Unfair dismissal in Australia: an employer’s guide
Who can actually claim, what it can cost, and how to make a dismissal defensible before you make it
Updated 24 August 2026 • Figures from the Fair Work Commission for dismissals on or after 1 July 2026
Written by
Steve Harris
Summarise with AI
Unfair dismissal turns on the specific facts — the reason for the dismissal, the process you followed and the employee’s circumstances all change the answer. Where a decision carries real risk, get advice before you act. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
Every figure on this page is published by the Fair Work Commission and applies to dismissals taking effect on or after 1 July 2026. The compensation cap, the high income threshold and the application fee all change each 1 July.
Quick answer
An employee can bring an unfair dismissal claim if they served the minimum employment period — 6 months, or 12 months in a small business — are award or agreement covered (or earn under $190,100), and lodge within 21 days. The Commission then asks whether the dismissal was harsh, unjust or unreasonable, weighing the reason and the process you followed roughly equally.
The number everyone quotes is the wrong number
The compensation cap is widely reported as $95,050. That is the ceiling, not the norm. The cap is the lesser of that figure and the remuneration the employee received in the 26 weeks before the dismissal — so an employee on $70,000 is capped near $35,000. And compensation only arises where reinstatement is inappropriate. Budgeting from the headline overstates your exposure, sometimes by a factor of three.
Can they even claim?
This is the first question and it is often the only one that matters. All four gates must be satisfied. Fail one and there is no unfair dismissal claim, however the dismissal was handled.
Minimum employment period served
At least 6 months of continuous service — or 12 months if you are a small business employer (fewer than 15 employees). Service below that threshold means no unfair dismissal claim, whatever the circumstances.
Covered by an award or agreement, or under the high income threshold
An employee not covered by a modern award or enterprise agreement can only claim if their annual rate of earnings is below the high income threshold ($190,100 from 1 July 2026).
Actually dismissed
The employment must have been terminated at the employer’s initiative, or the person resigned but was forced to do so by the employer’s conduct. A genuine redundancy is not a dismissal for these purposes.
Lodged within 21 days
The application must reach the Fair Work Commission within 21 days of the dismissal taking effect. Late applications need an exceptional-circumstances extension.
A separate point worth knowing: failing these gates closes off unfair dismissal, not every avenue. General protections claims (adverse action for a protected reason) and discrimination claims have no minimum employment period and their own time limits.
The numbers that matter
For dismissals on or after 1 July 2026:
| Threshold | Value | Notes |
|---|---|---|
| Minimum employment period — 15 or more employees | 6 months | Continuous service before dismissal |
| Minimum employment period — small business | 12 months | Small business = fewer than 15 employees |
| Time limit to lodge | 21 days | From the date the dismissal took effect |
| High income threshold | $190,100 | Dismissals on or after 1 July 2026 (was $183,100) |
| Compensation cap | $95,050 | The ceiling, not the norm — see how it is calculated below |
| Application fee | $92.70 | 2026–27; waivable on financial hardship grounds |
Source: Fair Work Commission — compensation cap and high income threshold. All three money figures are indexed on 1 July each year.
What it can actually cost
The cap is set by sections 392(5) and 396(6)(a) of the Fair Work Act, and it is a lesser-of test rather than a flat maximum:
Either — 26 weeks of their pay
The remuneration the person received, or was entitled to receive (whichever is higher), in the 26 weeks immediately before the dismissal. If they were on leave or reduced pay, the calculation follows reg 3.06 of the Fair Work Regulations.
Or — half the high income threshold
Half of $190,100, giving $95,050 for dismissals on or after 1 July 2026. This was $91,550 for the previous year.
Worked through
- An employee on $70,000 earned about $35,000 in 26 weeks. That is the lesser figure, so it is the cap.
- An employee on $120,000 earned about $60,000 in 26 weeks. That is still lower than $95,050, so it is the cap.
- Only at roughly $190,100 and above do 26 weeks of pay exceed $95,050, making the statutory figure the binding one.
