Don’t assume just because you are a small business that you don’t need to follow the rules when it comes to terminating employees.

When talking to small business owners, some of which have only a couple of employees, there seems to be confusion out there as to the process you need to follow when dealing with an employee you may need to terminate.

To help, we’ve simplified the process for you.

defining a small business

The Fair work act 2009 s.23 states an employer of a small business has less than 15 employees, and this includes your regular casuals.

If you are under the 15 count, you should have your head around the Small Business Fair Dismissal Code.

what is the Small Business Fair Dismissal Code?

In the case of dismissal by a small business employer, a person has not been unfairly dismissed if the Fair Work Commission is satisfied that the dismissal was consistent with the Small Business Fair Dismissal Code.

let’s cover off a key factor – the employee’s first 12 months

If an employee has been with the business for less than 12 months, they are not entitled to make an unfair dismissal claim [If you have under 15 employees].  In saying that, please ensure if you terminate an employee within 12 months, you are terminating for the right reasons. They may not be able to make an unfair dismissal claim but they can make other claims under the general protections act [for example discrimination or workplace rights], so you do need to be clear on your reasons for dismissal, whether it be after 1, 3, 6, or 11 months.

My rule of thumb, whether you have 5 or 55 employees, is you should have some kind of onboarding and measuring process in place that will give you the opportunity to monitor performance from 1 month. This doesn’t have to be complicated and should something go wrong, it is worth its weight in gold!

let’s talk about employees who have been with you for 12 months or more

The Code mentioned above has a framework that gives small businesses steps to follow when you are considering dismissing an employee. If you follow the code, Fair work are likely to deem the dismissal as fair, should the employee make a claim.

Just so you are aware, an employee has 21 days after their dismissal, to submit an unfair dismissal claim to Fair Work. This process could happen even if you have followed the code. However by following the code, the steps you will need to take once you are notified of the claim should be easy and straight forward.

what is an unfair dismissal?

Unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or unreasonable manner. It could be as simple as a dismissal for no reason, not a case of genuine redundancy or the small business did not follow the small business fair dismissal code.

Ask yourself the following questions:

  • Is there a valid reason for the dismissal that relates to conduct or performance?
  • Were they notified of the reason and given opportunity to respond?
  • Did you allow the employee to have a support person present at any discussions about performance or conduct?
  • Have they been previously warned? Is this in writing?
  • Are they being terminated due to discrimination, illness/injury, parental leave, union related, voluntary work for emergency services, or after they have made a complaint/inquiry about their employment?  Of course, the answer to this question should be absolutely not.

let’s dig a little deeper and look at a couple of scenarios

Have your operational requirements changed so you needed to make the role redundant? This could be caused by a downturn in the market or a restructure of the business.

If this is the case, make sure you have:

  • A solid process for identifying the redundancies, consider redeployment or other options and have a plan to communicate and consult with the employees,
  • Consulted including reasons why, jobs affected, alternatives, selection assessment,
  • Confirmed it is a genuine redundancy and not a way to manage someone out [this won’t stick], and
  • Ensured you understand the process to follow, including payments, notice periods and so on.

You can read more about redundancy here.

Seek professional advice if you are planning to make employees redundant to ensure that you protect your business against an unfair dismissal claim if it is not seen as a genuine redundancy.

are you dismissing the person because of misconduct and/or is it serious enough to warrant instant dismissal? 

Pick up the phone immediately to your HR Consultant/IR Lawyer. If you have neither, pick up the phone to us and we can help.  Doing this without the right process/approach could land you in hot water with the Fair work commission.

serious misconduct is behaviour that could cause imminent risk to the reputation or profits of the business, health and safety or another person. 

Examples include theft, violence, fraud ora workplace health and safety breach.

are you dealing with a performance or behavioural issue, where it’s not a matter for an instant dismissal but you need to see improvement, otherwise dismissal may be the only option?

Have a discussion as soon as practical [don’t send a warning letter without a discussion, this is just simply bad form].  Really good practice is to inform the employee prior to the meeting that you are going to discuss ‘the recent incident or matter’. They may request a support person to be present and you must allow this as it is a workplace right.

