Most founders have heard a version of “you can’t get an unfair dismissal claim while you’re small”. Like most things founders hear at barbecues, it’s a distortion of something real. The Fair Work Act 2009 (Cth) does give small business employers — fewer than 15 employees — two genuine protections: a longer qualifying period before staff can claim at all, and the Small Business Fair Dismissal Code, a compliance path that operates as a complete defence to an unfair dismissal claim. But the headcount is narrower than founders assume, the Code is stricter than its two pages suggest, and it does precisely nothing against the claims that hurt most.
Who Actually Counts as a Small Business Employer
Section 23 defines a small business employer as one employing fewer than 15 employees at the relevant time — a simple headcount, not full-time equivalents. Three features of the count regularly surprise startups:
- Regular casuals count. A casual is included if, at the time, they are employed on a regular and systematic basis. Your weekend support roster is probably in the count.
- Associated entities count as one employer. If you run a dual-company structure — holding company and operating company, or an Australian subsidiary of a foreign parent — employees of associated entities (within the meaning of section 50AAA of the Corporations Act 2001) are aggregated. A 10-person Sydney team inside a 40-person global group is not a small business employer.
- The departing employee counts too. The count includes the employee being dismissed and anyone else being dismissed at the same time.
Timing matters as well: under section 388(2), you must be a small business employer at the earlier of when notice is given or immediately before the dismissal takes effect. A startup that closes a funding round, hires past 15, and then terminates has lost the shield — even if the performance problems predate the growth.
The First Protection: 12 Months Before Anyone Can Claim
Under section 383, an employee of a small business employer must have completed a minimum employment period of one year before they are protected from unfair dismissal — double the six months that applies to everyone else. Terminations inside the first 12 months simply cannot found an unfair dismissal claim, which is why probation management matters so much more before you cross 15: the review point where you decide whether someone stays should sit comfortably inside the period, with time to give notice.
Separately, an employee to whom no modern award or enterprise agreement applies must earn less than the high income threshold — $190,100 from 1 July 2026 — to claim at all. Most startup roles sit under an award (the Professional Employees Award reaches further into tech than founders expect), so don’t lean on this one.
The Second Protection: The Code Itself
If a protected employee is dismissed, section 385 makes the dismissal unfair only if, among other things, it was not consistent with the Small Business Fair Dismissal Code. Compliance with the Code — a short instrument declared by the Minister under section 388, in force since 1 July 2009 and last updated in 2011 — is therefore a complete answer: if the Fair Work Commission is satisfied you complied, it never reaches the usual “harsh, unjust or unreasonable” analysis. The Code has two limbs.
Summary dismissal. It is fair to dismiss without notice or warning where you believe on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal — the Code lists theft, fraud, violence and serious breaches of occupational health and safety procedures as examples, and notes that reporting theft, fraud or violence to the police (on reasonable grounds) supports, but is not essential to, the fairness of the dismissal. The Full Bench in Ryman v Thrash Pty Ltd [2015] FWCFB 5264 settled how this works: “serious misconduct” bears its defined meaning in regulation 1.07 of the Fair Work Regulations, you do not have to prove the misconduct actually occurred, but your belief must be genuinely held and objectively reasonable — which in practice means carrying out at least a basic inquiry into the allegation before acting. Firing the engineer accused of taking the customer database without asking them a single question about it is how employers fail this limb.
Other dismissal. For performance and conduct short of serious misconduct, the Code requires that the employee be given a reason based on their conduct or capacity to do the job — and the Commission will assess whether it was a valid reason — a warning (verbally, or preferably in writing) that they risk dismissal if there is no improvement, and a reasonable opportunity to respond and to improve, which may include providing additional training and making sure the employee knows the job that’s expected of them. The employee can have a support person present in discussions. None of this is exotic — it is a compressed version of ordinary procedural fairness — but “we had a quick chat about attitude six months ago” is not a warning that they risk dismissal, and the Commission reads the Code’s requirements strictly against employers who treat it as a formality.
Keep the evidence. The Code comes with an employer checklist; completing it isn’t mandatory and doesn’t itself make a dismissal fair, but a contemporaneous completed checklist, written warnings and file notes are the difference between asserting compliance and proving it.
What the Code Does Not Protect You From
This is the part the barbecue version leaves out. The Code answers unfair dismissal claims only. It provides no defence to:
- General protections claims. Dismissing someone because they exercised a workplace right — made a complaint, asked about pay, took sick leave, gave a casual conversion notification — is adverse action under Part 3-1, with no minimum employment period, no small business carve-out, no compensation cap, and a reverse onus that requires you to prove the prohibited reason was not an operative reason for the dismissal. For startups, these claims are frequently the bigger exposure.
- Discrimination claims under federal and state anti-discrimination law, and sham arrangements around the edges of dismissal — the contractor and casual re-engagement traps carry their own civil penalties.
- Contract and entitlement claims. Non-summary dismissals still require notice under section 117 of the Act (or payment in lieu), and accrued entitlements must be paid. Small business employers are largely exempt from NES redundancy pay under section 121, but some awards contain industry-specific redundancy schemes that displace the exemption.
And if the claim does proceed and you lose, the stakes are real but bounded: compensation is capped at the lesser of 26 weeks’ remuneration or half the high income threshold — $95,050 for dismissals on or after 1 July 2026 — with nothing for hurt or distress. Employees have 21 days from the dismissal taking effect to lodge under section 394.
What to Actually Do
Know your number before you act. Count every employee across associated entities, include regular casuals, include the person you’re about to dismiss. If you’re at 14 and hiring, the shield is about to lapse — factor that into sequencing, because the test is applied at the dismissal, not when the problems started.
Run the Code even when you don’t have to. Inside the 12-month minimum employment period you can part ways without unfair dismissal risk, but a documented reason and a clean process cost little and are your evidence if the departure comes back as a general protections or discrimination claim, where no qualifying period saves you.
For misconduct, investigate before you terminate. Ryman requires reasonable grounds, held after a genuine inquiry: put the allegation to the person, hear the answer, write down what you did. For performance, the sequence is reason → written warning naming dismissal as the consequence → real time and support to improve → then decide.
This article is general information only, not legal advice — whether the Code applies, whether a belief was reasonably held, and whether a warning was adequate all turn on the facts, and the count of associated entities can be genuinely tricky. Viridian Lawyers advises Australian startups on employment, equity and structuring. If you’re planning a difficult exit — or one has already turned into a Commission application — get in touch before the 21 days start running.