And the cap is applied last. Before it, the Commission deducts a discount for contingencies, any amount attributable to misconduct that contributed to the dismissal, and everything the person has earned or could reasonably have earned since. Awards commonly land well below the cap.
Remedies: reinstatement comes first
Reinstatement — the primary remedy
The Commission must consider putting the person back in their job (or an equivalent one) first. Compensation is only available where reinstatement is found to be inappropriate. Managers routinely assume money is the default outcome; it is not.
Compensation — only if reinstatement is inappropriate
Calculated on lost remuneration, reduced for contingencies, for any misconduct that contributed, and for what the person earned or should reasonably have earned since. Then the cap is applied.
No compensation for hurt feelings
The Fair Work Act expressly excludes any amount for shock, distress, humiliation or other hurt caused by the dismissal. This surprises people on both sides of the table.
When a resignation counts as a dismissal
An employee who resigns can still bring an unfair dismissal claim if they were forced to do so by the employer's conduct. The Fair Work Commission calls this forced resignation; it is widely known as constructive dismissal. The test is not whether the person typed the resignation letter — it is whether they had any real choice.
"They resigned" is not a defence on its own
If the conduct that prompted the resignation was intended to bring the employment to an end, or had that probable effect, the Commission can treat it as a dismissal at the employer's initiative — and every threshold in this guide then applies as normal.
Conduct that commonly produces this finding:
- "Resign or be dismissed." Presenting resignation as the alternative to termination is the clearest case.
- A unilateral demotion or significant pay cut imposed without agreement.
- A fundamental change to the role — hours, location or duties altered so far that it is effectively a different job.
- Leaving bullying or harassment unaddressed after it has been raised.
- Deliberately making the position untenable — isolating someone, stripping responsibilities, or applying pressure designed to make them leave.
How to avoid manufacturing one
- Never offer resignation as an alternative to dismissal. If there is a case to dismiss, run the process in this guide instead.
- Get written agreement before changing pay, hours, location or duties — or follow the consultation clause in the applicable award.
- Act on bullying and harassment complaints and record what you did.
- If someone resigns in the heat of a difficult conversation, give them the chance to confirm it in writing once they have had time.
The small business Fair dismissal code
If you employ fewer than 15 people, complying with the Code means the dismissal is not unfair. Two routes sit inside it:
Summary dismissal
Available where you had reasonable grounds to believe the conduct was serious enough to justify immediate dismissal — theft, fraud, violence, serious safety breaches. Reasonable grounds means you looked into it.
Other dismissals
Requires a valid reason, a warning that the person risked dismissal, a genuine chance to fix the problem, and the opportunity to have a support person present.
The Code protects the employer who followed it and can prove it. In practice the argument is almost always evidentiary — what you knew, when, and what you did about it. That makes it a record-keeping problem more than a legal one.
What makes a dismissal unfair
The statutory test is whether the dismissal was harsh, unjust or unreasonable. The Commission weighs a defined list of considerations, and process carries real weight alongside substance — a sound reason handled badly can still fail:
- Whether there was a valid reason relating to capacity or conduct
- Whether the person was notified of that reason
- Whether they were given a genuine opportunity to respond
- Whether a support person was unreasonably refused
- Where performance was the issue, whether they were warned it was unsatisfactory
- The size of the business and whether it had dedicated HR expertise — small employers are judged in that light
- Any other matters the Commission considers relevant
Does unfair dismissal differ by state?
Largely no — and this is the most common misconception. Unfair dismissal is federal, under the Fair Work Act, administered by the Fair Work Commission. The rules, thresholds and 21-day limit are identical whether you employ in NSW, Victoria, Queensland, WA, SA, Tasmania, the ACT or the NT.
There is one real exception, and it is narrow:
Non-national-system employers
A small number of employers sit outside the national system — most often unincorporated businesses such as sole traders and partnerships in some states, and parts of state and local government. Their employees may fall under a state industrial relations system instead, with its own unfair dismissal regime and its own time limits. If you are not a trading corporation, confirm which system covers you before relying on anything above. Western Australia has the largest state system of this kind.
