Cut through the myths and understand what you must (and must not) do when ending employment under the Small Business Fair Dismissal Code.
Dismissals are one of the most difficult decisions a business owner can make. They’re high-stakes, emotionally charged, and can carry real legal risk if not managed properly. For small businesses, this pressure often feels doubled: fewer resources, closer relationships, and a much tighter impact when things go wrong.
Fortunately, small employers have one key protection: the Small Business Fair Dismissal Code. The Code exists to give small business owners a simpler, clearer framework for ending employment fairly and lawfully.
But here’s the problem: myths, misunderstandings, and fear around dismissals mean many owners either hesitate to act or act too quickly without following the correct steps.
This guide cuts through the noise so you know exactly what’s required: nothing more, nothing less.
What is a “small business” under the Code?
A business is considered a small business if it has fewer than 15 employees, including:
- full-time
- part-time
- casuals (regular & systematic only)
- employees of associated entities
If you’re not sure whether you’re under the threshold, get advice early to determine whether the Code applies.
Why the Code matters for small businesses
If you follow the Code, a dismissal will generally be considered fair.
If you don’t follow the Code, the Fair Work Commission can rule the dismissal unfair, even if you had a valid reason.
The Code is your protection, but only if you follow it and can show you followed it.
Two pathways under the Code: Summary vs Other Dismissals
The Code separates dismissals into two categories:
1. Summary Dismissal
Immediate termination without notice, only when the employee engaged in serious misconduct, such as:
- theft
- fraud
- violence or threats
- serious safety breaches
- intentional damage
- gross insubordination
Example: A worker punches a co-worker during a disagreement. You don’t need to run a long investigation, but you do need to confirm the allegation is credible before acting.
You must genuinely believe, on reasonable grounds, that the conduct occurred.
2. All Other Dismissals
For ongoing concerns such as performance, conduct, attitude, capacity, attendance, or failure to follow direction, you must:
- warn the employee clearly
- explain the issue
- give them an opportunity to improve
- make it clear their job is at risk
- allow reasonable time to correct the behaviour
Example: A receptionist regularly arrives late and has multiple customer complaints. You meet with them, outline the concerns, confirm expectations, put the warning in writing, and give them a chance to improve before deciding on dismissal.
The Code does not require a formal performance improvement plan, just a fair opportunity to improve.
The biggest myth: “Small businesses don’t need a process”
This is where many employers get caught out.
The Code is simpler than the general unfair dismissal framework but still requires:
- a valid reason
- clear communication
- an opportunity to respond
- a chance to improve (for non-serious issues)
- evidence of what you did
It doesn’t need to be complicated. It just needs to be fair, reasonable, and documented.
A simple, safe process for small business dismissals
Below is a practical framework you can use for most scenarios (other than serious misconduct).
1. Identify the concern
Start by clarifying the issue. Is it performance, Conduct, Attitude, Reliability, or Compliance? (or a combination?).
Example: A machine operator repeatedly ignores safety lock-out procedures, despite previous coaching. This is a conduct issue, not a skill issue.
2. Hold a conversation and issue a warning
This doesn’t need to be formal or scary. It simply needs to be clear.
Explain:
- the concern
- what needs to change
- the expected standard
- that failure to improve may result in dismissal
Follow up with a short email or written note.
Example wording:
“We discussed your repeated lateness on 4, 7 and 11 February. You were advised this is unacceptable and that continued lateness may lead to termination of employment.”
3. Allow time to improve
What is considered reasonable time varies based on the issue.
- Lateness: days to weeks
- Performance/quality: weeks
- Behaviour/attitude: immediate and ongoing
You don’t need to set a 3-month plan. You just need to provide a real opportunity.
Example: After a warning about customer service tone, an employee is monitored for the next two weeks. No improvement occurs, and another complaint arises. You’ve provided opportunity, the Code is satisfied.
4. Consider their response
Before dismissing, allow the employee to share their side.
They might:
- explain mitigating circumstances
- dispute the facts
- acknowledge the issue and offer solutions
You don’t need to agree with them, or force them to agree with you. You simply need to give them the opportunity to put forward their case, and consider their response.
Example: A cleaner fails to complete rooms to standard. In the meeting, they explain they were covering an extra area due to a colleague being absent. You consider the explanation: the reason was temporary, not ongoing, so the matter doesn’t warrant dismissal.
This step is crucial and often overlooked.
5. Make a fair, evidence-based decision
You must have:
- a valid reason
- evidence supporting it
- consistency (others treated similarly)
Then, confirm the decision in writing.
Example: An admin assistant continues making invoice errors despite coaching, reminders, and a clear warning. You decide to terminate employment on notice, documenting the history to show fairness.
6. Keep records (even simple ones)
The Code requires you to complete a Small Business Dismissal Checklist if a claim is made.
Keep:
- dates of conversations
- examples of the issue
- copies of warnings
- notes of meetings
- the final outcome
Documentation doesn’t protect you from receiving a claim, it protects you from losing them due to failures of process.
Examples of Code-compliant dismissals
Example 1 — Performance (Fair)
A small auto workshop dismisses a mechanic after:
- repeated incorrect repairs
- two written warnings
- a clear explanation their job was at risk
- no improvement
The FWC finds the dismissal fair under the Code.
Example 2 — Serious Misconduct (Fair)
A barista is immediately dismissed after stealing from the till.
The employer had reasonable grounds, CCTV and witness accounts.
The FWC upholds the dismissal.
Example 3 — Poor Process (Unfair)
A small retailer dismisses a casual for “attitude” without warning, evidence, or giving them a chance to respond.
The dismissal is ruled unfair.
The pattern?
Fairness + clarity + basic documentation = protection.
The bottom line for small business owners
The Code doesn’t require:
✘ lengthy performance plans
✘ perfect documentation
✘ complicated processes
It requires:
✔ a valid reason
✔ a clear warning
✔ a real opportunity to improve
✔ fair consideration
✔ simple notes
✔ honest, consistent decision-making
Follow that, and you’re protected.
At Jessie Grace, we help small businesses navigate dismissals with clarity and confidence, ensuring decisions are fair, compliant, and aligned with the Small Business Fair Dismissal Code.
