More small businesses bound by unfair dismissal laws

The definition of a small business has changed, potentially leaving more companies open to unfair dismissal claims

By Brad Gardner | January 24, 2011

A host of small businesses face the greater prospect of having unfair dismissal claims launched against them after changes to industrial relations law.

The meaning of what constitutes a small business has been altered from one that hires less than 15 full-time equivalent employees to one that hires less than 15 employees.

The change is now based on total headcount and includes casual and part-time workers rather than dividing the total number of hours worked by all employees by 38 (the full-time working week).

Small business employees must work for the company for at least a year to be able to launch an unfair dismissal claim. The period is six months for other businesses.

Previously, a company which employed 20 part-time staff working 15 hours a week would have had 7.8 full-time equivalent employees, meaning it fell under the 12-month exemption period.

Because staff levels will now be based on headcount, claims can be launched against the business after six months of employment because it has more than 15 employees.

"The headcount will include casuals employed on a regular and systematic basis, employees of associated entities and the employee/s being dismissed," The Fair Work Ombudsman says in a statement.

Companies can be liable if they are found to have dismissed an employee in "harsh, unjust or unreasonable" circumstances.

"What is harsh, unjust or unreasonable will depend on the circumstances of each case," the Ombudsman says.

"However, it is important to be fair to employees particularly when it comes to termination of employment. They should be given reasons for dismissal and an opportunity to respond to those reasons."

The longer exemption period from unfair dismissals for small businesses is meant to recognise they do not have the resources or the time of larger companies.

Small businesses also have the Fair Dismissal Code, which is a checklist designed to help firms determine if they can lawfully dismiss someone after the 12-month exemption period has ended.

The Code states that businesses are justified in summarily firing an employee for serious misconduct such as theft, fraud violence and occupational health and safety breaches.

"In other cases, the small business employer must give the employee a reason why he or she is at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job," the Code says.

The change follows last year’s introduction of national employment standards, which require employers to set a maximum working week of 38 hours, introduce flexible work arrangements and provide annual, long service, parental, community and compassionate leave.

Employers must also provide paid public holidays if the day falls on a workday and redundancy pay.

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