Managing a team is no easy task. The employee lifecycle is one full of ups and downs.

One of the greatest ‘downs’ is termination.

As a business owner, it is almost inevitable that at some point in time, you will be required to terminate one of your staff members. The termination process can be stressful and emotional. In Australia it can also often be risky.  If the processes in your business are poorly managed, or if the key legal obligations are not fulfilled. The business could be subjected to a number of legal claims including Unfair Dismissal and Adverse Action.

In order to protect yourself from such claims, it is important to have a clear understanding of what they are. As well as how they differ, and how to avoid them.

Unfair Dismissal:

Unfair Dismissal refers to a situation where an employee is terminated in circumstances that are considered “harsh, unjust or unreasonable”. The Fair Work Act does not provide a list of what is considered harsh, unjust or unreasonable. Instead you should consider “would a random person walking down the street consider this to be harsh, unjust or unreasonable?”.

In all cases, dismissing an employee should be a fair response to a problem. In order to ensure fairness, it may be more reasonable to provide an employee with a warning for a first-time offence. Instead of jumping straight to termination.

Before an employee is terminated, you should always attempt to help them to improve their performance/conduct. This could be achieved by offering training or extra support.

By the time termination has become a possible outcome, the employee should have already been made aware of the problem. They should also be informed that failure to improve their performance/conduct may result in termination. For instance, a formal written warning is a good method. It clearly outlines what the problem is, and the consequences of failing to rectify the issue.

Once made aware of a problem, employees should be provided with a reasonable amount of time to correct their behaviour.

Procedural Fairness:

The Fair Work Act does outline specific processes that must be followed before an employee is terminated. If not applied, the termination will be considered unfair. In particular, employers must provide employees with ‘procedural fairness’ when making employment-related decisions.

To be more specific, procedural fairness is more concerned with the processes used by the decision maker, rather than the actual outcome.

Employers must ensure they are providing a ‘fair’ and ‘proper’ process.

There are a couple of key points to keep in mind when coordinating a performance management process. These ensure you are achieving this (note – you should keep these points in mind for all performance management meetings whether the outcome be a formal warning or termination).

Key Points:

  • Enter into performance management meetings without an outcome in mind. During the meeting you should provide the employee with a reasonable opportunity to respond to the allegations that you have raised. You should then reasonably consider their response. Based on their response, the severity of the issue and any other relevant factors you will be able to determine the most appropriate outcome. For example: termination or formal warning.
  • Provide the employee with a Notice of Meeting Letter. This will inform them of your intention to have a performance related meeting with them. The letter should provide brief details of what the issues is. As well as who will be in the meeting and when the meeting is to occur.
  • Allow the employee to bring a support person to the meeting . The employee should be given a reasonable amount of time to find a support person.

Procedural fairness needs to be applied to employees. Otherwise the business is at risk of an Unfair Dismissal Claim. Even if the business has a valid reason for dismissing the employee.

In the case of unfair dismissal claims there is a minimum employment period requirement that needs to be satisfied in order for a claim to be successful. An employee may only make an unfair dismissal claim if they have been employed for over six months. Or if in the case of a small business, a period over twelve months. Depending on individual cases, periods of employment as a casual may or may not count.

With unfair dismissal claims, the onus is on the employee to prove that there was wrongful doing.

Employees need to lodge their claim within 21 days of their termination for it to be valid. Employees are entitled up to a maximum of six months’ pay if their unfair dismissal claim is successful. Or half of the current ‘High-Income Threshold’. Whichever amount is lower.

Adverse Action

Unfair Dismissal is strictly related to the termination of an employee. However,  Adverse Action claims are related to any negative actions directed at employees for exercising a workplace right. Examples of workplace rights include (but are not limited to) joining a union, making a complaint or taking leave.

Employees are protected from adverse action from day 1 of employment. Essentially, an employer cannot withhold any form of workplace right. Or take adverse action against an employee for using or planning to use a workplace right.

Unlike Unfair Dismissal, there is no maximum cap on the possible compensation that an employee can be awarded if the employer is found guilty of Adverse Action. There is no limit of compensation that an employee can be awarded for adverse action claims.

For claims of Adverse Action, the ‘onus of proof’ is reversed. Employers are essentially considered ‘guilty until proven innocent’. They must be able to prove that they did not take adverse action against the employee. For this reason, it is important to ensure you are following the correct processes when making employment related decisions. Adequate records of this should also be kept.

The threat of these claims and the possible compensation to be paid is worrying. Therefore, having a clear understanding of the potential claims allows you to better understand how to avoid them.

wattsnext has recently developed a Performance Management Product to further assist business owners.

This document is a comprehensive performance management product suite that includes:

  • key letter templates and documentation;
  • contextual information on the formal and informal performance management processes; and
  • step support for working through both informal and formal performance management processes.

This product advises on a number of performance management scenarios, it provides detail on how to correctly carry out the following process:

Unfair Dismissal
Unfair Dismissal

The termination process can be an emotional one. So, it is important to ensure you are being logical and following the correct procedures.

Are you certain that your performance management procedures are up to scratch? If not, there could be quite a large price to pay.


Photo by Michael Jasmund

Author: wattsnext Group
The wattsnext Group blog is a compilation of ideas and expertise from the entire team, past and present with a few added gems from guest authors from time to time. With this collaborative approach, we can provide you with a broader perspective and high-level expertise across the small business landscape.