How to terminate an employee and avoid an unfair dismissal claim: Best practices for avoiding unfair dismissal applications

Far too often we see businesses suffer due to key personnel being taken away from their core roles and responsibilities to deal with disputes relating to the termination of their employees.

To minimise the risk of an unfair dismissal application, all Directors and key management employees should understand what is (and what is not) an unfair dismissal for the purposes of the Fair Work Act 2009 (Cth). With a detailed understating of how termination of employment should best be actioned, Directors and key management avoid the Fair Work Commission and have the ability to focus on their key roles and responsibilities.

Who can bring an unfair dismissal application?

A person is protected from unfair dismissal at a time, if at that time:

1. The person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and
2. One (1) or more of the following apply:
   1. A modern award covers the person;
   2. An enterprise agreement applies to the person in relation to their employment;
   3. The sum of the person’s annual rate of earnings (and any other amounts covered under the regulations), is less than the high-income threshold.

The high-income threshold is subject to indexation each year and is currently $162,000.00.

What is the minimum period of employment?

The minimum period of employment is dependent upon the number of employees of the employer. If the employer is a small business employer (14 or less employees) the minimum period of employment is 12 months. If there are 15 or more employees (including the dismissed employee), the minimum period of employment is six (6) months.

In my experience, employers should be aware of these key milestones and make appropriate decisions if necessary. Particular care should be given when dealing with casual employees or if a transfer of business has occurred, as this may impact the minimum period of employment as further analysis will need to be undertaken to determine the employee’s total period of service.

How to best avoid an unfair dismissal application?

There are countless examples where employees have been successful in unfair dismissal applications against their employer purely due to the termination process having deficiencies or not being done in accordance with termination policies and procedures. This is despite there being what appears to be a perfectly valid reason for the termination of the employee’s employment.

For example, a hair dressing salon recently terminated an employee for providing client details to a competitor and allowing the competitor to contact these clients directly. Despite there being a perfectly valid reason for dismissal, the employer did not afford the employee procedural fairness nor an opportunity to respond to the allegations and was found to have unfairly dismissed the employee. This is a typical example of where an employer fails to affect a termination correctly and leaves themselves open to unnecessary litigation.

Whilst there is no guarantee that prevents an employee from commencing proceedings against you for unfair dismissal following their termination, the following are practical steps that can be taken to minimise the risk of an application being filed and to place the employer in the best position to defend any potential application:

1. Monitor the employee’s performance and ensure that you have a valid reason for dismissal relating to the employee’s capacity or conduct. The general rule of thumb here is that the reason must be “sound, defensible or well founded” and not “capricious, fanciful, spiteful or prejudiced.”
2. Provide notice to the employee of the valid reason in relation to the capacity or conduct and do this prior to the decision is made to terminate their employment.
3. If there is a policy or procedure relating to the termination of employment, ensure that it has been followed and documented.
4. Allow an opportunity for the employee to respond to the valid reason prior to the decision to terminate.
   For example, do not hold a disciplinary meeting in relation to the employee’s capacity or conduct and have a pre-drafted termination letter in the meeting. This indicates a pre-determined view and will be considered by the Fair Work Commission.
5. Allow the employee to have a support person present at any disciplinary meeting. Whilst this is not a direct obligation of the employer, it again shows that procedural fairness is being afforded to the employee.
6. Maintain a detailed file if the disciplinary meeting is in relation to unsatisfactory performance.
   For example, follow any performance management procedures or policies and ensure that written documentation is kept that provides a timeline of how you have attempted to work with the employee in relation to their performance. These warnings should make it clear to the employee that their employment is at risk if their performance does not improve.

What do I do when an employee claims unfair dismissal?

What happens if the Fair Work Commission finds that an employee has been unfairly dismissed?

The decision whether to grant a remedy where a dismissal is unfair remains at the discretion of the Fair Work Commission. There is no automatic right or obligation on the Fair Work Commission to award a remedy.

Alarmingly though, if a remedy is considered appropriate, the Fair Work Commission will first consider whether reinstatement is appropriate before considering any other remedy. This means the Fair Work Commission could order the dismissed employee be reinstated to their previous position. This is a practical nightmare for employers who are faced with the genuine possibility of having the terminated employee back in their old role and being back at square one (1) in relation to dealing with the terminated employee’s issues.

Compensation may also be considered if the Fair Work Commission is satisfied that the reinstatement of the employee is inappropriate. If compensation is awarded, the Fair Work Commission is to take all circumstances into account, including:

• the effect of the order on the viability of the employer’s enterprise,
• the length of the person’s service with the employer,
• the remuneration that the person would have received, or would have been likely to receive, if they had not been dismissed,
• the efforts of the person (if any) to mitigate the loss suffered because of the dismissal,
• the amount of any remuneration earned by the person from employment or other work during the period between the dismissal and the making of the order for compensation,
• the amount of any income reasonably likely to be earned by the person during the period between the making of the order for compensation and the actual compensation, and
• any other matter that the Commission considers relevant.

The maximum compensation that can be ordered is the lower of half of the employee’s annual wage or $79,250.00.

Conclusion

If not handled adequately, unfair dismissal disputes have the real ability to become time consuming, costly and disruptive to employers and key managers.

Acting quickly and with confidence can lessen the risk of an unfair dismissal application being filed by a dismissed employee. In the contrary, poor termination practices result in unnecessary litigation against disgruntled ex-employees who are looking for retribution. The cost of this usually goes far beyond the direct cost of potential damages owed to the ex-employee.

Our Specialist Employment Law team has extensive experience in dealing with termination disputes in the Fair Work Commission.

Our goal is to work with employers to assist and compliment their human resources practices that results in Directors and key management not being involved in unnecessary Fair Work Commission proceedings.