How the Small Business Fair Dismissal Code works

Here is an excellent summary of how the Small Business Fair Dismissal Code applies in practice.

“LEGISLATION

[54] In unfair dismissal cases where the employer is a small business employer, the Commission must first consider whether the dismissal was consistent with the Code. The Code has two limbs: “summary dismissal” upon the ground of serious misconduct and “other dismissal” based on the employee’s conduct or capacity to do the job. The Code is not located in the Act or the Regulations. Rather it is governed by a Ministerial Declaration pursuant to s. 388(1) of the Act. The terms of the Code are as follows:

“Summary Dismissal

It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal.

Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair, it is sufficient, though not essential, than an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.

Other Dismissal

In other cases, the small business employer must give the employee a reason why he or she is 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 either 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.

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 may be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to the Fair Work Commission..

Evidence may include a completed check list, copies of written warning(s), a statement of termination or signed witness statements.”

[55] It has been observed by Members of the Commission that the provisions of the Code are “inelegantly expressed” 4 and “somewhat confusing”,5 and as Anderson DP said in Hart v Forex 1 Pty Ltd ATF Trading Rental Trust6, interpreting the requirements of the Code with respect to “Other Dismissal” – dismissal for reasons other than those justifying immediate or summary dismissal – is no straightforward task. I share those views.

[56] It is clear from the Explanatory Memorandum to the Act that the intent is to provide a simpler and more streamlined unfair dismissal regime for small business employers and to reduce the burden placed on small business employers by the provisions of the Act relating to unfair dismissal. In this regard the Code focuses on steps small business employers must take to carry out a fair dismissal. If a dismissal is consistent with the Code it is deemed to be fair, and the provisions in s. 387 of the Act do not operate and are not considered. As Hampton C observed in Grigonis v Adelaide Coffee Company Pty Ltd 7:

“In establishing the Fair Dismissal Code and the preliminary (jurisdictional) point associated with unfair dismissals in that context, the evident intention of Parliament was to establish a particular benchmark against which small business unfair dismissals would be initially considered. The question of fairness is to be assessed having regard to a modified set of considerations that recognise the more informal nature and circumstances of small business and the needs of employees.” 8

[57] In the terms of the Code dealing with “Other Dismissal” the drafters included a reference to “valid reason”. The first sentence of this part of the Code requires that the employee be “…given a reason why he or she is at risk of dismissal”. The second sentence requires that: “The reason must be a valid reason based on the employee’s conduct or capacity to do the job.” Consideration of whether a reason is valid is a separate consideration to the requirement that the employee be given a reason for dismissal although the reference to valid reason is a reference to the reason given to the employee.

[58] In relation to the reason being given to the employee, the language in the first sentence of the Code explicitly requires that this occur before a decision to dismiss has been made. That sentence refers to the employee being given a reason why he or she is “at risk of being dismissed”. These provisions can be contrasted with those which apply when the fairness of a dismissal is being assessed under s. 387 of the Act. Whether an employee is notified of a reason for dismissal as provided in s. 387(b) is a consideration that is weighed in the overall assessment of whether a dismissal was unfair and a finding that this step was not taken will not necessarily be fatal to a finding that the dismissal was fair.

[59] It appears from the terms of the Code dealing with “Other Dismissal” that if the employee is not given a valid for dismissal based on the employee’s conduct or capacity to do the job, prior to being dismissed, the dismissal will not be consistent with the Code. It is axiomatic that an employee cannot respond to a reason for dismissal if he or she is not informed of that reason before the dismissal is carried out and given an opportunity to respond. The requirement that the reason be given before a dismissal is carried out is consistent with the later requirements of the Code in relation to warnings and opportunity to respond. The effect is that under the Code the employer is stuck with the reason given to the employee before the dismissal is carried out and cannot rely on another reason including a reason which may not have been known at the time of the dismissal. This can be contrasted with consideration of whether there was a valid reason for dismissal as provided in s. 387(a) of the Act where in finding that there was a valid reason for dismissal, the Commission is not limited to the reason relied on by the employer. 9

[60] It is also the case that the requirement in the Code that the reason is a valid reason based on the employee’s conduct or capacity to do a job is not expressed subjectively, based on the view or belief of the employer on reasonable grounds. This can be contrasted with the “Summary Dismissal” part of the Code which refers to the belief of the employer on reasonable grounds that the employee engaged in conduct that justified summary dismissal (a subjective consideration) rather than whether the conduct occurred and was of sufficient gravity or seriousness such as to justify dismissal as a sound, defensible or well- founded response (an objective consideration).

