How do you get terminations right the first time to avoid the unfair dismissal trap?
Terminating an employee is one of the most stressful decisions business owners face. Get it wrong, and you could face an unfair dismissal claim that costs tens of thousands in legal fees, compensation, and management time, not to mention the reputational damage.
In 2025, Fair Work Commission applications rose 10%, with unfair dismissal claims representing the most common type of application.
Here’s what employers need to know to protect themselves:
Who can make an unfair dismissal claim?
An employee can apply to the Fair Work Commission if:
- they’ve been employed for at least 6 months (or 12 months for small businesses with fewer than 15 employees); or
- they earn:
- below the high-income threshold ($183,100 as of July 2025); or
- above the high-income threshold and were covered by a Modern Award or Enterprise Agreement; and
- they were dismissed.
What makes a dismissal “unfair”?
In determining whether a dismissal was ‘unfair’ the Fair Work Commission must decide if the dismissal was ‘harsh, unjust or unreasonable’ based on the factors set out tin the Fair Work Act, which include:
- whether there was a valid reason for the dismissal related to the person’s capacity or conduct;
- whether the person was notified of that reason;
- whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person;
- any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and
- if the dismissal related to unsatisfactory performance by the person – whether the person had been warned about that unsatisfactory performance before the dismissal.
The Fair Work Commission will also take into account:
- the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal;
- the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and
- any other matters that the FWC considers relevant.
A shortcoming on any of the above by the Employer may result in finding of an unfair dismissal, even if there was a valid reason for dismissal.
The most common mistakes employers make
1. No written warnings
“I told them several times they weren’t performing” isn’t enough. You need written warnings which:
- clearly identify the performance or conduct issue;
- cite specific examples with dates and details;
- set clear expectations for improvement;
- provide a reasonable timeframe to improve; and
- outline consequences if improvement doesn’t occur.
Without a paper trail, your verbal warnings may not exist in the Fair Work Commission’s eyes.
2. Undertaking poor process for serious misconduct;
Even when terminating for serious misconduct, you must:
- notify the employee of the allegations;
- provide an opportunity to respond;
- genuinely consider their response; and
- not unreasonably refuse them access to a support person present.
Terminating on the spot, even for theft or violence, without a proper process can still be an unfair dismissal.
3. Making it personal
Dismissals can’t be:
- because you don’t like the person;
- based on a personality clash; and
- in response to the employee making a workplace complaint.
The reason must be related to the employee’s capacity (they can’t do the job to a satisfactory level) or conduct (behaviour or performance).
4. Poor record-keeping
If you can’t prove it, it didn’t happen. You need:
- performance review notes;
- dated written warnings;
- evidence of the conduct or performance issues;
- records of meetings and opportunities to respond; and
- documentation of support or training provided.
There is no need to provide employees with three warnings before they are dismissed, unless an Enterprise Agreement or employment contract requires it.
Termination for poor performance: the right process
- Early intervention: Address issues when they first arise, not months later
- Clear expectations: Ensure the employee knows what’s expected (position description, KPIs, training).
- Document concerns: Keep file notes of performance issues with specific examples.
- Provide a written warning: Identify the issue, expectations, timeline, support offered.
- Review period: Genuinely assess whether improvement occurred.
- Decision: Determine whether the employee is to be provided a further opportunity to improve or if their employment is to be terminated and issue:
- a further warning; or
- a termination letter.
Termination for misconduct: when you can act faster
Misconduct may allow for immediate termination either with or without notice. Examples of misconduct include:
- Theft or fraud;
- Violence or threats;
- Serious breach of safety rules;
- Being drunk or on drugs at work;
- Serious insubordination;
- Discrimination; and
- Sexual harassment.
But even for misconduct you must; investigate the allegations; the employee must be given an opportunity to respond, and you must genuinely consider their response before making a decision.
What if you get it wrong?
If the Fair Work Commission finds the dismissal was unfair, remedies include:
- Reinstatement: The employee gets their job back
- Compensation: Up to 6 months’ of the employee’s pay (capped at 6 months of the high-income threshold)
- Legal costs: Your legal fees incurred in defending the claim
Practical steps to protect your business
- Have clear employment contracts and policies from day one
- Address performance or conduct issues immediately when they arise
- Document everything in writing with dates and specifics
- Follow a proper process every time, even for obvious cases
- Seek legal advice before terminating long-serving employees or complex cases
- Consider alternatives like performance improvement plans or role adjustments
- Get professional HR support if you don’t have in-house expertise
What else do you need to know
Employees can alternatively bring a General Protections application where they believe they were dismissed for a prohibited reason, including:
- The employee accessed leave (for example, personal or parental leave);
- The employee made a complaint in relation to their employment (for example a bullying complaint); or
- The employee has lodged a WorkCover claim.
Even if employers take all steps to reduce the risk of an Unfair Dismissal claim, they may find themselves at risk of a General Protections claim.
Learn more about General Protections at Fair Work.
When to get legal advice
You should always contact an employment lawyer before terminating an employee’s employment, particularly if:
- The employee has been with you for several years;
- There is a risk of a General Protections application;
- The employee has threatened legal action;
- You’re unsure if you have sufficient grounds; and
- The termination will be contentious
The bottom line
Unfair dismissal claims are preventable. The key is having proper processes in place before you need them and following those processes consistently, even when you’re certain the employee deserves to go.
Key Takeaways
✓ Unfair dismissal claims rose 10% in 2025 – most common type of Fair Work application
✓ Employees earning under $183,100 can claim (or above if covered by Award/EA)
✓ You don’t need three warnings unless your contract/EA requires it – but process matters
✓ Even serious misconduct requires proper process – investigate, opportunity to respond, genuine consideration
✓ ‘Harsh, unjust or unreasonable’ test applies – valid reason alone isn’t enough
✓ Compensation capped at 6 months of the employee’s wage or the high-income threshold, whichever is lesser
✓ General Protections claims are separate risk – can apply even if unfair dismissal process followed
Frequently asked questions
Is a termination automatically unfair if the employee disagrees with it?
No. An employee disagreeing with a termination does not make it unfair. The Fair Work Commission looks at whether there was a valid reason and whether a fair process was followed. A dismissal can still be lawful even if the employee disputes the allegations, provided the employer acted reasonably and followed the correct steps.
Does a small business have to follow the same termination process as a larger employer?
Not exactly. While all employers must follow a fair process, the Fair Work Commission takes into account the size of the business and whether it has dedicated HR resources. That said, small businesses are still expected to act reasonably, document issues, and give employees an opportunity to respond before termination.
Can I rely on verbal warnings if I don’t have formal HR systems?
Verbal warnings alone are risky. If a matter proceeds to the Fair Work Commission, employers are expected to provide evidence of warnings and performance management. If warnings are not documented in writing, they are unlikely to carry weight, regardless of how clearly they were communicated at the time.
When should an employer get legal advice before terminating an employee?
Legal advice should be obtained before termination if the employee is long-serving, has raised complaints, is on leave, has a medical condition, or where the dismissal is likely to be contested. Early advice can often prevent costly unfair dismissal or General Protections claims later.
How MST Lawyers can help
MST Lawyers’ employment law team regularly advises employers on termination processes, helps draft warning letters, and defends unfair dismissal claims when they arise. We focus on practical, commercially sensible advice that protects your business.
Need guidance on an employee termination? Our employment law team can review your situation and ensure you follow the right process.
Request a consultation with MST Lawyers
This article provides general information only and should not be relied upon as legal advice. Employment law requirements vary depending on the specific circumstances.
