Managing underperformance is never easy but it becomes significantly more complex when mental health issues are part of the picture.
Two Fair Work Commission (FWC) cases from last year highlight the growing legal and practical risks for employers when performance management and dismissal intersect with psychological health concerns.
With workplace mental health claims rising, now accounting for 11% of all serious claims in 2022–23 (Safe Work Australia), HR teams must tread carefully to ensure processes remain both fair and defensible.
So, what does best practice look like?
Performance Management Still Applies, But Sensitivity Is Essential
Mental health challenges don’t remove an employee’s obligation to meet role requirements. However, they do require employers to approach performance concerns with greater care as these situations can raise:
- unfair dismissal risks
- general protections claims
- disability discrimination exposure
Where mental health may be contributing to performance issues, employers should first consider whether underlying stressors or psychological hazards can be addressed.
Reasonable Adjustments: A Critical First Step
Mental health conditions are generally treated as a disability under the Disability Discrimination Act 1992, meaning employers must consider whether reasonable adjustments could help the employee perform effectively.
Examples may include:
- temporary reduced hours
- flexible work arrangements
- working from home options
- additional support or supervision
In many cases, the right adjustment can resolve performance issues before dismissal becomes necessary.
3 Key Risks Employers Must Keep in Mind
1. Dismissal May Trigger Discrimination Claims
If an employee’s mental health condition impacts performance, and the employer fails to consider adjustments, termination could potentially be viewed as discriminatory.
One recent FWC matter involved an employee claiming her PTSD, anxiety and depression contributed to performance difficulties, and that her dismissal was linked to her disability.
The Commission allowed her general protections claim to proceed, reinforcing the importance of properly exploring adjustments before termination.
Key takeaway:
You cannot dismiss someone because of a disability, but you may be able to proceed if, even with reasonable adjustments, they cannot perform the inherent requirements of the role.
2. Mental Health Can Extend Filing Deadlines
Employees normally have 21 days to lodge unfair dismissal or general protections claims.
However, the FWC may allow late applications where mental health issues genuinely prevent someone from acting within time.
In the above case, the employee lodged her claim three weeks late, arguing her condition impaired her ability to respond sooner.
The Commission will consider:
- the reason for the delay
- steps taken after dismissal
- the merits of the claim
While flexibility exists, employees must provide strong evidence, as lengthy unexplained delays are unlikely to be accepted.
3. The Process Itself Can Cause Harm
Even where dismissal is justified, the way it is handled can create serious legal exposure.
In another case, an employer was ordered to pay almost $10,000 compensation after the FWC found the dismissal process aggravated the employee’s psychological distress.
The employer failed to provide procedural fairness or consider the psychological impact of how termination was delivered.
Medical evidence supported that the process caused direct harm.
How Employers Can Reduce Risk
A compliant and empathetic approach is essential. Employers should ensure:
- clear communication of concerns
- adequate opportunity to respond
- reasonable time and support to improve
- a support person allowed in dismissal meetings
- reminders about Employee Assistance Programs (EAP) or other supports where there is no EAP within the business
Handled properly, these steps protect both the employee’s wellbeing and the organisation’s legal position.
Dismissal decisions involving mental health require a careful balance of compassion, compliance and clarity.
A fair process isn’t just best practice it can be the difference between a defensible outcome and an extended legal dispute.
If your organisation is navigating a sensitive performance or dismissal matter, we’re here to help.