Making a dismissal defensible
Six things, done before the decision rather than after the claim:
Have a valid reason, and be able to name it
Capacity or conduct, grounded in something you can evidence rather than a general loss of confidence.
Tell the person the reason before you decide
Notified of the reason, in terms they understood, before the decision was made — not after it.
Give a genuine chance to respond
A real opportunity to answer the allegation, with enough information and time to do so meaningfully.
Allow a support person
Do not refuse a request to have a support person present at any discussion relating to the dismissal.
Warn before you dismiss for performance
Where the reason is unsatisfactory performance, the person should have been warned it was unsatisfactory and given a chance to improve.
Write it down as it happens
Contemporaneous notes, dated. A record written after a claim arrives carries far less weight than one written on the day.
The process side is covered step by step in our guide to terminating an employee fairly, and the wording in how to write a warning letter. Templates: termination letter and termination policy.
Common mistakes
Assuming probation blocks a claim
A contractual "probation period" is irrelevant. What matters is the statutory minimum employment period — 6 months, or 12 for a small business.
Treating a restructure as automatically safe
A redundancy is only exempt if it is genuine — the job must really no longer be required, consultation obligations met, and redeployment considered.
Budgeting for the headline cap
Most claims cannot reach $95,050, because the cap is the lesser of that and 26 weeks of the person’s own pay. Modelling the ceiling overstates exposure.
Dismissing for performance with no warning
One of the clearest paths to an adverse finding. The Commission looks specifically at whether the person was warned and given a chance to improve.
Writing the file note afterwards
Reconstructed records are transparent and damaging. The contemporaneous note is the single most useful thing you can produce.
Relying on the Small Business Code without following it
The Code only protects you if you actually complied with it, and can show that you did.
Where the evidence actually comes from
Almost every consideration above is decided on records — the warning that was given, the note taken on the day, the performance history the decision rested on. RosterElf keeps HR records, performance conversations and policy acknowledgements against the employee rather than across inboxes, so the file exists before you need it.
Start free trialGuides, templates and tools
The termination process itself, the warnings that precede it, and the records that back both up.
Other employment law guides
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13 weeks after 10 years, pro-rata at 7 years, payment calculations
Victoria Long Service Leave
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QLD Long Service Leave
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Victoria Workers' Compensation
WorkCover claims, weekly payments (PIAWE), treatment expenses
SA Workers' Compensation
ReturnToWorkSA claims, income support, return to work planning
Parental Leave (Employers)
Unpaid entitlements, the 26-week government scheme, keeping in touch days and return to work
Frequently asked questions
- Six months of continuous service, or 12 months if you are a small business employer (fewer than 15 employees). Below that minimum employment period there is no unfair dismissal claim available, regardless of how the dismissal was handled. Note that a contractual probation period is a separate thing entirely and does not change the statutory minimum — see the thresholds table.
- 21 days from the date the dismissal took effect. The Fair Work Commission can accept a late application only in exceptional circumstances, so in practice the window is short. If 21 days have passed and nothing has arrived, the risk drops sharply — though general protections and discrimination claims run on their own timeframes.
- Only if they are covered by a modern award or an enterprise agreement. An employee who is not covered by either can claim just where their annual rate of earnings is below the high income threshold, which is $190,100 for dismissals on or after 1 July 2026 (it was $183,100 from 1 July 2025). Award coverage matters more than salary here, and it is worth checking rather than assuming — start from the award rate guides.
- Yes, if the resignation was forced. The Fair Work Commission calls this forced resignation and it is commonly known as constructive dismissal: where the employer's conduct left the employee no real choice, the Commission can treat it as a dismissal at the employer's initiative. The classic example is offering resignation as the alternative to being sacked, but a unilateral demotion, a significant pay cut or an unaddressed bullying complaint can all produce the same finding. See when a resignation counts as a dismissal.
- Not if it is a genuine redundancy. That means the job is genuinely no longer required because of operational change, any consultation obligation in the applicable award or agreement has been met, and redeployment within the business or an associated entity has been considered. Fail any of those and the redundancy defence falls away, leaving an ordinary unfair dismissal question. See redundancy.