Small Business Fair Dismissal Code: How It Works for Australian Employers

The Code sits in the Fair Work Act 2009 at sections 385 and 388, with the small business definition in section 23. This guide follows the Fair Work Commission's own benchbook, read in October 2026. It explains the rules; it isn't legal advice for a particular case.

Who counts as a small business employer

An employer is a small business employer if it has fewer than 15 employees, counted by head count, at the relevant time. The count includes the employee being dismissed, anyone else dismissed at the same time and employees of associated entities. Casual employees aren't counted unless they're regular casuals.

Here's the insight that changes the answer for many owners. Related companies count together. An owner who splits staff across two associated companies may not be a small business employer at all, because the head count combines them.

The 12-month minimum employment period

	Small business employer	Other employers
Minimum employment period before an unfair dismissal claim	12 months	6 months
Other conditions	Earn less than the high-income threshold; casuals must work on a regular and systematic basis	The same

So a small business that dismisses someone in their first 12 months generally can't face an unfair dismissal claim. Other claims, such as general protections, sit outside this rule, so the 12 months isn't a licence to dismiss for any reason.

Summary dismissal under the Code

The Code says it's fair to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee's conduct is serious enough to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures, and the Commission's benchbook adds sexual harassment.

The word that matters is reasonable. In one case the benchbook describes, a first decision found the employer hadn't carried out a reasonable investigation, but a Full Bench overturned it and held the dismissal was consistent with the Code. In another, an employer's emails case passed because the conduct risked serious harm to the business's reputation.

Other dismissals: the warning steps

1. Tell the employee the reason their job is at risk. It must be a valid reason based on their conduct or their capacity to do the job.
2. Warn them, ideally in writing, that if there's no improvement they could be dismissed.
3. Give them a chance to respond to the warning.
4. Give them a reasonable chance to fix the problem, taking their response into account. That might mean extra training or making sure they know what the job expects.
5. Keep records of each step, because the employer has to prove it complied.

Where small businesses fail

The benchbook's example of a failed case is useful. An employee was dismissed for contacting a government department against a written direction and a warning. The Commission found no evidence of the written direction, the warning letter didn't mention the issue, and the employee wasn't given a chance to respond before the decision was final. So the dismissal wasn't consistent with the Code. Missing paperwork, not bad intent, is what sank it.

Using the Code well, step by step

1. Count your head count, including associated entities and regular casuals, before you rely on the Code.
2. Check the employee's length of service against the 12-month period.
3. For misconduct, investigate and write down why you believe, on reasonable grounds, it was serious.
4. For performance or conduct issues, follow the warning steps above and keep copies.
5. Keep a dated file of every step, the warnings and the employee's responses.

The Code works alongside the National Employment Standards, which still set notice and other minimums, and my guide to probation periods covers how trial periods fit in.

Cases where the Code held up

• Emails disparaging the managing director sent to a colleague and a business contact were found to risk serious harm to the business's reputation, which amounted to serious misconduct, so the summary dismissal complied with the Code.
• An employee who used the employer's property for his own benefit and wasn't honest when confronted was found, on appeal, to have been dismissed consistently with the Code.
• A performance case passed where the employer showed a series of formal and informal warnings, even though the employee disputed some of them.
• Erratic behaviour and drug-taking outside work led to a dismissal the Full Bench found consistent with the Code, because the employer's belief rested on reasonable grounds.

Employees above the high-income threshold

Normally an employee must earn less than the high-income threshold to claim unfair dismissal. The Commission says the law still protects someone earning more if an award covers their employment or an enterprise agreement applies to it. So check the award before assuming a senior hire is outside the rules.

My verdict

The Code gives small employers real protection, but only if they can prove they followed it. Treat it as a paper trail: a written reason, a written warning, a chance to respond and a dated record. Fifteen minutes of notes at each step is cheaper than defending a claim without them.

Frequently asked questions

What counts as a small business under the Fair Dismissal Code?

An employer with fewer than 15 employees by head count at the relevant time, including associated entities and regular casuals, but not irregular casuals.

How long before an employee can claim unfair dismissal from a small business?

12 months. The minimum employment period is 12 months for a small business employer and 6 months for other employers.

Can a small business dismiss without notice in Australia?

Under the Code, yes, when the employer believes on reasonable grounds the conduct is serious enough to justify immediate dismissal, such as theft, fraud or violence.

Who has to prove the Code was followed?

The employer. If an employee claims unfair dismissal, the employer has to prove it complied with the Code.

Are casual employees counted for the Small Business Fair Dismissal Code?

Only regular casuals. The Commission says casual employees aren't counted unless they're employed on a regular basis.