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Unfair dismissal rules failing core objectives: Ombudsman

ASBFEO Kate Carnell

A formal review of Australia’s Small Business Fair Dismissal Code has recommended sweeping changes to simplify the rules, finding that the current law “is not delivering what was intended”.

While the Code came into effect in 2009, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), which conducted the review, said that “the interpretation of the Code has been challenged by lawyers and, on occasion, members of the commission”.

“As a result, small business employers cannot be certain that following the Code will mean a dismissal will be deemed fair,” it wrote in its official review document, unveiled in Canberra today (6 August).

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According to the review’s final report, “this review of the Code and its accompanying checklist against the identified policy objectives has established that it is not delivering what was intended”.

“Codes and checklists are by their nature intended to deliver a level of certainty and this will typically favour prescription over flexible principles that are ‘open to interpretation’,” it said.

“However, the current Code makes it difficult for a small business to determine which provisions of the Code apply to their circumstances.”

The report cited concerns previously identified by the Productivity Commission, which found, among other things, that:

  • the Code is actually more, not less, onerous on small business than the general unfair dismissal provisions
  • compliance with the Code is open to legal challenge, aided by vague terms such as “reasonable grounds”
  • more thorough vetting of applications is needed before an unfair dismissal claim proceeds to conciliation
  • many small businesses are unaware of the Code altogether

‘Ambiguous, open to interpretation’

“Put simply, the Small Business Fair Dismissal Code in its current form is not working the way it was originally intended,” ombudsman Kate Carnell (pictured) said.

“It is ambiguous and open to interpretation, particularly by lawyers, which means too many small businesses are being pulled into unfair dismissal hearings which are costly and impact productivity.”

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Ms Carnell said that most business operators are “hard-working Australians with good intentions”, but the current regulatory framework does not provide the guidance they need to be able to do the right thing.

“We know that small businesses do not make the decision to end a worker’s employment lightly,” she said.

“Small businesses can’t afford to engage in costly and stressful legal action. They don’t have the support of an HR department when faced with the difficult decision to end a staff member’s employment.

“That’s why it’s critical for the Code to drive fairness, and set out clear expectations for small business employers.”

Ms Carnell said that in the first three months of 2019 alone, 3,583 unfair dismissal claims were lodged with the Fair Work Commission.

And while most were settled during mediation, 172 claims went to the commission for a verdict, where 65 per cent were dismissed on the grounds that they lacked merit or were legally invalid, which she said meant they should never have progressed to the extent that they did.

“By taking the ambiguous language out of the Code such as ‘reasonable grounds,’ ‘valid reason’ and ‘reasonable chance’ and improving the checklist questions, small businesses will be in a much better position to comply,” she said.

“We want the Code to work, so that small businesses are doing the right thing and there’s less need to engage lawyers.”

Recommendations for change

In order to simplify the rules and provide a clearer checklist for employers to follow, the ASBFEO made a total of 15 recommendations for change. Eight of these relate directly to amending the Code and its supplementary checklist, while others include proposed reforms of Fair Work processes and increased education and awareness building among small businesses.

“The recommendations in this review aim to give small business operators clear guidelines to deliver certainty around complying with the Code,” Ms Carnell said.

“Importantly: The recommended amendments and checklists are designed to guide a small business employer through a fair dismissal process, not to make the dismissal process easier.”

Among the recommendations are:

  • the launch of a callback service for the Fair Work Ombudsman, similar to that offered to small businesses by the ATO, so that they can seek guidance outside of standard office hours
  • a clearer definition of what constitutes “serious misconduct” as grounds for dismissal, including causing serious health and safety risks; serious and imminent reputation, profitability and viability risks; theft and fraud; or intoxication at work
  • the creation of separate checklists for each of the grounds for legitimate dismissal of an employee
  • a better definition of what constitutes a small business employer, so that businesses can easily determine whether they are covered by the Code
  • an explanation about how the minimum employment period with a business is calculated
  • a new small business division be established within the Fair Work Commission, to deal with and expedite claims involving smaller employers under the Code

Small businesses forced to pay ‘go away’ money: ACCI

The ombudsman’s recommendations were warmly welcomed by members of the business community, as a means of providing greater clarity and simplification to small business operators.

“The complexity of the Code has resulted in too many small businesses being dragged into costly unfair dismissal hearings, and it’s critical to set out clear expectations for employers in such situations,” the Franchise Council of Australia’s CEO, Mary Aldred, said immediately after the report’s release.

“It’s hard to attract, train and retain good staff and the majority of small business owners don’t terminate a worker without serious consideration.

“Most businesses try to do the right thing, and it’s of concern that 65 per cent of unfair dismissal cases presented to the Fair Work Commission in the first quarter of 2019 were dismissed because they were without merit or deemed legally invalid.”

Ms Aldred added: “The recommended changes would provide clarity and fairness for all parties in a contested dismissal situation.”

James Pearson, CEO of the Australian Chamber of Commerce and Industry, said that the Fair Dismissal Code should be fair for employers as well as the people they employ.

“The Small Business Fair Dismissal Code has been in place for a decade, yet reports from our members of inadequacy, misapplication and a failure to deliver balanced outcomes continue,” he said.

“We were promised years ago the Code would be ‘tailored to the needs of small business and be reduced to a clear and concise reference to help these employers meet their obligations under a simpler unfair dismissal system’ — but it never was.

“Instead, too many small business owners — the people who are the lifeblood of local communities, who are working hard to keep their doors open and who are doing the right thing by employees and customers — are getting caught out by the Code and dragged into unfair dismissal claims.”

Mr Pearson also said that “too many small businesses are forced to pay ‘go away’ money they cannot afford in order to settle these claims, regardless of the rights or wrongs”.

He expressed hope that the recommendations would be implemented and deliver “better, clearer, simpler and genuinely reliable guidelines for small business owners to ensure they meet their responsibilities and workers are given a fair go”.

Similarly, Ben Kearney, head of the Australian Lottery and Newsagents Association (ALNA) welcomed any assistance in making it easier for businesses to play by the rules.

“Small businesses want to do the right thing, but the tools that they use should make it clear how they can do that. Ending a staff member's employment is not easy - and it shouldn't be, he said.

But in the instances that there needs to be a dismissal, we want a simple model that small businesses can have a higher degree of confidence in using, and the current model doesn't achieve that.

“We are extremely supportive of the investigation into the Small Business Fair Dismissal Code and welcome the Ombudsman's recommendations.

The full report, Review of the Small Business Fair Dismissal Code, can be accessed from the ASBFEO website.

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Adam Zuchetti

Adam Zuchetti

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at This email address is being protected from spambots. You need JavaScript enabled to view it.

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