Small Business Fair Dismissal Code: How Businesses with <15 Staff Can Legally Fire Employees

Q: What Is the Small Business Fair Dismissal Code?

The Small Business Fair Dismissal Code (the Code) is a set of rules under section 388 of the Fair Work Act 2009 that gives small business employers protection from unfair dismissal claims — provided they follow the correct dismissal process. A small business employer is defined as one with fewer than 15 employees at the time of dismissal. If the employer complies with the Code, the dismissal is deemed fair and the employee's unfair dismissal claim will be dismissed by the FWC. The Code exists because Parliament recognised that small businesses often lack dedicated HR departments and the resources to navigate complex termination procedures. It provides a simplified, practical framework that small employers can follow with confidence. The Code covers two types of dismissal: summary dismissal for serious misconduct (where no warnings are required) and dismissal for other valid reasons (where a process must be followed). The Code is not a licence to fire at will — it still requires substantive fairness (a valid reason) and a degree of procedural fairness. Importantly, the Code only applies to unfair dismissal claims. It does not protect employers from general protections claims, discrimination claims, or contractual claims, which have different rules and thresholds.

Q: Who Counts as a Small Business Employer?

You are a small business employer if you have fewer than 15 employees at the time of dismissal, calculated on a headcount basis. This count includes all employees — full-time, part-time, and casual employees employed on a regular and systematic basis. It also includes employees of any associated entities. So if you have two companies that are related and together they employ 15 or more people, neither qualifies as a small business for the purposes of the Code. The count does not include the employee being dismissed. Casual employees are only counted if they are employed on a regular and systematic basis — genuinely irregular or ad hoc casuals are excluded. This headcount test can be contentious. The FWC will examine the actual working arrangements, not just what is on paper. If you have 14 permanent employees and a casual who works every Tuesday and Thursday and has done so for two years, that casual is almost certainly regular and systematic, bringing your total to 15 and disqualifying you. Contractors and labour hire workers are generally not counted, but the FWC may look behind the label if the arrangement is really one of employment. Getting this count wrong is one of the most common mistakes small businesses make.

Q: The Small Business Fair Dismissal Code Checklist

The Code distinguishes between two dismissal scenarios. For serious misconduct — such as theft, fraud, violence, or serious safety breaches — the employer can dismiss the employee immediately without notice and without prior warnings. The employer must have a reasonable belief, based on reasonable grounds, that the employee's conduct was sufficiently serious to justify immediate dismissal. For all other dismissals, the employer must follow a process. First, there must be a valid reason for the dismissal related to the employee's capacity or conduct. The employer must give the employee a warning and a reasonable opportunity to improve, except in cases of serious misconduct. Before the dismissal, the employee must be told the reason and given a chance to respond. The employee is entitled to have a support person present at any discussions about the dismissal. The support person is there to provide emotional support and witness the discussion — they do not have the right to advocate or answer questions on behalf of the employee. The employer does not need to provide warnings in writing, but doing so creates critical evidence. If a dispute later arises, the employer bears the burden of proving compliance with the Code. The FWC assesses compliance based on what a reasonable small business owner would have done.

Q: The 12-Month Minimum Employment Period

Small business employees must complete a minimum employment period of 12 months before they can make an unfair dismissal claim. This is double the 6-month period that applies to employees of larger businesses. During this 12-month period, the employee can be dismissed without the employer needing to comply with the Code, and the employee has no access to the unfair dismissal system. However, this does not mean the employer can do anything during the first 12 months. General protections claims — which prohibit dismissal for discriminatory reasons, exercising a workplace right, or engaging in industrial activity — apply from day one of employment with no minimum service requirement. So if you dismiss a new employee during their first 12 months because they made a safety complaint or took personal leave, you may face a general protections claim even though they cannot claim unfair dismissal. The 12-month period is calculated from the employee's start date to the date their dismissal takes effect. If the employee was engaged as a casual and then converted to permanent employment, the casual service generally counts towards the minimum employment period if the employment was continuous. This is an area where many small businesses trip up, assuming the clock resets on conversion.

Q: Common Mistakes That Lose Code Protection

The most frequent mistake is failing to give the employee a genuine opportunity to respond before making the decision to dismiss. The Code requires that the employee be told the reason for the potential dismissal and given a chance to respond — and that response must be genuinely considered before the decision is made. If the decision has already been made before the meeting, the process is a sham and the Code will not protect you. Another common error is failing to offer a support person. The Code requires that the employee be advised of their right to have a support person present. You do not need to provide the support person, but you must advise the employee of their right to have one. Dismissing without any prior warning (except for serious misconduct) is another frequent failure. One verbal warning may be sufficient, but you need evidence that it was given. Many employers also lose protection by miscounting their employees or failing to account for regular casual workers, which means the Code does not apply at all. Inadequate investigation of the facts before dismissal is another pitfall — the Code requires the employer to have a reasonable belief based on reasonable grounds. Acting on rumour or assumption without investigation will not satisfy this standard.

