You run a small business. An employee has been late for the third time this month, or cash is missing from the till, or the work has simply dried up. You know something has to change. The question is how to end the employment without ending up in the Fair Work Commission.
For businesses with fewer than 15 employees, the answer starts with the Small Business Fair Dismissal Code (the Code). Follow it properly and it can work as a complete defence to an unfair dismissal claim. Skip a step, and you are back to the same test as every other employer.
In this guide, our employment law team explains what the Code requires, where small businesses most often get it wrong, and how to put yourself in the strongest position if a claim is made.
What is the Small Business Fair Dismissal Code?
The Code is a short legislative instrument made under section 388 of the Fair Work Act 2009 (Cth). It sets out the minimum steps a small business must take when dismissing an employee.
If the Commission is satisfied that you complied with the Code, the dismissal is not unfair. It does not then go on to weigh up whether the decision was harsh, unjust or unreasonable. That is a powerful protection, but the Commission will look closely at whether you really did follow it.
For a wider view of your obligations, read our guide to the Fair Work Act.
Does the Code apply to your business?
You are a small business employer if you have fewer than 15 employees when you give notice of dismissal or dismiss without notice. The count includes:
- full-time and part-time employees, including the employee being dismissed
- casual employees engaged on a regular and systematic basis
- employees of associated entities, such as related companies under common control.
Genuinely irregular casuals are left out of the count.
This is where associated entities catch people out. A business owner who runs two cafés through two separate companies might reasonably see each one as its own small business, with 9 staff in one and 7 in the other. But if the companies are associated entities, the Commission counts all 16 employees together. That means the Code doesn’t apply, and the minimum employment period drops from 12 months to 6. So a barista with only 8 months’ service could bring an unfair dismissal claim the owner never saw coming.
Which employees can claim unfair dismissal?
An employee of a small business can generally claim unfair dismissal if they:
- have completed at least 12 months’ continuous service (the minimum employment period for small business);
- are covered by a modern award or enterprise agreement, or earn less than the high income threshold ($190,100 from 1 July 2026); and
- lodge their claim within 21 days of the dismissal.
Casual service only counts if the casual was employed on a regular and systematic basis and had a reasonable expectation of ongoing work.
Remember that the Code only protects you against unfair dismissal. It does not stop a general protections claim or a discrimination claim, which can be brought by any employee regardless of length of service.
Summary dismissal: when you can dismiss on the spot
The Code allows you to dismiss without notice or warning if you believe, on reasonable grounds, that the employee’s conduct is serious enough to justify immediate dismissal. Examples include:
- theft, fraud or dishonesty
- violence or credible threats of violence
- serious breaches of work health and safety procedures.
The key words are reasonable grounds. The Commission does not have to decide whether the employee actually did it. It asks whether your belief was reasonable when you made the decision.
To get there:
- make prompt inquiries into what happened
- put the allegations to the employee and let them respond
- consider their answer before deciding
- write down what you found and why you reached your decision.
Reporting suspected criminal conduct to police is not required, but it can support your position.
Suspicion alone is not enough. Say the till is $400 short at the end of a shift and a manager dismisses the long-serving employee who closed up that night. If nobody checked the CCTV, the refund log or who else had access, the manager had a hunch, not reasonable grounds. If it later turns out a refund was processed incorrectly, the Code offers no protection at all.
Compare that with a 2025 case involving a small law firm. A solicitor took several days of sick leave that happened to line up with an interstate football weekend. He backed it up with an online medical certificate and a statutory declaration. His employer then came across social media photos of him at the games. Rather than dismissing him on the spot, the firm put the evidence to him and considered his explanation before deciding. The Commission found the dismissal was consistent with the Code (Fuller v Madison Branson Lawyers Pty Ltd [2025] FWC 784).
Other dismissals: performance and conduct
Where the problem is not serious misconduct, such as poor performance, lateness or a bad attitude, the Code requires four things:
- A valid reason and a clear warning: Tell the employee why their job is at risk. The reason must relate to their conduct or their capacity to do the job. A written warning is not strictly required, but it is by far the easiest to prove.
- A chance to respond: Give the employee an opportunity to answer the concerns.
- A reasonable chance to improve: Provide feedback, training or support, and enough time for change to be realistic.
- A support person, if requested: The employee can bring someone to help in discussions about dismissal. That person cannot be a lawyer acting in a professional capacity.
Find out when you can terminate employment for less serious (minor) issues.
This is also why verbal warnings are so risky. A builder who tells his apprentice on site, “If you’re late again, you’re done”, may think he has given a clear warning. But if the apprentice later says it sounded like banter, and there is no note, text or witness to back the builder up, it comes down to one person’s word against the other’s.
The opportunity to improve also needs to be real. A receptionist warned about booking errors on a Monday and dismissed on the Friday has technically been warned. But four days, with no extra training or supervision, is rarely enough time to show improvement.
How you hold the meeting matters too. Calling an employee in for a “quick chat” and dismissing them for ongoing performance problems leaves them no notice of the topic, no chance to bring a support person and no time to prepare a response. The performance issues may have been real, but a process like that is hard to defend.
Redundancy and the Code
The Code confirms that a genuine redundancy is not an unfair dismissal. A redundancy is genuine if:
- you no longer need the job done by anyone because of changes in the business
- you have met any consultation obligations in an applicable award or enterprise agreement
- it would not have been reasonable to redeploy the employee within your business or an associated entity.
Small businesses with fewer than 15 employees are generally exempt from paying redundancy pay under the National Employment Standards, but notice and other final entitlements still apply.
A redundancy is only genuine if the job is truly gone. If an accounting practice makes its bookkeeper redundant because the role is being “absorbed”, then advertises six weeks later for an “accounts officer” with almost the same duties, the job was obviously still needed. Former employees often see those ads and come to us for support.
Consultation is easy to overlook, too. A hair salon covered by the Hair and Beauty Industry Award may have a real need to cut costs. But if it cuts a senior stylist’s position without first meeting the award’s consultation requirements, the redundancy is not genuine.
Learn how to assess suitable alternative roles and reduce redundancy risks.
Records: your best defence
If a claim is made, the Commission will want to see evidence that you followed the Code. “I told him” rarely wins. A paper trail usually does. Keep:
- warning letters, or notes of verbal warnings made on the day with who was present
- notes from meetings and any investigation
- evidence you relied on, such as CCTV, rosters, emails, system logs or photos
- the termination letter
- a completed Small Business Fair Dismissal Code checklist.
The checklist is helpful, but it is not a shield on its own. The Commission looks at what actually happened, not whether a form was filled in. Small employers regularly lose claims because they failed to give warnings or act reasonably, even where the employee’s conduct was poor.
Step-by-step checklist for small business employers
- Confirm you are a small business: Count all employees, including regular casuals and staff of associated entities.
- Identify the reason: Is it serious misconduct, performance or conduct, or a genuine redundancy?
- Investigate: Speak to witnesses and review documents, CCTV, rosters and system logs. Keep notes.
- For non-serious issues, warn clearly: Put it in writing: the problem, the standard expected, the timeframe, and that the job is at risk.
- Invite a response: Tell the employee what the meeting is about and that they can bring a support person.
- Support improvement: Offer coaching, training or clear targets, and follow up.
- Make a reasoned decision: Consider the evidence and the employee’s response, and record why you decided as you did.
- Issue the outcome in writing: For summary dismissal, set out the misconduct and the basis for your belief. For dismissal with notice, confirm the end date, notice or payment in lieu, and final pay.
- Keep everything: File the completed Code checklist, investigation notes, warnings, the termination letter and any witness statements.
Talk to us before you act
Most unfair dismissal claims against small businesses are won or lost on process, and the process happens before anyone lodges a claim. A short conversation with our employment team can help you get the warning, the meeting and the letter right the first time.
Book a consultation or call 1300 003 077.
Frequently Asked Questions
Do casual employees have unfair dismissal protection in a small business?
Yes, if they have worked on a regular and systematic basis for at least 12 months and had a reasonable expectation of continuing work. Irregular casuals cannot claim unfair dismissal, but they can still bring a general protections claim.
Do warnings have to be in writing?
No, but written warnings are much easier to prove. If you warn verbally, make a dated note straight away, including who was present, and consider confirming it by email.
How do I count casual employees?
Include casuals engaged on a regular and systematic basis when working out whether you have fewer than 15 employees. Leave out genuinely irregular casuals.
Can I dismiss an employee for conduct outside work?
Sometimes. Out-of-hours conduct can justify dismissal where it has a clear connection to the job, for example where it affects workplace safety, damages the business’s reputation or makes the employee unable to do their role. The connection must be real, not assumed.
What is a ‘genuine redundancy’?
It is where you no longer need the job done by anyone because of changes in the business, you have met any consultation obligations, and redeployment was not reasonable.
What evidence do I need to defend an unfair dismissal claim?
A completed Code checklist, copies of warnings or notes of verbal warnings, investigation notes, the evidence you relied on, the termination letter and any witness statements.
Can a lawyer be a support person at a dismissal meeting?
Only in a personal capacity. The Code says a support person cannot be a lawyer acting in a professional capacity, so they cannot advocate, speak for the employee or run legal arguments in the meeting.
Want practical advice on other dismissal situations? Explore common employment termination scenarios and procedures.
Last updated: 30 September 2026.
About the Author
Farrah Motley
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