The Fair Work regime protects employees against unfair dismissals and non-genuine redundancy, harsh, unjust or unreasonable dismissal or in breach of the Small Business Fair Dismissal Code. The Fair Work Commission can order reinstatement or compensation, but time limits apply. Common law claims can be taken through the courts for wrongful dismissal or unlawful suspension or standing down.
Most claims in relation to termination of employment fall into three categories:
1 unfair dismissals under the FW Act;
2 dismissals prohibited under the FW Act; and
3 common law claims for wrongful dismissal.
This section deals with unfair dismissals and common law claims for wrongful dismissal. (See “General protections”, for information about dismissals prohibited by the FW Act.) This chapter does not discuss claims under other legislation relating to termination of employment (e.g. the Competition and Consumer Act 2010 (Cth)) and equal opportunity legislation (see Discrimination and human rights).
A person has been “unfairly dismissed” under section 385 of the FW Act if all of the following apply:
• the person has been dismissed;
• the dismissal was harsh, unjust or unreasonable;
• the dismissal was not consistent with the Small Business Fair Dismissal Code; and
• the dismissal was not a case of genuine redundancy.
A person must be protected from unfair dismissal to be eligible to apply for a remedy for unfair dismissal (see “People protected from unfair dismissal”).
The FWC’s Unfair Dismissal Benchbook provides detailed information about the law and procedures of unfair dismissal cases. The FWC’s Fair Hearings Practice Note describes the procedures to be adopted in a hearing in the FWC (see www.fwc.gov.au).
In deciding whether an employee’s termination was harsh, unjust or unreasonable, the following must be considered (s 387 FW Act):
• whether there is a valid reason for the dismissal connected with the employee’s capacity/conduct;
• whether the employee was notified of the reason relied on by the employer;
• whether the employee was given an opportunity to respond to the allegations made in relation to the employee’s conduct or performance;
• any unreasonable refusal of the employer to allow the employee a person to assist in discussions related to the termination;
• if the termination related to performance, whether warnings were given;
• the degree to which the size of the employer impacted upon the procedures followed in effecting the termination; and
• the degree to which the absence of dedicated human resource management specialists impacted upon the procedures followed in effecting the termination,
as well as other relevant matters.
For the purpose of section 385 of the FW Act, a person has been dismissed if they:
• were terminated at the employer’s initiative; or
• were forced to resign because of the conduct or course of conduct of the employer (s 386).
A person will not be dismissed, for the purpose of the unfair dismissal provisions, if:
• they were employed under a contract of employment for a specified period or specified task or specified season and the employment ended at the end of the period, task or season;
• they were employed under a training arrangement for a specified period or for the period of the training and the employment ended at the end of the training; or
• they were demoted but the demotion does not involve a significant reduction in their remuneration or duties (s 386).
If the person has not been dismissed they would not be able to make out the necessary elements of section 385 of the FW Act for the termination to be an unfair dismissal.
Under the Small Business Fair Dismissal Code (“Dismissal Code”), a person’s dismissal is consistent with the Dismissal Code if the employer was a “small business employer” at the time of the dismissal and the employer has complied with the provisions of the Dismissal Code in relation to the dismissal (s 388 FW Act).
Since 1 January 2010, the definition of “small business employer” is a business with less than 15 employees. The number of employees includes the employees of related and associated entities of the employer.
The Dismissal Code states that a dismissal is fair where an employer dismisses an employee where the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Therefore, under the Dismissal Code, an employer does not need to prove the misconduct actually occurred.
If the employer is a small business employer and the employer complied with the provision of the Dismissal Code, the termination will be deemed to be fair and the elements of an unfair dismissal required for section 385 will not be made out.
If the employer is not a small business employer or a small business employer has not complied with the Dismissal Code, then the dismissal is not consistent with the Dismissal Code and the necessary element of section 385 will be made out.
A person’s dismissal will be a genuine redundancy if both of the following requirements are met (s 389 FW Act):
• the person’s employer no longer requires the person’s job to be done by anyone because of changes in operational requirements; and
• the employer in dismissing the employee complied with any consultation obligations in a modern award or enterprise agreement.
Under section 389(2) of the FW Act it would not be a genuine redundancy if it was reasonable to redeploy the person within the employer’s enterprise or an associated entity.
If a person’s dismissal was found to be due to a genuine redundancy, the person would not be able to make out the required element of section 385 of the FW Act for the dismissal to be an unfair dismissal.
To make an application for unfair dismissal, the person making the application must be protected from unfair dismissal. Under sections 382 to 384 of the FW Act, a person is protected from unfair dismissal if the following applies to them:
1 The employee has completed a minimum period of employment of:
a one year for an employee of a small business employer (as defined above);
b six months for an employee of a business other than a small business employer.
2 And, one of the following applies to the employee at the time of termination:
a the employee was covered by a modern award;
b the employee was covered by an enterprise agreement;
c the person’s income was less than the high-income threshold of $148 700 (as at 1 July 2019); or
d if the person was a casual employee of a business other than a small business employer and was employed on a regular and systemic basis for more than six months, and the employee had a reasonable expectation that such employment would continue.