Q: How the FWC Assesses Code Compliance

When an employee of a small business lodges an unfair dismissal application, the employer can raise the Code as a jurisdictional objection. The FWC will then assess whether the employer complied with the Code before considering the merits of the unfair dismissal claim. If the employer establishes compliance, the application is dismissed without any assessment of whether the dismissal was harsh, unjust, or unreasonable. The standard applied is whether the employer's actions were consistent with what a reasonable small business owner in the employer's circumstances would have done. This is an objective standard, but it takes into account the practical realities of running a small business. The FWC does not expect small business owners to follow the same procedures as large organisations with HR departments. The burden of proof is on the employer to establish compliance on the balance of probabilities. Documentary evidence is extremely valuable — contemporaneous notes, warning letters, meeting records, and written responses from the employee all strengthen the employer's position. Text messages and emails can also serve as evidence of warnings and communications. If the employer cannot prove compliance, the FWC proceeds to assess the unfair dismissal claim on its merits under the standard criteria in section 387 of the Fair Work Act.

Q: Practical Tips for Small Business Owners

To maximise your protection under the Code, keep written records of every step. Even an email to yourself after a verbal warning recording what was said, when, and the employee's response is better than nothing. Use the FWC's Small Business Fair Dismissal Code Checklist — it is a free document available on the FWC website that walks you through each step. Before dismissing for serious misconduct, investigate properly and document your findings. Do not act in the heat of the moment. Before dismissing for other reasons, ensure you have given at least one clear warning that identifies the problem, explains what improvement is expected, and states the consequences of failing to improve. Allow a reasonable time for improvement — what is reasonable depends on the issue, but a few weeks is typical. When holding the dismissal meeting, advise the employee in advance of the purpose, tell them they can bring a support person, clearly state the reason you are considering dismissal, and genuinely listen to their response. If their response raises new information, investigate it before making your final decision. Keep the termination letter factual and reference the reason for dismissal. Pay all final entitlements on time. Taking these steps does not guarantee you will avoid a claim, but it significantly increases the likelihood the Code will protect you.

5 March 2026|7 min read

The Small Business Fair Dismissal Code protects employers with fewer than 15 employees from unfair dismissal claims — if they follow the correct process. Learn the checklist, common mistakes, and how it works in 2026.

What Is the Small Business Fair Dismissal Code?

The Small Business Fair Dismissal Code (the Code) is a set of rules under section 388 of the Fair Work Act 2009 that gives small business employers protection from unfair dismissal claims — provided they follow the correct dismissal process. A small business employer is defined as one with fewer than 15 employees at the time of dismissal. If the employer complies with the Code, the dismissal is deemed fair and the employee's unfair dismissal claim will be dismissed by the FWC. The Code exists because Parliament recognised that small businesses often lack dedicated HR departments and the resources to navigate complex termination procedures. It provides a simplified, practical framework that small employers can follow with confidence. The Code covers two types of dismissal: summary dismissal for serious misconduct (where no warnings are required) and dismissal for other valid reasons (where a process must be followed). The Code is not a licence to fire at will — it still requires substantive fairness (a valid reason) and a degree of procedural fairness. Importantly, the Code only applies to unfair dismissal claims. It does not protect employers from general protections claims, discrimination claims, or contractual claims, which have different rules and thresholds.

Who Counts as a Small Business Employer?

You are a small business employer if you have fewer than 15 employees at the time of dismissal, calculated on a headcount basis. This count includes all employees — full-time, part-time, and casual employees employed on a regular and systematic basis. It also includes employees of any associated entities. So if you have two companies that are related and together they employ 15 or more people, neither qualifies as a small business for the purposes of the Code. The count does not include the employee being dismissed. Casual employees are only counted if they are employed on a regular and systematic basis — genuinely irregular or ad hoc casuals are excluded. This headcount test can be contentious. The FWC will examine the actual working arrangements, not just what is on paper. If you have 14 permanent employees and a casual who works every Tuesday and Thursday and has done so for two years, that casual is almost certainly regular and systematic, bringing your total to 15 and disqualifying you. Contractors and labour hire workers are generally not counted, but the FWC may look behind the label if the arrangement is really one of employment. Getting this count wrong is one of the most common mistakes small businesses make.

