If a person has not been dismissed according the the unfair dismissal provisions, they can not make out the necessary elements of section 385 of the FW Act for the termination to be an unfair dismissal.
The dismissal was harsh, unjust or unreasonable
In deciding whether an employee’s termination was harsh, unjust or unreasonable, the following factors must be considered (s 387 FW Act):
- whether there is a valid reason for the dismissal that is connected with the employee’s capacity/conduct;
- whether the employee was notified of the reason for the dismissal relied on by the employer;
- whether the employee was given an opportunity to respond to the allegations made in relation to the employee’s conduct or performance;
- whether there was any unreasonable refusal by the employer to allow the employee to have a person to assist in discussions related to the termination;
- if the termination was related to the employee’s performance, whether warnings were given;
- the degree to which the size of the employer’s business impacted on the procedures followed in effecting the termination; and
- the degree to which the absence of dedicated human resource management specialists impacted on the procedures followed in effecting the termination.
The dismissal was not consistent with the Small Business Fair Dismissal Code
Under the Small Business Fair Dismissal Code (‘Dismissal Code’), a person’s dismissal is consistent with the Dismissal Code if the employer was a ‘small business employer’ at the time of the dismissal and the employer complied with the provisions of the Dismissal Code in relation to the dismissal (s 388 FW Act).
Since 1 January 2010, the definition of ‘small business employer’ has been a business with less than 15 employees (s 23 FW Act). The number of employees includes the employees of related and associated entities of the employer.
The Dismissal Code states that a dismissal is fair where the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Therefore, under the Dismissal Code, an employer does not need to prove the misconduct actually occurred.
If the employer is a small business employer and the employer complied with the provision of the Dismissal Code, the termination is deemed to be fair and the elements of an unfair dismissal required for section 385 will not be made out.
If the employer is not a small business employer or has not complied with the Dismissal Code, then the dismissal is not consistent with the Dismissal Code and the necessary elements of section 385 will be made out.
A copy of the Dismissal Code is available on the Fair Work Commission’s website.
The dismissal was not a genuine redundancy
A person’s dismissal is a genuine redundancy if both of the following requirements are met (s 389 FW Act):
- the person’s employer no longer requires the person’s job to be done by anyone because of changes in operational requirements; and
- the employer, in dismissing the employee, complied with any consultation obligations in a modern award or enterprise agreement.
Under section 389(2) of the FW Act, a person’s dismissal is not a genuine redundancy if it was reasonable to redeploy the person within the employer’s enterprise or within an associated entity.
If a person’s dismissal is a genuine redundancy, the person can not make out the required element of section 385 of the FW Act for the dismissal to be an unfair dismissal.
People protected from unfair dismissal
A person must be protected from unfair dismissal to be eligible to apply for a remedy for unfair dismissal.
Under sections 382–384 of the FW Act, an employee is protected from unfair dismissal if the following applied to them at the time they were dismissed:
- the employee had completed a minimum period of employment of:
- one year for an employee of a small business employer (as defined above),
- six months for an employee of a business other than a small business employer; and
- one of the following applied to the employee:
- the employee was covered by a modern award,
- the employee was covered by an enterprise agreement,
- the employee’s income was less than the high-income threshold of $158 500 (as at 1 July 2021), or
- the employee was a regular casual employee of a business other than a small business employer and the employee was employed for more than six months and had a reasonable expectation of ongoing employment on a regular and systematic basis.
Remedies for unfair dismissal
The primary remedy for an unfair dismissal is to reinstate the employee to the same position they held before they were dismissed (or to a comparable position) (s 390 FW Act).
In certain circumstances, the Fair Work Commission has the power to reinstate a worker to an equivalent position with an associated entity of the employer (s 391(1A) FW Act).
A reinstated worker can seek an amount that represents the wages they lost between the date of their dismissal and their reinstatement. A reinstated worker is entitled to have their employment benefits continue to accrue without loss of continuity.
Where reinstatement is inappropriate (e.g. where tensions in a small workplace would be insurmountable if the dismissed employee returned to work), the Fair Work Commission may order the employee to be compensated instead of reinstated (s 390(3) FW Act).
The maximum compensation payable to an employee covered by an award is six months wages. For an employee not covered by an award, the compensation payable is half the amount of the high-income threshold ($158 500 as at 1 July 2021) or six months wages, whichever is less (s 392(5) FW Act).
Procedures for applying to the Fair Work Commission for a remedy for unfair dismissal
An application for a remedy for unfair dismissal must be submitted to the Fair Work Commission within 21 days after the day on which the dismissal took effect, or such period as the Fair Work Commission allows (see s 394 FW Act).
This time limit can be extended. The matters that can be taken into account for an extension of time to lodge an application are in section 394(3) of the FW Act. Importantly, to receive an extension, the applicant must show that there were exceptional circumstances.
