One of the most common legal risks for an employer in Australia who dismisses an employee is an unfair dismissal claim under the statutory jurisdiction in the Fair Work Act 2009 (FW Act).

Unfair dismissal claims are initially the subject of a telephone conciliation conference between the employer and the dismissed employee. If conciliation is unsuccessful, the claim will proceed to an arbitration hearing before a member of the Fair Work Commission (the Commission), who will determine whether the dismissal was ‘harsh, unjust or unreasonable’, by reference to a number of statutory criteria, and the guiding principle of a ‘fair go all round’, that is, fairness to both the employer and employee concerned.

Eligibility to make an unfair dismissal claim

Not all employees are eligible to make an unfair dismissal claim. A number of jurisdictional thresholds must be met in order for an employee to be eligible. For example if:

  1. the employee has not served a minimum employment period (either 6 or 12 months, depending upon the size of the employer); or
  2. if the employee’s annual rate of earnings at the time of dismissal exceeds the statutory high income threshold (currently $129,300 from 1 July 2013) and they are not covered by an industrial award or enterprise agreement,

they are not permitted to press an unfair dismissal claim.

For this reason, many senior executives or managers bring other legal action, such as common law claims for breach of contract, in connection with their dismissal.

Factors relevant to determining whether an employee has been unfairly dismissed

Valid reason for the dismissal

In the determination of an unfair dismissal claim, one of the most important criteria is whether a valid reason existed for the dismissal, relating to the employee’s capacity (such as performance) or conduct (including the dismissal’s effect on the safety and welfare of other employees). Generally, a reason for dismissal that does not relate to an employee’s capacity or conduct is unlikely to be a valid reason for dismissal.

An exception to this general proposition is where the reason for dismissal is that the employee’s position is made redundant (meaning that the employer no longer requires the work performed by the employee to be performed by anyone).

Procedural fairness to the employee

A number of the statutory criteria are directed towards whether the employee was afforded a fair process in the dismissal, for example whether they were provided with the reason for the dismissal, and whether they were provided with an opportunity to respond to this reason.

The failure to afford procedural fairness can render a dismissal harsh, unjust or unreasonable, even if a valid reason existed for the dismissal.

Harshness

The Commission has a significant discretion to take into account ‘any other matters that it considers relevant’, in determining whether to uphold an employee’s unfair dismissal claim. This commonly includes factors such as an employee’s performance record, age, years of service, contrition for the conduct engaged in, or any other mitigating factor that the Commission considers relevant.

Possible remedies

The unfair dismissal system places an emphasis on the reinstatement of an employee to his or her position with the employer. Under section 390(3) of the FW Act, it is only if the Commission finds that reinstatement would be inappropriate (for example, due to the breakdown in the relationship between the employer and the employee), can the Commission consider whether an order for compensation is appropriate.

The level of compensation that can be awarded by the Commission is limited (compared to other legal avenues), as it must not exceed the lesser of six months’ of the dismissed employee’s pay or half of the statutory remuneration threshold.

Changes to the unfair dismissal system

In recent times, the current President of the Commission, the Honourable Iain Ross AO, has introduced a number of measures to ‘modernise’ the unfair dismissal system, and make it more transparent and accessible to both employers and employees. These steps include:

  1. publishing a ‘bench book’ of the considerations and procedure relevant to the Commission’s determination of an unfair dismissal claim;
  2. releasing statistics as to the number of unfair dismissal applications made, and the results of these applications; and
  3. participating in a ‘mock trial’ of an unfair dismissal hearing, and uploading this to Youtube.


For employers, the unfair dismissal system remains problematic, primarily due to it being a ‘costs free’ jurisdiction (except in specific limited circumstances). This has frequently encouraged employers to offer ‘go away’ money to resolve an unfair dismissal claim, irrespective of its merits, given the reality that defending a claim is likely to be more expensive than settling it.

An additional hurdle for employers is the introduction in the FW Act of the requirement that external lawyers need to seek permission from the Commission to appear in a hearing, a requirement that is now more likely to result in lawyers being excluded, following the Federal Court decision in Warrell v Walton [2013] FCA 291 that where the employee is self-represented, denial of permission may be a necessity if a ‘fair and just’ hearing is to occur