The primary remedy for a dismissal found to be harsh, unjust or unreasonable is to reinstate the employee to the same position or to a comparable position as they held prior to the termination. The FWC has the power, in certain circumstances, to reinstate a worker to an equivalent position with an associated entity of the employer. A reinstated worker can seek an amount representing their lost wages between the date of termination and the reinstatement, and to have all employment benefits continue to accrue without loss of continuity.
Where reinstatement is inappropriate (e.g. where tensions in a small workplace would be insurmountable if the dismissed employee returned to work), compensation may be ordered instead of reinstatement. The maximum compensation payable to employees covered by an award is six months wages; and for non-award employees is half the amount of the high-income threshold (discussed above in “People protected from unfair dismissal”) or six months wages, whichever is less.
Applications for a remedy for unfair dismissal must be made within 21 days after the day on which the termination took effect, or such period as FWC allows (see s 394 FW Act). The matters to be taken into account for an extension of time to lodge an application have been codified in section 394(3) of the FW Act. Importantly, the applicant must show that there were exceptional circumstances.
A number of matters must be decided by FWC before the merits of an unfair dismissal are considered. These matters are:
a whether the application was made within 21 days or such further period as the FWC allows;
b whether the person is protected from unfair dismissal;
c whether the dismissal was consistent with the Dismissal Code; and
d whether the person was dismissed because of genuine redundancy.
The first step for a worker who has applied for a remedy for unfair dismissal is usually a telephone conciliation conference with the employer and a FWC conciliator. In a conciliation conference, each party can negotiate in an informal manner and can explore the possibility of reaching an agreed settlement.
If the matter is not resolved at that stage, it then usually proceeds to arbitration (often called a “hearing”). Unlike in a conciliation conference, a decision is imposed on the parties at the conclusion of a hearing. The FW Act gives FWC considerable discretion in relation to the method of finalising the claim. Appeals to a full bench of FWC can be made where there has been an error of law or a significant error of fact.
Costs against a party in an unfair dismissal can only be awarded against an applicant if an application was made vexatiously or without reasonable cause, or if it should have been apparent to the applicant that the application had no reasonable prospect of success.
Costs will only be awarded against a respondent if the response to an application was made vexatiously or without reasonable cause, or if it should have been apparent to the respondent that the response had no reasonable prospect of success (s 611 FW Act).
Generally, costs in a matter under the FW Act, including an unfair dismissal application, can be awarded to a party if the other party caused those costs to be incurred because of an unreasonable act or omission of the other party in connection with the conduct or continuation of the matter (s 400A).
Costs can be awarded against a lawyer or paid agent where they caused the other party to incur costs by some unreasonable act or omission or because they encouraged a person to start, continue or respond to a matter when it should have been apparent to them that the person had no reasonable prospects of success (s 401).
Wrongful termination at common law
Employees who are not entitled to bring proceedings for unfair dismissal (see “People protected from unfair dismissal”) may still be entitled to bring proceedings elsewhere for the wrongful termination of their contract of employment.
If the contract is for a fixed period, it terminates when that period expires; no special notice is required. If the contract is for a fixed period and the contract is terminated by the employer before the end of the fixed period, the employee may be able to sue for damages relating to the remainder of the fixed period, provided they can show that the employer did not have a good reason to terminate early.
If the contract is not for a fixed period, and the employee is dismissed, or if the employee is dismissed prior to the end of the contract, then there may be an action for wrongful dismissal.
In the absence of misconduct or any other circumstances justifying immediate dismissal, the employee is entitled to be given notice in accordance with the written contract of employment (if any).
Or, if there is no express term for the period of notice, the employee is entitled to rely on an implied term of reasonable notice. The question of what is “reasonable notice” depends on the employee’s circumstances (including their position, seniority, salary, length of service and age).
An employee who can show that their dismissal was wrongful has a claim for damages. The amount of damages may relate to the wages that could have been earned during the “reasonable” period of notice, taking into account whether the employee has subsequently found work.
Unless specifically authorised by an award or enterprise agreement, an employer has no general right to suspend employees without pay, but an employee who is not ready, willing and able to work in accordance with the obligations under the contract of employment may not be entitled to be paid.
At common law, an employer does not have the right to stand down employees without pay when they cannot be usefully employed.
Unless there is some provision in the contract of employment or award to the contrary, an employer who cannot usefully employ their employees has the alternative of either paying them wages during the period or dismissing them. In dismissing an employee in these circumstances, the employer should take careful note of the unfair dismissal provisions (see “Unfair dismissals”).
Some awards permit deductions of pay where employees cannot be usefully employed for reasons such as a strike, a breakdown of machines or a stoppage of work for which the employer cannot reasonably be held responsible.
In contrast to the common law position on stand downs, part 3-5 of the FW Act allows an employer to stand down an employee during a period in which the employee cannot usefully be employed because of circumstances including industrial action, machinery breakdown, or a stoppage of work for any cause for which the employer cannot reasonably be held responsible. In these circumstances, the employer is not required to make payments to the employee for the stand down period.