News & Insights

How to manage an unfair dismissal claim against your business

Published 05 March 2020

An unfair dismissal claim can be a stressful time for all parties involved. Whether or not the claim is accurate, the time and cost that goes into defending an unfair dismissal claim can have an outsized impact on any business. Below we outline what's involved and how businesses can protect themselves.

In 2018-19, 50% of unfair dismissal claims were finalised within 39 days while 90% were finalised within 94 days and close to half of the 13,422 unfair dismissal claims received by the Fair Work Commission featured some kind of monetary settlement

To give you an idea of the timeline and steps involved in an unfair dismissal claim, the below table shows what’s involved between notification of an unfair dismissal claim and resolution.

unfair dis timeline-1

Source: Fair Work Commission

It is important for all business owners to know how to protect themselves from unfair dismissal claims and how a management liability insurance policy could be used to help meet their costs.

How to avoid unfair dismissal claims

Start with a solid awareness of your obligations as an employing business: an unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or unreasonable manner; or the dismissal was not a case of genuine redundancy.

Employers need to ensure there is a valid reason for the dismissal of an employee and, it may sound obvious, but employees should be told of the reason before they are dismissed.

"There are very few instances of misconduct that warrant immediate dismissal. Such reasons include theft, fraud,  violence of serious breaches of workplace health and safety laws."

Certain aspects of unfair dismissal are based on the size of your operation.

For businesses with fewer than 15 employees, unfair dismissal can only be claimed by employees that have worked at the organisation for over 12 months. In larger business, this limitation is only six months.

If a business with fewer the 15 employees follows the Small Business Dismissal Code, and the dismissal is not deemed harsh, unjust or unreasonable then the dismissal will be ruled fair.

In some instances, performance management may be the best way to help an employee improve their performance, perhaps avoiding a dismissal situation. If performance management takes place, make sure you are clear on the areas an employee needs to work on and give them the opportunity to improve their performance.




Employees should always be given a chance to respond to any allegations or issues that you may have had with their performance. Even if you are planning to dismiss an employee you still need to give them a chance to respond to your concerns, take this response on-board and genuinely consider the decision to terminate an employee’s contract.

When going into any meetings that are this sensitive, it is a great idea to allow an employee to have a support person present. These types of meetings can be very emotional for all parties and having that support will allow the employee to pay full attention to the issues being discussed while their support person (which can be a friend, union representative or lawyer) takes notes.

There are very few instances of misconduct that warrant immediate dismissal. Such reasons include theft, fraud, violence or serious breaches of workplace health and safety laws.

As the timeline above shows, an unfair dismissal is not a quick and easy process so it is best to view any termination as an ongoing process, rather than a quick decision. There are many steps that businesses, their leaders and employees may have to go through before a matter is resolved for all the involved parties.

If you have any questions about the process for making a termination it is best to seek expert advice from an HR or workplace professional.

How insurance can help in unfair dismissal claims

From an insurance perspective, many business owners and senior managers are unaware that unfair dismissal claims can be covered under an insurance policy.

Management liability insurance offers business owners the ability to cover the costs related to investigations, legal fees and settlement costs that can come out of an unfair dismissal claim as well as fines and penalties that can come out of these investigations.


For example, a small business terminated the contract of one of its employees who then lodged an unfair dismissal claim with the Fair Work Commission related to alleged bullying. The employer and employee could not come to a satisfactory conciliation so the Fair Work Commission began its investigation and jurisdiction process.

The employer notified us and we worked with their insurer to appoint a lawyer while the employee sought their own legal counsel.

The matter was settled during the conciliation process which took several weeks. The settlement amount, which was 5 figures, was covered under the management liability policy the employer had taken out, as were the legal costs associated with the claim.


What else is covered 

The scope of management liability insurance is not limited to unfair dismissal claims. A section of a management liability policy, called employment practices liability or EPL, gives protection to employers, directors and managers if other claims involving employee relations are brought against a business.

Employment practices liability covers

  • Unfair dismissal
  • Emotional distress
  • Bullying and harassment
  • Discrimination
  • Deprivation of career opportunities

For any business that employs staff, management liability can help reduce the financial risks you face in dealing with your employees. As a lesser known insurance policy, the scope of management liability insurance can really offer employers peace of mind.

Management liability also bundles together several other standalone insurance covers into one policy to offer protection for a variety of risks or liabilities that owners, directors and managers may encounter in the course of running a business. 

Talk to the experts

If you would like to speak to a specialist who could help your business decide if management liability insurance is the right approach or if you have any questions about any aspect of your current insurance and risk management procedures, contact your Gallagher broker.


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Further reading

How management liability insurance could help your business

Employee crime: the threat from within

To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.


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