A support person may be a colleague they trust, or a family member.  It is not a lawyer.

The discussion should include the following:

  • You explain the issues with their performance and are clear about the reason for the warning and that their performance or conduct, if it continues, puts them at risk of dismissal if there is no improvement,
  • Give the employee an opportunity to discuss their point of view and provide explanation,
  • If required, set clear steps and what needs to be done to meet expectations and by when,
  • Keep a written record of your discussion. The warning can be verbal, however I always follow up in writing a letter to the employee along with keeping notes of the discussion, and
  • Your may also cover support or training to give them the best chance of improvement.

Do not assume that this is an easy process and you will be able to terminate someone quickly.  An employee who is not provided a reasonable time frame to improve can claim unfair dismissal.

We’ve mentioned this already but everything you discuss, should be followed up in writing.  Make sure the employee is clear that this is a warning.

A good approach is to set a review period with the employee. For instance “We will meet up again in 3 weeks and discuss your progress”. Continue to do this until you see improvement or they have been given a reasonable timeframe to improve.

if after the timeframe the employee hasn’t improved to expectations, consider the following:

  • Would another meeting help the situation?
  • Do you need to consider issuing an additional warning?
  • Are you ready to terminate?
  • Can they be redeployed or duties changed?

If you decide to provide a second warning, follow the same process and ensure the employee is clear that their employment is at risk of termination.

If there is a way to train, develop or redeploy an employee to achieve success in your business, this is always the ideal option; replacing an employee is costly. They may have the right attitude, just not the right skills.

If you feel you have been fair and reasonable, tried everything, provided training, unable to change the role, then termination may be your only option. This is not an easy decision and not an easy discussion. In saying that, it is sometimes unavoidable and may be the only course of action.

how we would approach a termination

  • Set a meeting with the employee and invite them to have a support person present. [The support person is up to them.  It can be anyone of their choosing so long as it isn’t legal representation] .
  • Be prepared with the termination letter, clearly detailing the reason for the termination and the steps that have been taken up to this point.  Include the termination payment in lieu of notice.

You can download a template from the fair work website here.

  • Take them through the contents of the letter and answer any questions.
  • Advise them that the performance improvement process has been unsuccessful and that you will be terminating their employment.
  • Allow them time to respond.
  • Offer career counseling.

Our approach is to terminate immediately and pay out any notice. I feel it is unfair to expect a terminated employee to work a notice period and believe it has a very negative impact on them and the culture of the business. In my experience, after an unsuccessful performance improvement process, the employee is usually not taken by surprise by this meeting and sometimes even mutually agrees it isn’t working.  They in turn appreciate the opportunity to be able to leave immediately or soon after.

  • Based on this, my next step is to allow them to go back to their desk and pack up their things. Think about how you can make this a subtle process, particularly if they work in an open plan environment.  Perhaps it happens over lunch or at the end of the day as this is respectful to the employee.
  • Provide them with a copy of the letter and arrange for their payment to be made asap.

It is reality that not every person you employ is going to work out, regardless how good your recruitment and onboarding process is. Having a structured and detailed process around performance management will help you navigate this process more easily, ensuring you are always fair and compliant and in many cases, hopefully manage to have improvement. A process of fairness, compliance and good communication will help avoid unfair dismissal claims.

I encourage every business to have structure around the onboarding process that allows you to monitor how someone is settling into a new role as well as a regular check in process [not just once a year] for longer term employees.

If you have a good process at the beginning, both you and the employee, should be getting a good feel around the 3-4 month mark as to whether they are a good fit and everything is working well. There is no shame in deciding that it isn’t going to work out and as they say, there is no point flogging a dead horse.

Having a process that you can follow will also help you action things more quickly. Having no processes in place means actions could be avoided and issues can get worse.  It could also get you in hot water if you have an unfair dismissal claim.

Ensure when you onboard a new employee you make expectations really, really clear and they know what it looks like to achieve success in their role.

If you would like a small business dismissal code checklist, click here. This is a very handy tool to use if you are thinking of terminating an employee.

If you would like help with termination or onboarding processes or you have an employee who is not performing, give our team a call on 1300 BDEPOT or get in touch online here.



Originally authored by Anna Chipperfield.