The Small Business Fair Dismissal Code Checklist

The Code distinguishes between two dismissal scenarios. For serious misconduct — such as theft, fraud, violence, or serious safety breaches — the employer can dismiss the employee immediately without notice and without prior warnings. The employer must have a reasonable belief, based on reasonable grounds, that the employee's conduct was sufficiently serious to justify immediate dismissal. For all other dismissals, the employer must follow a process. First, there must be a valid reason for the dismissal related to the employee's capacity or conduct. The employer must give the employee a warning and a reasonable opportunity to improve, except in cases of serious misconduct. Before the dismissal, the employee must be told the reason and given a chance to respond. The employee is entitled to have a support person present at any discussions about the dismissal. The support person is there to provide emotional support and witness the discussion — they do not have the right to advocate or answer questions on behalf of the employee. The employer does not need to provide warnings in writing, but doing so creates critical evidence. If a dispute later arises, the employer bears the burden of proving compliance with the Code. The FWC assesses compliance based on what a reasonable small business owner would have done.

The 12-Month Minimum Employment Period

Small business employees must complete a minimum employment period of 12 months before they can make an unfair dismissal claim. This is double the 6-month period that applies to employees of larger businesses. During this 12-month period, the employee can be dismissed without the employer needing to comply with the Code, and the employee has no access to the unfair dismissal system. However, this does not mean the employer can do anything during the first 12 months. General protections claims — which prohibit dismissal for discriminatory reasons, exercising a workplace right, or engaging in industrial activity — apply from day one of employment with no minimum service requirement. So if you dismiss a new employee during their first 12 months because they made a safety complaint or took personal leave, you may face a general protections claim even though they cannot claim unfair dismissal. The 12-month period is calculated from the employee's start date to the date their dismissal takes effect. If the employee was engaged as a casual and then converted to permanent employment, the casual service generally counts towards the minimum employment period if the employment was continuous. This is an area where many small businesses trip up, assuming the clock resets on conversion.

Common Mistakes That Lose Code Protection

The most frequent mistake is failing to give the employee a genuine opportunity to respond before making the decision to dismiss. The Code requires that the employee be told the reason for the potential dismissal and given a chance to respond — and that response must be genuinely considered before the decision is made. If the decision has already been made before the meeting, the process is a sham and the Code will not protect you. Another common error is failing to offer a support person. The Code requires that the employee be advised of their right to have a support person present. You do not need to provide the support person, but you must advise the employee of their right to have one. Dismissing without any prior warning (except for serious misconduct) is another frequent failure. One verbal warning may be sufficient, but you need evidence that it was given. Many employers also lose protection by miscounting their employees or failing to account for regular casual workers, which means the Code does not apply at all. Inadequate investigation of the facts before dismissal is another pitfall — the Code requires the employer to have a reasonable belief based on reasonable grounds. Acting on rumour or assumption without investigation will not satisfy this standard.

How the FWC Assesses Code Compliance

When an employee of a small business lodges an unfair dismissal application, the employer can raise the Code as a jurisdictional objection. The FWC will then assess whether the employer complied with the Code before considering the merits of the unfair dismissal claim. If the employer establishes compliance, the application is dismissed without any assessment of whether the dismissal was harsh, unjust, or unreasonable. The standard applied is whether the employer's actions were consistent with what a reasonable small business owner in the employer's circumstances would have done. This is an objective standard, but it takes into account the practical realities of running a small business. The FWC does not expect small business owners to follow the same procedures as large organisations with HR departments. The burden of proof is on the employer to establish compliance on the balance of probabilities. Documentary evidence is extremely valuable — contemporaneous notes, warning letters, meeting records, and written responses from the employee all strengthen the employer's position. Text messages and emails can also serve as evidence of warnings and communications. If the employer cannot prove compliance, the FWC proceeds to assess the unfair dismissal claim on its merits under the standard criteria in section 387 of the Fair Work Act.

Practical Tips for Small Business Owners

To maximise your protection under the Code, keep written records of every step. Even an email to yourself after a verbal warning recording what was said, when, and the employee's response is better than nothing. Use the FWC's Small Business Fair Dismissal Code Checklist — it is a free document available on the FWC website that walks you through each step. Before dismissing for serious misconduct, investigate properly and document your findings. Do not act in the heat of the moment. Before dismissing for other reasons, ensure you have given at least one clear warning that identifies the problem, explains what improvement is expected, and states the consequences of failing to improve. Allow a reasonable time for improvement — what is reasonable depends on the issue, but a few weeks is typical. When holding the dismissal meeting, advise the employee in advance of the purpose, tell them they can bring a support person, clearly state the reason you are considering dismissal, and genuinely listen to their response. If their response raises new information, investigate it before making your final decision. Keep the termination letter factual and reference the reason for dismissal. Pay all final entitlements on time. Taking these steps does not guarantee you will avoid a claim, but it significantly increases the likelihood the Code will protect you.

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Official resources

General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.

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