What’s The Small Business Fair Dismissal Code? (2022 Update)

Feb 15, 2021
Reading Time: 3 minutes
Written by Jackie Olling

Key points

  • The Small Business Fair Dismissal Code applies to Australian businesses with 15 or fewer employees.
  • Unfair dismissal occurs where an employee has been dismissed in an harsh, unjust or unreasonable way.
  • Employees at small businesses need to have been employed for 12 months in order to make a claim for unfair dismissal.

Introduction

When you terminate an employee, you have to make sure that you do so on legitimate grounds. Employees who are dismissed in a way which is harsh, unjust or unreasonable may be able claim that they were unfairly dismissed. If the employee is successful, the Fair Work Commission (FWC) may order that they be reinstated or compensated. However when it comes to unfair dismissal, different rules apply for different types of businesses. For small businesses, the Small Business Fair Dismissal code outlines what constitutes unfair dismissal. In this article, we’ll outline the key provisions of the code.

What defines a small business?

The precise definition of ‘small business’ varies amongst different Australian government agencies. For example, the ABS defines a ‘small business’ as a business that employs fewer than 20 people. For ASIC, this number is 50. Codes applying to smaller businesses have previously applied to businesses with fewer than 100 employees, though this has since been revised. Currently for matters related to employment, Fair Work Australia defines a small business as a business with 15 employees or fewer. It is only to these types of businesses that the Small Business Fair Dismissal Code applies.

Unfair dismissal

Dismissal occurs where:

  • The employer terminates the employee
  • An employee is forced to resign by the employer

If you dismiss your employee in a harsh, unjust or unreasonable way, this may constitute unfair dismissal. This may also be the case where a redundancy isn’t genuine. Casual employees can only claim for unfair where they have a “reasonable expectation” of ongoing employment.

The code

12 month limitation

Your employee needs to have worked for you for at least 12 months to apply for unfair dismissal. If your employee has not worked for you for 12 months or more, then they will not be able to claim they were unfairly dismissed. For larger businesses, the limit is 6 months.

Dismissal

An employee of a small business can only make a claim if the employer has failed to comply with the code. Dismissal is fair where:

  • An employee’s conduct has been serious enough to justify summary dismissal. This might include conduct such as theft, assault or breaches of Workplace Health & Safety (WHS) policies.
  • You have warned your employee that they are at risk of being dismissed. This will ordinarily be due to performance issues.
  • Your employee’s position is redundant

Summary dismissal

You can dismiss your employee without notice or warning where they have engaged in conduct serious enough to justify it. Serious misconduct includes the employee engaging in criminal activity whilst on the job. This includes theft, violence and other serious misconduct. The Code recommends, but does not require, that an employer report these allegations to the police. If you’re unsure of whether an employee’s conduct is sufficient to justify summary dismissal, it is worth speaking with an employment lawyer to ensure that you comply with the national requirements.

Other dismissal

If your employee isn’t meeting the requirements of the job, you should implement a performance management plan. At the very least, you should warn them that they are at risk of being terminated. Your employee may be able to claim unfair dismissal if you dismiss them without giving them the opportunity to improve. You should keep a record of all communications between you and your employee notifying them of issues with their performance.

Why have the small business fair dismissal code?

Small businesses have in the past, been deterred from hiring more employees due to strict unfair dismissal rules. The code encourages small businesses to employ more people, and tries to combat the high number of illegitimate unfair dismissal claims. Small businesses make up the majority of employers in Australia and don’t have the same resources that larger corporations have. Subsequently, small businesses can struggle to defend unfair dismissal claims even where they are illegitimate. It subsequently stands to reason that there should be laws that encourage them to employ more people. So long as you adhere to the code, and follow the checklist provided, an employee will not have a legitimate claim for unfair dismissal against you.

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