The Small Business Fair Dismissal Code (the Code) sets out the obligations on small business owners around termination such as:
- acceptable reasons for summary dismissal,
- providing a reason for termination, and
- allowing the employee to have a support person present when discussing termination.
An employee can lodge an unfair dismissal application if he or she believes the employer has not terminated their employment for a legitimate reason. The Commission will consider the factors set out in section 387 of the Fair Work Act 2009 (Cth) to assess whether the employee was unfairly dismissed.
The Commission in Croft v Smarter Insurance Brokers Pty Ltd  FWC 6859 addressed the issue of unfair dismissal in the context of a small business (employers with less than 15 employees). The decision serves as a lesson for small businesses that even in extreme cases, close compliance with the Code is your best defence against an unfair dismissal claim.
Facts of the Case
Mr Croft worked in a small insurance broker in NSW. The relationship between the directors of the business and Mr Croft was rocky, and they had difficulties throughout the time that Mr Croft was employed. The employers indicated in their evidence that they had voiced their concerns about Mr Croft’s behaviour on several occasions and then terminated his employment. He did not receive any written warnings in respect of his behaviour or written confirmation as to why his employer was terminating his employment.
After Mr Croft’s termination, the employers also found a small amount of pornography on Mr Croft’s work computer. Later, the employer attempted to use this discovery as post-justification for the termination of Mr Croft’s employment. The employer incorrectly believed that they had the right to terminate Mr Croft’s employment summarily and provide payment instead of notice, under clause 21 of his employment contract.
Mr Croft submitted an application for unfair dismissal on the basis that:
- he had not received verbal or written warnings,
- was not given reasons for his termination, and
- was not able to have a support person at his meeting to discuss termination.
Mr Croft also argued that the employer had only subsequently brought up the allegations about him downloading pornography after they realised that they couldn’t rely on clause 21 of his employment agreement to terminate his employment. The employer argued that there were performance and attitude issues with Mr Croft’s work which is why he was dismissed. Although the employer made some admissions that they did not strictly comply with the code, they believed there were sufficient reasons to dismiss Mr Croft.
The Commission set out the two contentious issues:
- the dismissal was harsh, unjust or unreasonable, and
- the dismissal was not consistent with the Code.
On reviewing the employer’s conduct, the Commission decided that the employer was not compliant with the Code. They did not provide Mr Croft with notice that his employment may be at risk nor any opportunity to respond to any issues and attempt to rectify them.
In relation to the second question of whether the dismissal was harsh, unjust or unreasonable, the Commission considered the criteria set out in section 387 of the Fair Work Act 2009 (Cth):
- Is there a valid reason?
- Did the employer notify the employee of the reason?
- Did the employee have the opportunity to respond?
- Did the employer refuse the employee the option to have a support person during discussions about their termination?
- Did they receive warnings about poor performance (if relevant)?
- Did the size of the business affect their dismissal procedures?
- Did a lack of HR assistance impact on the dismissal procedures?
- Are there any other matters the Commission found relevant?
What Did the Commission Decide?
The Commission decided that the employer could not rely on clause 21 and therefore, the dismissal was invalid. The Commission noted that even though there may have been reasons, the employer had not provided these on termination. Consequently, how the employer had terminated Mr Croft’s employment was inconsistent with the Code and was harsh, unjust and unreasonable (particularly as Mr Croft could not respond to the reasons for his dismissal).
The Commission took into consideration that there were some valid reasons for termination and that the employer would have likely terminated Mr Croft within the next couple of months. As such, they determined Mr Croft should receive eight weeks’ pay as compensation for the unfair dismissal.
Lessons for Employers
Employers can take several lessons from this matter. Firstly, that if you are a small business (less than 15 employees), you should familiarise yourself with the Code. It’s short and easy for small business owners to understand. You should be clear on the difference between summary dismissal and dismissal for performance issues as well as the procedural requirements.
Secondly, if you have any performance issues with an employee that may result in termination, you must provide formal warnings preferably in writing (a first and second warning). The employee must appreciate that if they do not improve, that it may result in termination of their employment. You should include in the warning/s how you expect the employee to improve and if they require any mentoring or training. Having KPIs or other indicators in place can assist with this process.
Thirdly, when you are dismissing an employee, you should speak with them to explain why you are terminating them and give them an opportunity to respond. You should not prevent them from having a support person present.
If you are considering terminating an employee, you should speak with an employment lawyer first. They can ensure that you are correctly interpreting any relevant employment agreement and complying with the Code (including procedural matters) to reduce your risk of an unfair dismissal claim. Even if your employee has been performing poorly, it’s essential you comply with the requirements in the Code.