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Small Business Fair Dismissal Code

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What is the Small Business Fair Dismissal Code?

The Smal Business Fair Dismissal Code is a framework for small businesses to follow when dismissing an employee. Small businesses are treated differently from large businesses under the Fair Work Act. Dismissal is likely to be considered fair if a small business has complied with the Code.

This article was written by Farrah Motley. Farrah is our Director and a qualified employment Solicitor. She discusses the Code and how it applies in Australia.

What is a small business?

A small business is a business that employs less than 15 people. In calculating whether the employer has fewer than 15 employees, the following staff need to be included in the headcount:

  • casual staff that are employed on a regular and systematic basis

  • part-time employees

  • full-time employees

  • employees of other businesses associated with the employer

A business associated with the employer will include businesses that the employer controls or controls the employer. This could be because of the makeup of directors, shareholding or voting rights.

Although the Small Business Fair Dismissal Code does not itself define ‘associated entities’, the case of Johnstone v EPFS Holdings Pty Ltd T/A Advice Partners Financial Planning (2018) FWC 892 explained that the definition of associated entity under the Corporations Act 2001 is relevant.

When can an employee make an unfair dismissal claim against a small business?

An employee can apply for unfair dismissal against a small business if they have been employed for at least 12 months. Employees employed on a part-time or full-time basis can apply. Additionally, casual employees can apply provided that they have been employed on a regular and systematic basis for at least 12 months.

What does the Small Business Fair Dismissal Code say?

The Code is short and simple. Below is the wording from the Code:

The Code Summary Dismissal

It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures.

For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.

Other Dismissal

In other cases, the small business employer must give the employee a reason why he or she is at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job.

The employee must be warned verbally or preferably in writing, that he or she risks being dismissed if there is no improvement.

The small business employer must provide the employee with an opportunity to respond to the warning and give the employee a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.

Procedural Matters

In discussions with an employee in circumstances where dismissal is possible, the employee can have another person present to assist. However, the other person cannot be a lawyer acting in a professional capacity.

A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to Fair Work Australia, including evidence that a warning has been given (except in cases of summary dismissal). Evidence may include a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.

The Code also includes a checklist. Click here to find a copy of the Code and the checklist.

Summary dismissal, serious misconduct and reasonable belief

If a small business employer holds a reasonable belief that an employee has done something sufficiently serious to justify immediate dismissal, the employee’s dismissal will be deemed to be fair.

Serious misconduct may include things such as violence, theft, vandalism, fraud, sexual harassment and a serious breach of workplace health and safety (including creating a serious and imminent risk to a person’s safety).

The concept of reasonable belief was discussed in Harley v Rosecrest Asset Pty Ltd T/A Can Do International [2011] FWA 3922. In that case, the Fair Work Commission made the following observations regarding the reasonable belief of an employer.

The belief was held as a matter of fact

An employer will need to establish that they did in fact hold the belief that the conduct:

  1. was by the employee; and

  2. was serious; and

  3. justified immediate dismissal.

This is different to the criteria that apply to employers that are not small businesses. For example, under s387(a) of the Fair Work Act, there will be a valid reason for dismissal only if the employer can show that the conduct actually occurred.

young troubled woman using laptop at home

There are reasonable grounds for the belief

An employer will also need to establish that there were reasonable grounds for the employer holding the belief.

To do this, the employer will need to establish that the basis for the belief held was reasonable.

This can be shown by:

  • evidence of inquiries or investigations that were made to support a basis for holding the belief

  • the belief held was explained to the employee (but the employer doesn’t need to show the grounds on which the belief is held)

There may be an argument that there was no reasonable basis for the belief if a small business employer fails to make sufficient inquiries or to put the accusation to the employee.

Other dismissal and warnings by a small business employer

Unfair dismissal claims may also arise where an employee’s actions are not sufficient to justify summary dismissal. For example, because of an employee’s poor performance, being rude to another staff member, being late to work and other issues that may affect an employer’s business.

Small businesses must follow a process if an employee is not doing their job properly

If an employer wants to dismiss an employee (other than for serious misconduct), they must follow a process.

The Small Business Fair Dismissal Code sets out the following process that must be followed:

  1. the employee must be warned that if there is no improvement in their behaviour, they could be dismissed

  2. the employee must be given a reason as to why their employment is at risk and the reason must be a valid reason based on their conduct or capacity to do the job

  3. the employer must give the employee an opportunity to respond to the warning and give the employee a reasonable chance to fix the problem, having regard to the employee’s response. Fixing the problem might involve the employer providing additional training and clarifying the employer’s job expectations

  4. allow a support person (other than a lawyer acting in their professional capacity) to be present during these discussions

Business Downturn and Redundancy

The Small Business Fair Dismissal Code also addresses circumstances when an employer experiences a business downturn and needs to make an employee redundant. Small business employers may still be open to a claim for unfair dismissal if the dismissal is not a case of genuine redundancy.

The checklist prompts several procedural points regarding redundancy. Small business employers will need to:

  • comply with any requirements to consult about the redundancy in any Modern Award, Enterprise Agreement or other industrial instrument that applied to the employment

  • consider if the employee could have been redeployed in their business or the business of any associated entities

Click here if you want to read more about genuine redundancies.

Frequently asked questions for small businesses

Are casual employees protected from unfair dismissal?

Casual employees are protected from unfair dismissal if they are employed on a regular and systematic basis. If the employer has less than 15 employees, the casual employee must have been regularly employed for at least 12 months prior to dismissal.

Is it necessary to provide written warnings?

A warning that is given to an employee does not have to be in writing. However, it is important to pay attention to record keeping. If a verbal warning was given, it may be necessary to show notes taken about the verbal warning or witness statements to prove that a warning was given.

Because of this reason, it is preferable to provide a warning in writing.

In Shaw v Pat Thomas Memorial Community House Inc [2012] FWA 8303, the employee was dismissed for contacting the Department of Child Protection contrary to a written direction and warning.

Fair Work found that there was no evidence that a written direction had been provided. The warning letter made no mention of this issue. Because of this, the employer failed to afford the employee an opportunity to respond to the allegations and an opportunity to be heard. It was held that the dismissal was not consistent with the Code.

Can I dismiss an employee because of domestic violence?

An employer may be legally entitled to dismiss an employee if they are the perpetrator of domestic violence. This issue can be complicated because this behaviour typically occurs outside the workplace.

However, dismissal may be lawful if an employer can show that the behaviour affects job performance, the safety of other employees or the reputation of the business.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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