[61] The terms “valid reason”, “capacity” and “conduct” have well-established meanings in the context of legislation governing unfair dismissal and have been used in legislation which pre-dates the Code. I can see no basis for giving these terms a different meaning in the application of the Code. The absence of reference in the “Other Dismissals” section of the Code to the reasonable belief of the employer as to the validity of the reason for dismissal is a further indication that the term should be given the same meaning as it has in s. 387(a) of the Act – a reason that is objectively sound, defensible and well founded and which justifies dismissal. Such a construction is not inconsistent with the legislative intent of the Code as evidenced by the Object of Part 3-2 of the Act in which the Code appears, which includes the needs of employers and employees and the intention to afford a “fair go all round”.

[62] “Capacity” is the employee’s ability to do the job required by the employer 10 including the work the employee was employed to do.11 Capacity is assessed objectively based on whether the work was performed satisfactorily and not whether the employee is working as well as could be expected or to the employee’s personal best.12 Capacity may also include circumstances where the employee is physically incapacitated so that he or she is unable to perform the inherent requirements of the role. The FW Act protects an employee from being dismissed due to a temporary absence for illness or injury for up to three months or up to three months in total in a 12 month period, or where an employee is on paid personal/carers’ leave for the duration of the absence. After three months, it is necessary to consider whether the employee is likely to return to his or her duties in the short or medium term.

[63] The requirements in the Code that there be a valid reason for dismissal and that the employee is informed of that reason before dismissal also imply that any response provided by the employee is required to be considered by the employer before deciding to dismiss the employee. Where an employer cannot provide evidence that the response was considered, there may be difficulty in establishing the validity of a reason for dismissal particularly where the response provides an explanation for the conduct or capacity which led to the dismissal. This is also consistent with the provisions of the Code in relation to warnings which state that any response to a warning made by the employee should be a matter to which the employer has regard.

[64] I proceed on the basis that the provisions of the Code relating to “Other Dismissal” require that:

  1. Before dismissing an employee for reasons of conduct or capacity (other than those justifying summary dismissal) the employer must give the employee a reason why he or she is at risk of being dismissed.
  2. The reason must be a valid reason (in the sense that it is sound, defensible and well founded and justifies dismissal) based on the employee’s conduct or capacity.
  3. Conduct includes an omission 13and capacity is the employee’s ability to do the job as required by the employer14and also includes the employee’s ability to do the work he or she was employed to do.15
  4. The employer must give the employee an opportunity to respond to the reason for dismissal before dismissing the employee.
  5. The requirement that there be a valid reason for dismissal means that some consideration should be given to the response the employee provides. This will generally be required when the Commission is assessing whether the reason for dismissal was valid.
  6. The employee must have been warned that he or she is at risk of being dismissed either for similar conduct or capacity issues or that the issue that is the subject of the warning has generally placed the employee’s employment at risk and that any repetition or further conduct or capacity issues will result in dismissal.
  7. If the employee has previously engaged in conduct that has placed his or her employment at risk and has been warned in relation to it there is no requirement that a further warning be given and it will be sufficient if the employee is notified that the employer believes that the same conduct or further conduct that places the employee’s employment at risk has occurred and gives the employee an opportunity to respond before dismissing the employee.
  8. The employee must have been given a reasonable opportunity to improve his or her performance prior to the dismissal being effected which may include the employer providing additional training and ensuring that the employee knows the employer’s job expectations.
  9. An employee may request to have another person present to assist in discussions in circumstances where dismissal is possible provided that person is not a lawyer acting in a professional capacity. The employer is not required to offer a support person.

[65] If a dismissal was consistent with the Code then the dismissal is not unfair and does not fall to be considered against the criteria in s. 387 of the Act. If the Commission is not satisfied that the dismissal was consistent with the Code, the Commission must then consider whether the dismissal was unfair because it was harsh, unjust or unreasonable on the basis of the criteria in s.387 of the Act as follows:

“387 Criteria for considering harshness etc.

In considering whether it is satisfied that a dismissal was harsh, unjust or unreasonable, the FWC must take into account:

(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and

(b) whether the person was notified of that reason; and

(c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and

(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and

(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal; and

(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(h) any other matters that the FWC considers relevant.”

[66] Applying those criteria, a dismissal may be:

Harsh – because of its consequences for the personal and economic situation of the employee, or because it is disproportionate to the gravity of the misconduct;

Unjust – because the employee was not guilty of the misconduct on which the employer acted; and/or

Unreasonable – because it was decided on inferences that could not reasonably have been drawn from the material before the employer. 16”

Extract from Brittain v Teewah Power Co Pty Ltd (2021) FWC 5451 delivered 15 November 2021 per Asbury DP