Unfair dismissal claims have surged 27% above the long-term average. Small businesses face a system where claims are lodged easily but defending them is expensive and time-consuming.
What’s happening: Unfair dismissal claims have surged 27% above the long-term average, with cases expected to exceed 50,000 this year. Fair Work Commission President Justice Adam Hatcher acknowledges the volume is stretching the Commission’s capacity.
Why this matters: COSBOA says updating Australia’s small business definition from fewer than 15 employees to 50 full-time equivalents would align with global standards and reduce pressure on genuine small employers.
Australia’s workplace dispute system is buckling under unprecedented pressure, with unfair dismissal claims climbing 27% above the long-term average and total cases expected to exceed 50,000 this year.
The surge has prompted Fair Work Commission President Justice Adam Hatcher to acknowledge publicly that the volume is now stretching the Commission’s capacity to cope. For small business owners caught in the system, the impact extends far beyond statistics.
New Fair Work Commission data reveals a system where claims can be lodged easily and cheaply, creating what the Council of Small Business Organisations Australia describes as disproportionate consequences for small employers.
“For a small business owner, the process is time-consuming, stressful and expensive, even when they’ve done nothing wrong,” said Matthew Addison, COSBOA Chair.
The organisation argues that limited barriers to entry and minimal consequences for lodging weak claims have created an unsustainable environment for small businesses navigating workplace disputes.
Australia lags global standards
At the heart of COSBOA’s concerns sits Australia’s small business definition, which the organisation says fails to reflect both modern business realities and international norms.
Under the Fair Work Act, a small business employer is defined as having fewer than 15 employees. This threshold places Australia significantly below comparable economies. The European Union defines small enterprises as having fewer than 50 employees, the United Kingdom uses 50 employees as its threshold, and Canada applies 99 full-time equivalents across most of its workplace legislation.
The practical consequences of Australia’s lower threshold are substantial. A Melbourne café employing 20 staff or a Sydney manufacturer with 30 workers is classified differently than similar businesses in London, Toronto or Berlin, despite operating at comparable scale and facing similar resource constraints.
“The system has become a commercial bonanza for claimants, with limited barriers to entry and almost no consequences for lodging vexatious or weak claims. That has to change,” Addison said.
These businesses above the 15-employee threshold face the same complex dispute resolution processes as corporations with dedicated human resources departments and in-house legal teams, yet lack those resources entirely.
The disparity creates competitive disadvantages for Australian small businesses compared to international counterparts who benefit from simplified processes and protections designed for employers without sophisticated HR infrastructure.
Whilst reform efforts continue, small business owners must navigate the current system. Proactive measures can significantly reduce exposure to unfair dismissal claims and strengthen defensive positions when claims do arise.
Document everything systematically
Robust documentation forms the foundation of protection. Maintain detailed records of employee performance, including regular performance reviews, warnings, and improvement plans. Document all conversations about performance issues, noting dates, attendees, and specific concerns raised.
Keep records of training provided, tasks assigned, and outcomes achieved. When termination becomes necessary, comprehensive documentation demonstrating a fair process and legitimate reasons provides critical defence against claims.
Implement clear performance management processes
Establish transparent performance expectations from the outset. Provide employees with written position descriptions, clear objectives, and regular feedback on their performance.
When issues arise, follow a structured process: initial conversation, formal written warning if problems continue, opportunity for improvement with defined timeframes and support, and final warning before any termination decision. This progression demonstrates procedural fairness and reduces claim vulnerability.
Seek early intervention
When disputes emerge, early resolution often proves less costly than formal proceedings. Consider internal mediation or facilitated conversations before situations escalate to formal complaints.
Many workplace issues stem from miscommunication or unclear expectations rather than genuine misconduct or poor performance. Addressing concerns promptly and professionally can prevent claims from being lodged whilst maintaining working relationships.
Don’t wait until a claim arrives to consult employment law specialists. Seek advice before terminating an employee, particularly in complex situations involving performance issues, misconduct allegations, or redundancy.
Early legal guidance on proper process and documentation requirements proves far more cost-effective than defending poorly executed dismissals. Many employment lawyers offer fixed-fee advice on termination processes, providing certainty around costs whilst ensuring compliance.
For businesses with 10 or more employees approaching the 15-employee threshold, proactive legal review of employment contracts, policies and procedures can identify and address vulnerabilities before they become problems.
The case for reform
COSBOA has called for the Fair Work Act’s definition of a small business employer to be updated from fewer than 15 employees to 50 full-time equivalent positions, aligning Australia with the global benchmarks used across developed economies.
“Expanding the small business definition would mean fewer claims could be lodged against genuine small employers, easing pressure on both business owners and the Commission,” Addison said.
The proposal reflects the reality that businesses with 20 to 30 staff members remain small in practical operational terms. These employers lack dedicated human resources departments, rarely employ in-house legal counsel, and operate with tight margins that make prolonged disputes financially threatening.
“It would also better reflect how businesses actually operate today, where a café with 20 staff or a manufacturer with 30 people is still small in every practical sense,” Addison said.
Under current arrangements, businesses above the 15-employee threshold face different unfair dismissal protections and processes compared to those below it. Raising the threshold would extend small business exemptions and simplified processes to a broader range of employers who lack the resources and infrastructure of medium and large enterprises.
Beyond updating the employee threshold, COSBOA has called for the Fair Work Commission to be properly resourced to screen and resolve vexatious or low-merit claims early in the process. This would prevent weak cases from consuming time and resources whilst ensuring legitimate claims receive appropriate attention.
The organisation also wants the onus of proof in adverse action cases to return to the claimant, a shift it argues would ensure fairness for both employees and employers. Currently, once an employee establishes a workplace right was exercised and adverse action occurred, employers must prove the action wasn’t taken because of that right, creating what COSBOA describes as an unbalanced burden.
“Small business owners want a fair system, not a free-for-all,” Addison said.
The combination of an updated small business definition aligned with international standards, rebalanced burden of proof, and properly resourced Commission screening processes represents what COSBOA describes as practical, common-sense steps to address systemic pressure.
“Updating the small business definition, rebalancing the burden of proof and properly resourcing the Commission are the practical, common-sense steps that would make the system work better for everyone,” Addison said.
With unfair dismissal claims continuing to climb and the Fair Work Commission acknowledging capacity constraints, the question facing policymakers is whether Australia’s workplace dispute framework can adapt to contemporary business realities and international norms whilst maintaining employee protections.
For small business owners navigating the current system, the message is clear: protect yourself through rigorous documentation and proper process whilst supporting reform efforts that would bring Australia’s small business definition into line with comparable economies. The surge in claims highlights not just volume pressures, but fundamental questions about whether legislative definitions established years ago remain fit for purpose in today’s globalised business environment.
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