For small businesses in Australia, terminating an employee can be a legal minefield. The Small Business Fair Dismissal Code (the Code) provides specific guidance to help employers with fewer than 15 employees manage dismissals fairly and legally. Following the Code correctly can act as a complete defence to an unfair dismissal claim at the Fair Work Commission (FWC).
This guide, prepared by our employment law team, explains the Code’s requirements, how to apply them, common mistakes to avoid, and how recent legal developments affect small business employers.
This guide is current to June 2025.
Key Takeaways
- Applies to employers with fewer than 15 employees at the time of dismissal (counting regular casuals and associated entities).
- If you correctly follow the Code, the FWC must find the dismissal was not unfair.
- Summary dismissal (no notice) is allowed for serious misconduct where you hold a reasonable belief based on inquiries.
- For performance/conduct (non-serious) issues, you must give clear warnings, a chance to respond, and a reasonable opportunity to improve.
- Redundancies must be genuine: business need has changed, consultation is done (if required), and redeployment is considered.
- Procedural fairness and good records are essential for small businesses
What is the Small Business Fair Dismissal Code?
The Small Business Fair Dismissal Code is a legislative instrument under s 388 of the Fair Work Act 2009 (Cth). It sets minimum steps small businesses must follow when dismissing an employee.
If the employer complies with the Code, the FWC must find the dismissal was not unfair, regardless of other factors.
For a broader understanding of your legal obligations as an employer, read our guide to the Fair Work Act.
Who Does the Code Apply To?
Small Business Employer Test
A small business employer is defined as one with fewer than 15 employees at the time of the dismissal. This count includes:
Full-time and part-time employees
Casual employees (if employed on a regular and systematic basis)
Employees of associated entities (e.g. related companies under the same control
Tip: Genuinely irregular casuals are excluded from this count.
Which employees are covered?
To bring a claim for unfair dismissal under the Fair Work Act, an employee must:
Have at least 12 months of continuous service
Be employed regularly and systematically (casuals included only if regular)
Not be excluded under a modern award or enterprise agreement clause
Summary Dismissal (Serious Misconduct)
Summary dismissal (termination without notice) is permitted if the employer reasonably believes the employee’s conduct is serious enough to justify it.
Examples of serious misconduct include:
Theft, fraud, or dishonesty
Assault or credible threats of violence
Serious WHS breaches
Deliberate damage or serious policy breaches
What “reasonable belief” requires: make prompt inquiries, put allegations to the employee, consider their response, and document your decision. Reporting to police is not essential but can support your position where criminal conduct is suspected.
Performance or Conduct (non-serious issues)
If the reason for dismissal does not involve serious misconduct, the Code requires that:
The employee is clearly warned that they risk being dismissed (preferably in writing).
The employee is given a chance to respond to the issues raised.
The employee is provided with an opportunity to improve, which may include extra training, feedback, or support.
The employee may bring a support person to any disciplinary meeting (not acting as a lawyer).
All steps should be well documented to prove compliance. Evidence includes written warnings or notes of verbal warnings, termination letters and witness statements.
Find out when you can terminate employment for less serious (minor) issues in our article.
Redundancy and the Code
Redundancy is only considered fair under the Code if it is genuine, meaning:
The employer no longer requires the role due to changes in business needs
There is consultation, if required under an award or agreement
Redeployment options are considered, even within associated entities
Failure to follow these steps may make a redundancy vulnerable to a claim.
Learn how to assess suitable alternative roles and reduce redundancy risks in our article.
Documentation & Procedural Fairness
Even small businesses must keep records, such as:
Warning letters or meeting notes
Termination letters
Notes from any investigations
A completed Small Business Fair Dismissal Code Checklist
Procedural fairness remains critical. The FWC regularly rules against small employers who fail to give warnings or act reasonably – even if misconduct is proven.
Recent Case Example (2025)
In Fuller v Madison Branson Lawyers (2025), the FWC ruled in favour of a small employer who dismissed a solicitor for falsely claiming sick leave to attend a football match. The employer followed the Code, including that they (1) investigated, (2) formed a reasonable belief, and (3) documented the misconduct. The dismissal was upheld as lawful and fair under the Code.
Practical Step-by-Step Checklist for Employers
Use the checklist below at each stage to ensure your dismissal is lawful, compliant with the Small Business Fair Dismissal Code, and fully documented:
Confirm small business status: Count employees (include regular casuals and associated entities).
Identify the valid reason: Serious misconduct, performance/conduct, or genuine redundancy.
Investigate & gather evidence: Speak to witnesses, review documents/CCTV/system logs. Keep notes.
For non-serious issues: warn clearly: Written warning stating standards, timeframe, and that employment is at risk.
Allow response & support person: Invite the employee to a meeting; permit a support person if requested.
Provide reasonable support: Coaching/training, clear targets, and follow-up feedback.
Make a reasoned decision: Consider the evidence and responses. Document your reasoning.
Issue the outcome:
Summary dismissal: letter detailing serious misconduct and basis for belief.
Dismissal with notice: termination letter, notice/ payment in lieu, final pay.
Keep records: Completed Code checklist, investigation notes, warnings, termination letter, witness statements.
Frequently Asked Questions
Do casual employees have unfair dismissal protections?
Casual employees are protected if employed on a regular and systematic basis for at least 12 months by a small business employer. Irregular casuals are not protected under the unfair dismissal laws, but they are generally eligible for general protections claims.
Do warnings have to be in writing?
No, written warnings are not mandatory but are strongly recommended for evidentiary purposes. Verbal warnings should be documented through notes or witness statements.
How do I count casual employees?
Include casuals engaged on a regular and systematic basis when assessing if you have <15 employees.
Can I dismiss an employee for misconduct outside work, such as domestic violence?
Yes, dismissal may be lawful if the off-duty conduct impacts job performance, workplace safety, or business reputation. The connection to employment must be established and clear.
Want practical advice on how to manage different dismissal situations? Explore common employment termination scenarios and procedures.
What is a ‘genuine redundancy’?
A genuine redundancy occurs when an employer no longer requires the role to be performed and has complied with consultation obligations. Redeployment options must also be considered.
What evidence do I need to defend an unfair dismissal claim?
Employers should provide:
- Completed Code checklist
- Copies of warnings (written or notes of verbal)
- Statements of termination
- Witness statements
Can a lawyer be a support person at a dismissal meeting?
Yes, a lawyer may attend as a support person, if they act solely as emotional or personal support. They must not act in their professional capacity. This means that they cannot advocate, speak on the employee’s behalf, or provide legal arguments during the meeting.
