Unfair dismissal is one of the most common challenges small business owners face when managing staff. With the right processes in place, you can significantly reduce the risk of a claim—and the financial and emotional stress that comes with it.

What Is Unfair Dismissal?

Under the Fair Work Act 2009 (Cth), unfair dismissal occurs when an employee is terminated in a way that is:

• Harsh, unjust, or unreasonable,
• Not based on a valid reason related to their performance or conduct, or
• Procedurally unfair, meaning the proper steps were not followed.

Unfair dismissal claims are designed to protect employees, but they also serve as a reminder for employers to act fairly, transparently, and consistently when managing performance or disciplinary issues.

For small businesses (fewer than 15 employees), the Small Business Fair Dismissal Code applies, offering simplified requirements for termination. However, compliance with this code is still critical to avoid claims.

The Risks for Small Businesses

Many small business owners operate without in-house HR support, making it difficult to navigate employment laws. Common challenges include:

• Allowing poor performance to persist because addressing it feels awkward or disruptive, especially in small teams.
• Failing to document performance concerns or disciplinary actions.
• Terminating employees without giving them a fair chance to improve.

These gaps can leave your business exposed to claims and undermine team morale. However, the good news is that being proactive and intentional about managing performance can mitigate many risks.

Proactive Steps to Avoid Unfair Dismissal Claims

1. Set Clear Expectations from the Start

Employees can only meet expectations if they know what they are. Provide clarity from day one by:

• Writing clear job descriptions.
• Outlining expectations in employee contracts and policies.
• Discussing performance and behavioural standards during onboarding.

When expectations are documented and communicated, it becomes easier to address any gaps in performance.

Making sure you are clear on KPI’s for your practitioners, depending on your business these could include: 

• Rebooking rates
• Utilisation of appointments 
• Billable hours
• Product sales
• Client satisfaction

Often new employees in private practice will need support with how to ask for rebooking as they don’t want to feel “salesy”, so its education around focussing on the benefit to the client. 

We also often see newer graduates spending FAR too long writing their notes; so this just takes some mentoring and guidance on what level of notes are actually required and how to take these efficiently. 

Or we see practitioners over delivering support and not billing for that time. When you have client centred therapists who came into the industry with a desire to help (which is AMAZING by the way) it is crucial to balance this – both for your profitability, their longevity and to prevent them burning out. 

2. Monitor Performance Regularly

In small businesses, day-to-day operations can take priority over performance management. However, small performance issues left unaddressed can snowball into larger problems.

• Hold regular check-ins to discuss how employees are tracking. 
• Address issues early and constructively before they escalate.
• Use positive reinforcement when employees are hitting targets.
• Celebrate achievements to create a positive and open workplace culture.

3. Have Difficult Conversations Early

It’s natural to want to avoid awkward conversations, especially in a tight-knit team. However, failing to address poor performance or behaviour can create more tension later.

• Be clear, factual, and respectful when discussing concerns.
• Use specific examples to illustrate the issue and its impact on the team or business.
• Focus on solutions, such as training, support, or clear action steps for improvement.

If you don’t address issues, not only does it make it harder on you as things will snowball, but it also eats away at team morale. When others see you accepting sub standard performance it builds resentment in them.

You may also grow to resent the employee for their underperformance and wonder why they aren’t as committed to your business as you – emotions can run high. This will only make things worse, they may sense your change in attitude and may not even know what has caused it if you have avoided giving them feedback about what needs to improve. 

The personal connections in smaller teams can also make dismissals emotionally charged. 

4. Document Everything

Documentation is your best defence against claims of unfair dismissal. Keep records of:

• Informal and formal conversations about performance or behaviour (this can be simply diary notes or emails).
• Warnings (verbal and written).
• Any support or opportunities provided to the employee to improve.

Well-documented processes show the Fair Work Commission that you’ve acted fairly and reasonably in the event that you do receive a claim.

5. Follow Procedural Fairness

If termination becomes necessary, following the correct process is critical. This includes:

• Providing a valid reason for the dismissal.
• Giving the employee an opportunity to respond, including not preventing them from bringing a support person to discussions.
• Offering a fair chance to improve (e.g., through a performance improvement plan).

For small businesses, adherence to the Small Business Fair Dismissal Code is essential. If you’re unsure what steps to take, consult an HR professional or legal expert before proceeding.

What does a poor process look like in real life? 

You hired an experienced physiotherapist at your allied health practice last year. You had some targets in mind for rebooking and booking utilisations and made these generally known to them. 

During their 6 month probation you generally mentioned that they needed to improve. At the end of their probation you kept them on.

Despite being a skilled clinician, their numbers have consistently fallen short.

Frustrated and concerned about the impact on your team and business profitability, you decide to terminate their employment for poor performance.

But soon after, they lodge an unfair dismissal claim with the Fair Work Commission, arguing that:

• They were never formally warned about their performance issues.
• There was no documented process to address the underperformance.
• They were not given a reasonable opportunity to improve.

As the claim progresses, you realise there are gaps in how the situation was handled. 

While you spoke to them informally several times, nothing was documented. You never made it clear that failure to improve could result in disciplinary action or termination of their employment. 

You didn’t provide any support on how to improve. Sometimes practitioners need coaching on asking for the rebooking, or perhaps some of the issues lay in their skill and client satisfaction – but you didn’t ascertain this or help to improve it. 

Your treatment of this team member was also inconsistent – you have others who have not always met targets but they have been handled differently. This can appear biassed or unfair. 

You also didn’t give them an opportunity to respond before making a decision to terminate them – if you had have done this they might have presented relevant information to help inform your decision. 

While underperformance can be a “valid reason” for termination, failing to follow a process and allowing them the opportunity to respond does not mean your actions were reasonable and fair.

What to Do If You Receive an Unfair Dismissal Claim

Even with the best processes, claims can still happen. Employees can submit a claim within 21 days of the termination to the Fair Work Commission. 

It doesn’t matter if you did or didn’t have a valid reason or follow the correct process – they can make a claim regardless. More often than not, claims are less likely where process is followed as even if the employee isn’t happy with the outcome, they felt heard during the process. 

If you receive a claim, here’s how to handle it:

1. Prepare Your Documentation
   Gather all relevant records, including records of performance discussions, warnings, and improvement plans and any evidence supporting the reasons for termination.

2. Respond Within the Timeframe
   Unfair dismissal claims must be responded to promptly. Check the timeline specified by the Fair Work Commission and ensure your response is thorough.
3. Attend the Phone Conciliation

Cases will first proceed to a phone conciliation facilitated by a Conciliator appointed by the Fair Work Commission. Their goal it to help you resolve the claim and agree on an outcome. 

If conciliation fails, the applicant may seek to take the case to court. 

This can be a stressful process for small businesses when you have never been through this situation before. 

We recommend seeking support from a HR Consultant to assist you in preparing for the claim, understanding whether you have a strong or weak case depending on how you have handled it, and discussing options for what might be agreed to settle the matter at conciliation. 

Having support can reduce stress and improve your chances of a favourable outcome.

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Final Thoughts

Managing performance proactively and following fair processes for dismissal not only protects your business from unfair dismissal claims but also helps build a positive workplace culture.

If you’re unsure how to handle a performance issue or need support with a claim, please book a Free Call with us. 

From creating performance management plans to advising on dismissal procedures, we can provide the guidance you need to navigate these challenges with confidence.