Dismissing an employee for underperformance is one of the highest-risk activities an employer can undertake.

A poorly handled termination can lead to unfair dismissal claims, adverse action allegations, and significant compensation awards.

This step-by-step guide outlines the legally compliant process for dismissing a non-performing employee in Australia while minimising legal risk.

1. Understand What Constitutes Unfair Dismissal

Under the Fair Work Act 2009 (Cth), a dismissal is considered unfair if it is 'harsh, unjust or unreasonable'[citation:2][citation:9].

An employee who believes they have been unfairly dismissed has 21 days to lodge an application with the Fair Work Commission (FWC). This deadline is strictly enforced.[citation:2][citation:8]

The FWC considers several factors when assessing a dismissal[citation:2][citation:8]:

  • Whether there was a valid reason for the dismissal related to the employee's capacity or conduct
  • Whether the employee was notified of that reason
  • Whether the employee was given an opportunity to respond to the reason
  • Any unreasonable refusal to allow a support person to be present at discussions
  • If related to unsatisfactory performance, whether the employee had been warned about that performance before dismissal
  • The size of the employer's enterprise and whether dedicated HR expertise was available

2. Check Employee Eligibility for Unfair Dismissal Claims

Before proceeding with any dismissal, understand whether the employee is protected from unfair dismissal[citation:2][citation:9]:

  • Minimum employment period: 6 months for businesses with 15+ employees; 12 months for small businesses (fewer than 15 employees)
  • Income threshold: As of 2025, employees earning more than $175,000 per year and not covered by an award or enterprise agreement may not be eligible to claim unfair dismissal[citation:8][citation:9]
  • Small Business Fair Dismissal Code: Small businesses must comply with this specific code for dismissals to be considered fair[citation:2][citation:9]

3. Distinguish Between Performance and Conduct Issues

Underperformance and misconduct require different processes[citation:5].

  • Underperformance: Failure to meet job expectations, productivity standards, or quality requirements. Requires warnings and opportunities to improve.
  • Serious misconduct: Theft, fraud, assault, or serious safety breaches. May justify summary dismissal (termination without notice) but must be supported by clear and undisputed evidence[citation:5].

Do not disguise a performance dismissal as a 'sham redundancy' – a dismissal is not genuine if the role continues to exist or is filled by someone else soon after[citation:5].

4. Follow a Structured Performance Management Process

The lawful dismissal of a non-performing employee requires a documented, fair process before any termination decision[citation:5][citation:7].

  1. Communicate expectations clearly: Ensure the employee has a written position description and knows the required performance standards[citation:7].
  2. Address performance issues early: Discuss concerns informally before formal escalation.
  3. Issue formal written warnings: Warnings should contain[citation:5]:
    • Adequate details of the performance issue
    • What is required to meet expectations (specific, measurable targets)
    • A reasonable timeframe for improvement
    • A date for a review meeting
    • Acknowledgment by the employee (signed and dated copy)
  4. Provide support and opportunity to improve: Offer training, mentoring, or other reasonable assistance. Allow the employee a genuine chance to meet the required standards.
  5. Conduct review meetings: Assess improvement at the end of the warning period. Document the outcome.
Common misconception: There is no legal requirement to give 'three warnings' before dismissal. However, a properly documented warning containing details of the issue and the opportunity to improve strongly addresses fairness concerns.[citation:5]

5. Provide Procedural Fairness Throughout

Procedural fairness (or natural justice) is a critical element that can defeat an otherwise valid dismissal[citation:5][citation:8].

  • Notify the employee: Tell them clearly that their performance is being questioned and that termination is a possible outcome
  • Provide an opportunity to respond: Allow the employee to explain their side, provide evidence, or raise mitigating circumstances
  • Allow a support person: If the employee requests a support person (union representative, colleague, or family member), you must allow them to be present at any disciplinary discussions[citation:5][citation:8]
  • Conduct a proper investigation: If the performance issues involve disputed facts, investigate thoroughly before making decisions[citation:5][citation:7]
  • Give genuine consideration to the response: Do not pre-determine the outcome. The Elisha v Vision Australia case [2024] HCA 50 – where the High Court found a disciplinary process described as a 'sham and a disgrace' – demonstrates the serious consequences of a flawed process[citation:5]

6. Hold a Formal Termination Meeting

If, after following the performance management process, the employee has failed to improve to the required standard:

  1. Schedule a formal meeting with the employee
  2. Advise them they may bring a support person
  3. At the meeting, clearly explain the reasons for termination, referencing prior warnings and the failure to improve
  4. Allow the employee to respond to the decision
  5. Provide a letter of termination outlining the reason for dismissal and the effective date
  6. Advise of any final pay entitlements (notice period, accrued annual leave, redundancy if applicable)

7. Understand the Unfair Dismissal Process from the Employer's Perspective

If a dismissed employee files an unfair dismissal claim, here is what happens[citation:2][citation:4][citation:8]:

  • You will be served with the application – You must file a response (Form F3 or equivalent) within 21 days of being served. Failing to respond does not make the claim go away; it may prevent the Commission from considering your viewpoint[citation:4].
  • Conciliation conference (compulsory): A private, confidential meeting facilitated by a Commission member. The goal is to reach a mutually agreed resolution. What is discussed cannot be used later if the matter proceeds to hearing[citation:4][citation:8].
  • If conciliation fails: The matter proceeds to a formal hearing where the Commission member reviews evidence, hears witness testimony, and makes a binding decision[citation:4][citation:8].

8. Potential Outcomes If Dismissal Is Found Unfair

If the FWC determines a dismissal was unfair, remedies may include[citation:4][citation:8]:

  • Reinstatement: The employee is returned to their former position with continuity of service and back pay (this is the primary remedy under the Fair Work Act)
  • Compensation: Capped at the lesser of 6 months of the employee's remuneration or half the high income threshold (currently $87,500). The median compensation award is typically 5–7 weeks of wages[citation:8]
Note: The FWC cannot award compensation for 'hurt, humiliation, shock, distress or suffering' – only for lost wages.[citation:8]

9. Special Considerations for Small Businesses

Small business employers (fewer than 15 employees) have additional protections, but must strictly follow the Small Business Fair Dismissal Code[citation:2][citation:9].

  • The Code sets out what constitutes a fair dismissal for small businesses
  • Dismissals consistent with the Code are not considered unfair
  • Small businesses have a 12-month minimum employment period before an employee can claim unfair dismissal[citation:2]

10. Documentation – Your Best Defence

Comprehensive documentation is critical to defending any unfair dismissal claim. Maintain records of[citation:5][citation:7]:

  • All performance warnings (signed and dated by the employee where possible)
  • Minutes of performance review meetings
  • Emails or correspondence regarding performance expectations
  • Evidence of support provided (training, mentoring, resources)
  • The employee's responses and any explanations provided
  • The final termination letter with clear reasons

In summary, dismissing a non-performing employee in Australia requires patience, procedural fairness, and careful documentation.

Implement a structured performance management process, provide genuine opportunities to improve, and always seek legal advice before terminating employment – especially for long-serving employees or complex cases.