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.

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.

Some pointers for employers 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.

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 staff who have worked at the organisation for over 12 months. In larger businesses this limitation is six months.

If a business with fewer the 15 employees follows the Small Business Dismissal Code[1] 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 forward. Make sure you are clear on the areas an employee needs to work on and give them time 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 and take this response on board.

When going into any meetings that are this sensitive it is a good idea to allow an employee to have a support person present. These types of meetings can be very emotional and having that support can 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.

Dealing with an unfair dismissal is not a quick and easy process. 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's advisable to seek expert advice from a human relations or workplace professional.

How insurance can support employers in unfair dismissal claims

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

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 for an amount in five figures, which was covered under the management liability policy the employer had taken out, as were the legal costs associated with the claim.

What protections does management liability insurance offer employers?

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 cover can help reduce the financial risks you face in dealing with your employees.

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 can help you decide if management liability insurance is the right approach for your business, 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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1Fairwork Australia, Small Business Dismissal Code, accessed 8 May 2024.


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