Before the unfair dismissal is considered
A number of matters must be decided by the Fair Work Commission before the merits of an unfair dismissal are considered.
These matters are:
- whether the application was made within 21 days or such further period as the Fair Work Commission allows;
- whether the person is protected from unfair dismissal;
- whether the dismissal was consistent with the Dismissal Code; and
- whether the person was dismissed because of a genuine redundancy (s 396 FW Act).
For a person who has applied for a remedy for unfair dismissal, the first step is usually to have a telephone conciliation conference with the employer and a Fair Work Commission conciliator. In a conciliation conference, each party can negotiate in an informal manner and can explore the possibility of reaching an agreed settlement.
Fair Work Commission hearing
If a matter is not resolved at a conciliation conference, then it usually proceeds to arbitration (often called a ‘hearing’). Unlike in a conciliation conference, a decision is imposed on the parties at the conclusion of a Fair Work Commission hearing.
The FW Act gives the Fair Work Commission considerable discretion in relation to the method of finalising claims. Appeals to a full bench of the Fair Work Commission can be made where there has been an error of law or a significant error of fact (s 400 FW Act).
In an unfair dismissal matter, the Fair Work Commission can only award costs against an applicant if an application was made vexatiously or without reasonable cause, or if it should have been apparent to the applicant that the application had no reasonable prospect of success (s 611 FW Act).
In an unfair dismissal matter, the Fair Work Commission can only award costs against a respondent if the response to an application was made vexatiously or without reasonable cause, or if it should have been apparent to the respondent that the response had no reasonable prospect of success (s 611 FW Act).
Generally, costs in a matter under the FW Act, including an unfair dismissal application, can be awarded to a party if the other party caused those costs to be incurred because of an unreasonable act or omission of the other party in connection with the conduct or continuation of the matter (s 400A FW Act).
Costs can be awarded against a lawyer where the lawyer caused the other party to incur costs by some unreasonable act or omission. Or because the lawyer encouraged a person to start, continue or respond to a matter when it should have been apparent to the lawyer that the person had no reasonable prospects of success (s 401 FW Act).
The Fair Work Commission’s ‘Practice note: Fair hearings’ describes the procedures to be adopted in a hearing in the Fair Work Commission.
Common law claims for wrongful dismissal
Employees who are not entitled to bring proceedings for unfair dismissal (see ‘People protected from unfair dismissal’ under ‘Unfair dismissal under the Fair Work Act’, above) may still be entitled to bring proceedings elsewhere for the wrongful termination of their contract of employment.
If a contract is for a fixed period, it terminates when that period expires; no special notice is required. If a contract is for a fixed period and the contract is terminated by the employer before the end of the fixed period, the employee may be able to sue for damages relating to the remainder of the fixed period. This will not occur if the contract contains a provision allowing earlier termination for cause and the employer can show that it had a valid, lawful reason to terminate the employment contract.
If the contract is not for a fixed period, and the employee is dismissed, or if the employee is dismissed before the end of the contract, then the employee may be able to take action for wrongful dismissal.
In the absence of misconduct or any other circumstances justifying immediate dismissal, an employee is entitled to be given notice in accordance with the written contract of employment (if any).
Or, if there is no express term in the contract for the period of notice, an employee is entitled to rely on an implied term of reasonable notice. The question of what is ‘reasonable notice’ depends on the employee’s circumstances (including their position, seniority, salary, length of service and age).
An employee who can show that their dismissal was wrongful has a claim for damages. The amount of damages may relate to the wages that could have been earned during the ‘reasonable’ period of notice, taking into account whether the employee has subsequently found work.
Suspensions and stand downs
Suspensions and stand downs under common law
At common law, an employer does not have the right to suspend or stand down employees without pay when they cannot be usefully employed.
Unless there is a provision in the contract of employment or award to the contrary, an employer who cannot usefully employ their employees has the alternative of either paying them wages during the period or dismissing them.
In dismissing an employee in these circumstances, an employer should take careful note of the unfair dismissal provisions.
Some awards permit deductions of pay where employees cannot be usefully employed for reasons such as a strike, a breakdown of machines, or a stoppage of work for which the employer cannot reasonably be held responsible.
Stand downs under the Fair Work Act
In contrast to the common law position on stand downs, Part 3(5) of the FW Act allows an employer to stand down an employee during a period in which the employee cannot be usefully employed.
Under the FW Act, the circumstances in which an employee can be stood down include industrial action, machinery breakdown, or a stoppage of work for any cause for which the employer cannot reasonably be held responsible. In these circumstances, the employer is not required to pay the employee for the stand down period (s 524 FW Act).
A recent (November 2020) Full Federal Court of Australia decision confirmed that employees are not entitled to access personal/carer’s leave (also known as sick leave) or compassionate leave during a period in which they are stood down without pay under the FW Act.