Unfair Dismissal: The Potential Costs to Your Business

In an ideal world, an employer and employee will go their separate ways after a termination of employment. But should the ex-employee feel they have grounds for an unfair dismissal claim, they can send an application to Australia’s Fair Work Commission for a minimal fee. This is likely to lead to one big question – how much could this potentially cost your business? Here, we cover what you might expect if the situation arises.

Unfair dismissal is when an employer dismisses an employee from their job in a harsh, unjust or unreasonable manner. The first step in an unfair dismissal application is conciliation, where the employee and employer attempt to resolve the dispute themselves with assistance by a conciliator. Over half of unfair dismissal cases were resolved at conciliation in 2018/19. A significant portion of these include monetary settlements, as negotiated and agreed to by both parties.

If the matter can’t be resolved in this way, it’s referred to a Member of the Commission and may be brought before a formal hearing. So what happens if it’s deemed that an error was made, or there weren’t solid grounds for dismissal?

If the Commission finds that the dismissal was harsh, unjust or unreasonable; was not a genuine redundancy; or was not consistent with the Small Business Fair Dismissal Code (if the employer is a small business), there can be three possible outcomes:

• The Commission can make no order;
• The Commission can make an order for reinstatement where the person gets their job back, or
• The Commission can order the employer to pay compensation.

The following costs could apply, depending on your case.

• Remuneration factors in the wages the employee would have earned if they hadn’t been dismissed.
• Deductions such as any wages or income the employee has earned since dismissal will generally be subtracted from the calculated remuneration.
• Compensation, if ordered, may be awarded for shock, distress, hurt or humiliation. This is capped at the lower figure between half the ex-employee’s annual salary and $76,800 as at 1 July 2020. Based on previous Fair Work Commission cases, compensation can range from a couple of thousands of dollars to tens of thousands. The median amount awarded as compensation in 2018–19 was $8,704.

What about legal costs?

You can choose to use legal representation or advice during an unfair dismissal process. Even if your business wins an unfair dismissal case, the general expectation is that you’ll bear your own legal costs. In very specific circumstances, you might be able to claim for costs to be covered by the ex-employee.

Don’t forget the damage to your brand, business perception and workplace culture

Of course, there are other costs that can’t be so easily counted but can still have a huge impact on your organisation. These include the damage to your brand and reputation as an employer, the costs of any public relations needed to restore that reputation, and of course the effects on your workplace culture and how these could impact staff retention, productivity and profitability. It’s easy to see that the best way to avoid costs and damages is to prevent unfair dismissal claims entirely!

Tips for reducing the likelihood  of unfair dismissal claims in the first place

A robust, well-planned and well-documented employee termination procedure can reduce the risk of unfair dismissal claims from arising in the first place. Here are some quick tips:

• Outsource critical aspects of your employment relations to a highly experienced team, particularly if you don’t have the required skills and knowledge in-house.
• Ensure any workplace investigations are conducted by an impartial, objective party, such as performHR. Internal HR staff could possess biases even if they aren’t aware of them.
• Record every detail accurately and in full, from handling the original issue through to liaising with relevant parties.
• Review and maintain your HR policies and procedures so they’re up-to-date for your current work environment and current legislation.

performHR is here to provide these expert employment relations services and more wherever you’re located in Australia, with offices in Sydney, Brisbane, Melbourne, Perth and Newcastle. To speak about your requirements, contact us today.