It Is the Risk.
FAIR WORK ACT – UNFAIR DISMISSAL & GENERAL PROTECTIONS
The Myth That Is Costing Businesses More Than It Protects Them
The most common reason SME founders avoid performance conversations is fear of legal exposure. “What if they claim unfair dismissal? What if they say I did not support them? What if this costs me $50,000 in legal fees?”
The legal reality is the inverse of this fear. Under the Fair Work Act, unfair dismissal claims succeed when employers have failed to follow a fair process – not when they have managed performance and reached a documented conclusion. The Fair Work Commission considers whether there was a valid reason for dismissal, whether the employee was notified of that reason, whether they were given an opportunity to respond, and whether the employer followed a fair process.
Legal risk does not come from having the performance conversation. It comes from not having it properly – or not having it at all – and then making an employment decision that appears to have come out of nowhere.
The Real Cost of Inaction
When business owners avoids a performance conversation, they typically justify it as being kind or giving the person time to improve. The actual costs are:
- The direct cost of the underperformer’s salary. A six-figure underperforming employee costs $100,000 or more per year. Six months of avoidance costs $50,000. That is the actual expense of the decision to wait.
- The cost to the team. High-performing employees observe how the business handles underperformance. Research consistently identifies perceived unfairness – particularly the tolerance of poor performance – as a leading driver of voluntary resignation among high performers.
- The cost to culture. Every week an underperformer remains without consequence, the implicit message to the rest of the team is that performance does not actually determine outcomes here. That message erodes accountability culture faster than any single policy can rebuild it.
- The compounding legal cost. Paradoxically, the longer an employer waits before addressing performance, the more legally exposed they become. An employee who has been in a role for 18 months with no documented performance concerns, and is then suddenly performance-managed, has a stronger unfair dismissal case than one whose issues were raised and documented from early in their tenure.
What a Legally Sound Performance Process Actually Requires
The Fair Work Act does not require a perfect process. It requires a fair one. For most SMEs managing underperformance, a legally defensible process includes:
Clear expectations from the outset. The employee must know what success looks like in their role. If a position description does not articulate standards, managing against those standards becomes legally difficult.
Early, documented conversations. Performance concerns should be raised promptly – in the first weeks or months they are identified, not six months later when frustration has peaked. These conversations do not need to be formal. They need to be documented. A file note after a one-on-one, an email summarising what was discussed – any contemporaneous record.
A documented performance improvement framework. This defines the specific behaviours or outcomes that must change, the timeline for review, what support will be provided, and what the consequences of no improvement will be.
An opportunity to respond. The Fair Work Act requires that an employee be notified of the reason for a potential dismissal and given a genuine opportunity to respond before a decision is made.
Consistency. Employers who apply performance standards selectively – acting against one employee but tolerating the same behaviour from another – face general protections claim that are harder to defend than unfair dismissal alone.
Psychosocial Risk: The Emerging Legal Context
From 2025, employers in Australia have strengthened obligations under Work Health and Safety legislation to manage psychosocial risks – which include unclear job roles, persistent interpersonal conflict, and the stress that comes from a workplace where accountability is inconsistent. Tolerating sustained underperformance creates psychosocial risk for other team members. This is an emerging legal dimension that is distinct from unfair dismissal but equally relevant to the question of inaction.
The Honest Assessment
If you are currently avoiding a performance conversation, the risk calculation looks like this: the cost of the conversation, done properly, is a few hours of structured preparation and a handful of documented meetings. The cost of continued inaction compounds every week – in salary, in team morale, in cultural damage, and in increasing legal exposure if you eventually act without a documented process behind you.
The performance conversation you are avoiding is not reducing your risk. It is accumulating it.
SOURCES
Fair Work Act 2009 (Cth), Part 3-2 (Unfair Dismissal) and Part 3-1 (General Protections).
Fair Work Ombudsman: fairwork.gov.au.
Rippling: “HR Trends Australian Employers Must Know in 2025” (psychosocial risk obligations).
Allens Insights: “Recent Developments in Employment Law,” January 2025 (procedural fairness case law).