Employment Law Essentials for Business Owners (Part 1): Managing Dismissals the Right Way Copy

What Business Owners and Advisers Need to Know

When performance issues arise or employment relationships break down, how you manage the situation can be the difference between a clean exit and a costly claim.

In the latest episode of Explain That, Jess Hill and Katherine Stewart from Velocity Legal join Andrew Henshaw to discuss how to manage dismissals correctly, minimise legal risk and maintain professionalism throughout the process.

Understanding the Type of Dismissal

Not all dismissals are the same. The first step is identifying why an employee isn’t the right fit. Is it a performance issue or a conduct issue?

Performance-based dismissals are often “slow burn” matters that require structured feedback, documentation and an opportunity for improvement. Conduct-based dismissals, for example involving serious misconduct or harassment, often require immediate action to protect the business and other employees.

The Power of Clear Warnings

A common misconception is that employers must issue three warnings before dismissing an employee. Jess clarifies that this is not a legal requirement. What matters is clear communication and documentation.

Employers should record performance conversations and, where necessary, tell the employee explicitly that their employment is at risk if performance does not improve. This helps establish a fair process and reduces exposure to unfair dismissal claims.

Understanding the Risks: Unfair Dismissal vs General Protections

Most business owners are familiar with unfair dismissal claims. But Katherine notes that general protections claims can be even more dangerous.

Under the Fair Work Act, employers must not take adverse action, including dismissal, against an employee for a protected reason such as exercising workplace rights, making a complaint or taking sick leave. Timing matters, as dismissing someone soon after a protected action can turn a routine termination into a high-risk legal dispute.

Balancing Legal Risk and Commercial Reality

Sometimes a drawn-out performance management process is not practical. Jess explains that smaller businesses, in particular, may need to act quickly to protect productivity and culture.

In those cases, employers might consider offering a transition package or settlement deed to achieve a commercial resolution. While this does not remove all risk, it can often be more cost-effective than months of underperformance and uncertainty.

When Complaints Complicate the Process

It is not uncommon for an employee under review to respond with a bullying complaint or counter-allegation. Katherine advises employers to separate the two processes, one dealing with the performance issue and the other with the complaint, and where appropriate, assign different people to manage each.

This approach maintains procedural fairness while keeping legitimate performance concerns on track.

Senior vs Junior Employees: Different Risks, Same Principles

Senior employees often sit above the unfair dismissal income threshold but may still pursue general protections or contractual claims. These can include disputes about bonuses, share schemes or even reasonable notice where no written contract exists.

Jess and Katherine emphasise that careful contract drafting and clear documentation at the outset can prevent these disputes later.

Policies, Procedures and Quick Action

Good policies and training do not just prevent problems, they strengthen your position if issues arise. For example, show cause processes supported by clear misconduct or harassment policies can make termination defensible.

However, Katherine cautions that a lack of policies should never stop an employer from acting where behaviour is clearly unacceptable. Immediate suspension and prompt investigation may be essential to protect the business and its people.

The Importance of Acting Quickly

One of the biggest mistakes employers make is waiting too long to address serious issues. Delay can complicate the process, especially if the employee later takes leave or raises unrelated complaints.

As Jess notes, the best approach is to seek advice early, develop a clear strategy, and act decisively once the risks are understood.

The Key Takeaway

Dismissals are rarely easy, but with preparation, documentation and the right advice, they do not have to be messy.

For business owners and advisers, the key is balancing legal compliance with commercial reality. Engage your employment lawyer early, document every step, and act with fairness and consistency.

Jess and Katherine highlight that proactive management not only reduces risk but helps maintain trust and integrity across your team.
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🎧 Listen to the full episode below: