17 March 2011 Valid reason for dismissal the key to defending unfair dismissal claims

By Warwick Ryan, Partner

In brief

A recent judgment of the Full Bench of Fair Work Australia (FWA) has highlighted that the existence of a valid reason for dismissal is pivotal to an employer’s ability to succeed in defending unfair dismissal claims.

Criteria for establishing an unfair dismissal

When an unfair dismissal claim is made by an eligible employee, the central fact which the employee must establish is that the dismissal was harsh, unjust or unreasonable. In considering whether this threshold has been met, FWA considers a number of factors:

  • Existence of a valid reason for the dismissal, such as poor performance or misconduct
  • Procedural justice requirements, such as notification of the reason for the dismissal and provision of an opportunity to respond
  • Any other discretionary matters that FWA considers relevant - effect of the termination on the employee, length of service and comparative treatment of other employees in similar circumstances   

As this determination is highly discretionary, the difficulty for employers up until this point has been not knowing whether terminating an employee will result in an unfair dismissal claim. However, the Full Bench has recently handed down a judgment which provides some clarity in this hitherto grey area.

Parmalat Food Products Pty Ltd v Kasian Wililo

Mr Wililo was engaged by Parmalat Food Products as a forklift operator. During a night shift, he placed his arms, head and shoulders underneath an unsecured load in clear breach of safety policies.

During an investigation into the matter, Mr Wililo denied his involvement in the incident. However, Parmalat had witness statements and CCTV footage which were inconsistent with his responses. The CCTV footage was never shown to him during the investigation.

Following the investigation, the company terminated Mr Wililo’s employment and he lodged an unfair dismissal claim with FWA.

First instance decision – valid reason for dismissal

The highly discretionary nature of the determination required of FWA was reflected by the first instance decision which reinstated the employee, even though Parmalat clearly had a valid reason for dismissal in his proven breach of safety policies and had satisfied procedural justice requirements. The reasoning relied upon by the Commissioner for approving the employee's claim was based on the following factors:

  • The length of his employment and disciplinary history
  • The failure of Parmalat to show him the CCTV footage during the investigation
  • The employee’s conduct was not wilful or negligent, but rather the result of carelessness and a failure to appreciate the potential danger of his actions
  • Parmalat failed to demonstrate that it consistently applied a zero tolerance policy with respect to safety breaches
Parmalat appeal to the Full Bench

On appeal to the Full Bench, Parmalat emphasised the flawed reasoning underlying the first instance decision and the consequences arising for employers from such a decision. The company argued that "when an employee is found to have been dismissed for a safety breach, this amounts to a valid reason for dismissal and indeed serious misconduct”. The company submitted that if “the employer applies appropriate measures to ensure procedural fairness, it is inconceivable that a conclusion should be reached that termination of employment is harsh."

Parmalat decision overturned on appeal

The Full Bench agreed with the employer and laid down a guiding principle for the determination of unfair dismissal claims by holding that the existence of a valid reason for dismissal is "a very important consideration in establishing the fairness of a termination." This statement sends a clear directive to commissioners of FWA to view the existence of a valid reason for dismissal as the primary consideration.

However, the Full Bench also highlighted the importance of employers complying with the procedural justice requirements, pointing out that where such compliance is combined with a valid reason for dismissal "it would only be if significant mitigating factors are present that a conclusion of harshness is open".

Lack of significant mitigating factors

In applying this principle to the present situation, the Full Bench found that such significant mitigating factors did not exist. Further, the factors relied upon by the Commissioner at first instance were found to be unjustified because:

  • The employee's service was short and his disciplinary record was poor
  • The failure to show the CCTV footage was not a matter of significance because it was largely inconclusive and did not alter the conclusion that the employee was given the opportunity to respond to the allegations
  • The conduct of the employee was deliberate and, in any event, characterising the conduct as carelessness did not diminish the seriousness of the misconduct
  • There was not a sufficient basis to find that Parmalat could not apply its safety policy because it had been applied inconsistently in other safety breaches
Significance of the decision for employers

The decision of the Full Bench is to be welcomed by employers, as it provides greater certainty about the relative importance of the factors which FWA will consider in determining unfair dismissal claims. Employers can generally assume that provided there is a valid reason for dismissal and they satisfy the procedural justice requirements, there will be scant basis for the employee to lodge an unfair dismissal claim. In the absence of genuinely significant mitigating factors, such claims have little possibility of success. The full text of the judgment in the Parmalat appeal can be found at the website of Fair Work Australia.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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