The True Cost of an Unfair Dismissal


What constitutes an unfair dismissal?

‘Unfair dismissal’ is a phrase on the rise but is still a term that holds certain ambiguity for business owners. Melbourne-based B2B publisher, Portner Press define this HR issue as “when an employee is dismissed harshly, unjustly or unreasonably”, but, the question remains: is this simply just a popular term that is said but not actioned?

Unfortunately, the unfair dismissal outlook published by the Human Resource Director Australia had bleak news for business owners. The article reported that more than 60% of employers were unsuccessful with unfair dismissal cases, an all-time high. They also highlighted that unfair dismissal cases are consistently the most common claim made, occurring every three and a half minutes in 2017 alone.

With unfair dismissal claims on the rise it begs the question, what are the financial ramifications for business owners?

Financial considerations when dealing with unfair dismissals

Financial resolutions are a common occurrence when businesses are trying to resolve unfair dismissals, but these pay outs to employees can be the difference between a business staying afloat or sinking. So exactly how often is money used to settle unfair dismissal cases?

According to Fair Work’s Annual report, 93% of unfair dismissal applications were resolved informally by agreement of the parties and of this 62% of cases were resolved via both monetary and non-monetary means.

The FWC highlighted that there has been a consistent year on year increase in monetary payout from conciliation, indicating a very real issue for business owners. These trends highlight the significant financial impact unfair dismissal claims are having on employers. But are unfair dismissals impacting business owners in more ways than one?

Emotional considerations when dealing with unfair dismissals

Whether you’re doing the dismissing or being dismissed it can be an emotionally draining process for all parties. It can cause work-related stress for those involved in the process which can lead to individuals exhibiting many different physical, psychological and behavioural symptoms. 
Some physical symptoms include:

  • Fatigue
  • Headaches
  • Heart palpitations
  • Insomnia

Some psychological symptoms include:

  • Depression
  • Anxiety
  • Cognitive difficulties
  • Irritability

These symptoms can lead to real behavioural changes in employees and employers which can include:

  • Absenteeism
  • Aggression
  • Mood swings
  • Isolation
  • Drop in work performance

If you’d like to view the full list of work-related stress from Better Health Victoria outlines please click here.

The emotional fallout from unfair dismissals are vast and a very real factor to be considered by business owners. When dismissing employees, employers need to remain sensible and clear. To support employers with having difficult discussions such as this, CCIQ’s Training and Induction platform offers 15 leadership and development modules, as well as over 60 other ready-to-go courses. It can sometimes be an emotional decision, but it is imperative that the process and reasoning be objective and fair to avoid a normal dismissal turning into an unfair dismissal.

Workplace culture and unfair dismissals

Workplace culture is one of the most overlooked factors affecting unfair dismissals. Businesses that have a high turnover, unhappy employees, and poor employer-employee relationships are putting themselves at risk to unfair dismissal cases from unhappy employees. Fostering positive workplace culture can build trust, support and loyalty between the business and employees, instead of division.

Workplace Relations Framework report on unfair dismissals mention that to achieve long run productivity improvements businesses need to encourage greater employee engagement and greater trust between employers and employees. To do this a positive, open internal culture needs to be created for staff to become promoters of the organisation as well as view the organisation in a positive light.

So is there anything business owners can do to prevent unfair dismissal claims?

7 steps to reducing the chance of a successful unfair dismissal claim

As a business owner, you can’t control whether an employee files an unfair dismissal claim, but what you can do is ensure proper steps and procedures are in place to lower the risk of a successful unfair dismissal claim being made. To prepare your business, Portner Press have supplied 7 steps a business owner should take before dismissing an employee:

  1. Have an independent witness present in any performance-related discussions with the employee. This allows an impartial third party to be present and aware of discussions that are being held.
  2. Ensure the employee is aware that they are entitled to have a support person present in any performance-related discussions. A support person helps an employee through difficult discussions and it is required by law that staff know they are entitled to one.
  3. Advise the employee that their work performance is below the required standard. Setting and monitoring KPIs is an effective way to manage and report on staff performance.
  4. Allow the employee to respond to what has been outlined in performance discussions. This allows employees to have an open and frank discussion about concerns raised and address these if necessary.
  5. Advise the employee in writing that their employment may be in jeopardy if their performance does not improve to a satisfactory standard. This provides clear documentation warnings given to the employee.
  6. Keep records of any warnings that been given to the employee for future reference. This can be done by ensuring all warnings are sent via email or with an independent witness present.
  7. Give the employee a chance to improve their behaviour and work performance before making a final decision. Giving the employee time to react and improve from the feedback is a must before you finalise a decision on their employment.

It should be noted that, whilst these steps do not completely prevent these claims from being made, they will reduce the chance of successful Fair Work claims.

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