Dismissal and Redundancy for Small business – Understand your obligations

Terminating an employee is often a traumatic and difficult time for all concerned.  This is not only from an interpersonal basis but also from a legal perspective. A wrong decision or interpretation can catapult you into the world of courts, significant legal expenses, fines, reinstatements and most importantly loss of focus on the business imperatives. This article therefore attempts the provide clarity as to your obligations, as a small business, and how to ensure that the termination is enacted in a manner that best protects your interests against unfair dismissal claims.

What constitutes a small business?

As a national workplace employer (click http://workplacerelationsoz.blogspot.com.au/2009/09/what-workplace-jurisdiction-does-my.html"}">here to check your jurisdiction), a small business is treated differently to all other enterprises. Being clear on whether your business is classified as a “small business” is therefore essential to the options available to you.


Under the Fair Work Act, a small business is defined as any business with a headcount of fewer than 15 employees.  Note however that a recent ruling has defined employees as any systematic workers and may include casual employees and contract staff.

Dismissal or Redundancy

Determining whether a termination is a dismissal or a redundancy is an important distinction to make in that it reflects directly on your obligations as a small business.

A good way to answer this question is to ask if the termination is a consequence of the position significant changing, or disappearing altogether, or whether the employee is not meeting the requirements implicit in Job description that defines the position. The former will be defined as a redundancy and the latter a dismissal. There is a simple Fair Dismissal Code checklist (available below) for small business employers to follow to ensure that they do not unfairly dismiss an employee. If an employer has strictly followed the checklist then the dismissal will be deemed to be fair.Under the Fair Dismissal Code, employees of small businesses cannot make a claim for unfair dismissal in the first 12 months after being hired. Employees of larger businesses are able to make a claim for unfair dismissal at 6 months.

Types of Dismissal

Summary DismissalThere are essentially two types of dismissal. The first, “Summary” is where the employee’s conduct has been proven on reasonable grounds to be so serious that it justified immediate dismissal.  In such circumstances, it is fair for an employer to dismiss an employee without notice or warning. Serious misconduct includes theft, fraud, violence (including verbal) and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police.

Other Dismissals

In all other cases, the small business employer must give the employee a reason why they are at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job. The employee must be warned verbally or preferably in writing, that he or she risks being dismissed if there is no improvement.

The small business employer must provide the employee with an opportunity to respond to the warning and give the employee a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.


Who cannot make an Unfair Dismissal Claim.

The following small business employees are not allowed to make unfair dismissal claims:

  1. Employees who have worked for the business for less than 12 months.
  2. Employees who have worked as irregular casual employees.
  3. Employees who are guaranteed a salary of over $108,000.
  4. Employees who have been dismissed due to business downturn or their position is no longer needed. See redundancy below.

Procedural Matters
In discussions with an employee in circumstances where dismissal is possible, the employee can have another person present to assist. However, the other person cannot be a lawyer acting in a professional capacity.

A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to Fair Work Australia, including evidence that a warning has been given (except in cases of summary dismissal). Evidence may include a completed checklist, copies of written warning/(s), a statement of termination or signed witness statements.

Small Business Fair Dismissal Code.Click http://www.fairwork.gov.au/Templatesformschecklists/Small-Business-Fair-Dismissal-Code-2011.pdf"}">here for code.

The Fair Work Ombudsman has provided a checklist for small employers to ensure that the termination is fair. If the employer follows the checklist, then the termination will be deemed as fair. Click here to download the small business fair dismissal code.


Redundancy & small business

A redundancy is where you dismiss the employee because you didn’t require the person’s job to be done by anyone because of changes in the operational requirements of the business? A redundancy must be genuine. If you were to rehire someone in the same position at a later time, the termination would not be classified as a genuine redundancy.

In order to establish grounds of genuine redundancy, you must prove three things. 

  1. Firstly, you must prove that you dismissed the employee because you no longer required the person's job to be performed by anyone due to changes in the operational requirements of your business.   Some examples of changes in operational requirements that might establish genuine redundancy are set out as follows; a) A machine is now available to do the job performed by the employee, b) You are restructuring your business to improve efficiency and you decide to redistribute the tasks done by a particular employee between several other employees. c) Your business is experiencing a downturn and therefore you only need 3 people to do a particular task or duty instead of 5. In this kind of scenario, the process for selecting which employees will be retrenched is irrelevant, so long as the criterion is lawful. For example, in the above scenario, you could choose the 2 employees to go on the basis of poor performance but not because one is pregnant and the other is on WorkCover.
  2. Secondly, you must prove that you have complied with any obligation to consult with the employee about the redundancy. Such an obligation may arise under a modern award or enterprise agreement. You do not have to consult with the employee about the redundancy unless a modern award or enterprise agreement requires you to.  
  3.  Finally, you must prove that it would not have been reasonable to redeploy the employee within your business or a related business.  Redeployment means offering the employee another job, even if they do not want to take it. This does not mean you have to create jobs - you only have to offer redeployment to jobs that are vacant.  If there are no suitable positions available for the employee (i.e. positions that match their qualifications or experience), then redeployment is not reasonable. 

Small Business may be Exempt

Under the National Employment Standards (NES), an employer who is defined as a small business employer is not required to provide redundancy pay. However, an employer may have redundancy pay obligations under an industrial instrument or contract of employment.

Important! Some modern awards and pre-modern awards require certain small business employers to pay redundancy to their employees. see Exceptions below.


There are some small business employers who are not exempted from providing redundancy pay when they make an employee redundant. For example, some modern awards require certain small business employers to pay redundancy to their employees.

Small business employers should carefully check their requirements in relation to redundancy pay and seek professional advice if unsure of your obligations.

Pre-modern award entitlements to redundancy

Prior to the commencement of modern awards, some pre-modern awards (NAPSAs and Division 2B awards) provided redundancy pay for employees of a small business. This mainly occurred in the state of South Australia.

Most modern awards now contain transitional provisions which will preserve the small business redundancy entitlements from a http://www.fairwork.gov.au/resources/glossary/pages/default.aspx#napsa"}">NAPSA or Division 2B State award until 31 December 2014, if they provide for redundancy pay in excess of an employee’s entitlement under the NES.

Where a small business employer is covered by a modern award which contains this transitional provision and the employer would have had an obligation to pay redundancy pay under a NAPSA or a Division 2B State award, then the employee will continue to be entitled to redundancy pay in accordance with the NAPSA or Division 2B State award if it provides an entitlement that exceeds the employee’s entitlement under the NES.

Modern award entitlements to redundancy

Some modern awards require certain small business employers to pay redundancy to their employees. These redundancy obligations apply in industries where historically there was no small business redundancy exemption.

The following are some examples of modern awards which require certain small business employers to pay redundancy pay:


Redundancy pay obligations in an agreement or contract of employment

An applicable agreement or contract of employment may also provide for a more favorable redundancy pay entitlement than the NES, including by extending this entitlement to employees of a small business employer.