Does EPL insurance cover unfair dismissal claims in Australia?

Fair Work decides whether a dismissal was harsh, unjust, or unreasonable. Employment practices liability (EPL) insurance is different. It may help an employer with the cost of responding to the claim, including legal defence costs and some claim outcomes, subject to policy terms. The key question for employers is what the policy covers and what it excludes.

For a full guide on EPL, see what is employment practices liability insurance in Australia.

At a glance

• Unfair dismissal is the most common Fair Work Commission lodgment type, making up 37% of applications
• EPL insurance may help with defence costs and some claim outcomes for unfair dismissal claims
• Employment practices liability does not make a dismissal lawful or remove employer obligations
• Each party in a Fair Work matter generally pays their own legal costs, even if they win
• EPL is commonly included inside management liability for SMEs
• EPL usually does not cover unpaid wages, superannuation, redundancy, or employee entitlements
• Workers compensation and employers liability are different products. They relate to injury or illness, not unfair dismissal.
• upcover arranges employment practices liability insurance for eligible Australian businesses.

What is an unfair dismissal claim?

An unfair dismissal claim is an application to the Fair Work Commission by an employee alleging their dismissal was harsh, unjust, or unreasonable. Employees generally need to meet eligibility rules including minimum employment period and lodge within 21 days. Small business employers may also need to consider the Small Business Fair Dismissal Code. These rules can change, so check current Fair Work guidance.

Even where the employer followed a fair process, they may still need to respond to the application and demonstrate compliance.

What can an unfair dismissal claim cost an employer?

The Fair Work Commission received 40,188 applications in 2023-24. That was the highest annual figure since the Fair Work Act 2009 commenced. Unfair dismissal was the most common lodgment type at 37% of total applications in 2024-25. 

The cost to an employer is not just the potential compensation. Unfair dismissal defence costs can include legal advice, representation at conciliation and hearings, document preparation, management time, and workplace disruption. Many unfair dismissal matters are dealt with at conciliation before a final hearing, often with a monetary settlement.

If compensation is ordered, the Fair Work Commission applies a statutory cap: the lesser of half the employee's annual base rate of pay or the compensation cap amount at the relevant time.

Fair Work matters are generally no-costs matters. Each party usually pays their own legal costs, even if they win. That means the employer's legal costs are a real exposure regardless of the outcome.

Does EPL insurance cover unfair dismissal?

Employment practices liability insurance may help with the cost of defending an unfair dismissal claim. It does not decide whether the dismissal was fair and it does not replace proper termination processes.

Depending on the policy, EPL may help with:

• Legal defence costs for responding to the claim
• Representation at conciliation or hearing
• Settlement contributions, where covered under the policy
• Compensation ordered by the FWC, subject to policy wording and limits
• Related claims such as adverse action, discrimination, or harassment connected to the dismissal

EPL responds to the claim, not the quality of the dismissal. Even when the employer followed a fair process, the cost of responding is real. The policy operates on a claims-made and notified basis. Contact the insurer or broker as soon as the business receives a Fair Work notification. Late notification can affect whether the policy responds.

What does employment practices liability not cover for unfair dismissal?

• Unpaid wages, superannuation, or employee entitlements
• Redundancy or severance pay obligations
• Fines or penalties from the Fair Work Ombudsman or other regulators
• Costs to reinstate the employee or change workplace practices
• Deliberate misconduct by the employer
• Claims the employer knew about before the policy started
• Claims not notified within the policy period

Can an unfair dismissal claim involve other allegations?

An unfair dismissal application can involve broader allegations. The employee may add claims of discrimination, sexual harassment, bullying, adverse action, or breach of contract. General protections claims involving dismissal may proceed to the Federal Circuit and Family Court of Australia if not resolved at the FWC, where legal costs and potential outcomes can be higher. These additional claims can also fall within employment practices liability cover, depending on policy wording.

For more on how these claims differ, see what is EPL insurance.

Which insurance responds to which dismissal scenario?

What triggers an unfair dismissal claim?

Fair Work considers whether the employee was given a valid reason, notified of the reason, given an opportunity to respond, and warned about performance concerns. Termination shortly after a complaint or leave request, or summary dismissal without sufficient evidence of serious misconduct, can increase claim risk. For small businesses, not following the Small Business Fair Dismissal Code is a common issue.

These risk factors do not decide whether cover applies. They help explain why dismissal disputes can become costly and why EPL is often considered by employers with staff. For a practical guide, see what not to do when terminating employees. For more on manager obligations, see the role of managers in workplace compliance.

Is unfair dismissal covered by workers compensation?

Unfair dismissal is not a workers compensation claim. Workers compensation relates to injury or illness at work. EPL relates to employment decisions and workplace conduct. If an employee was injured and then dismissed, both products may be relevant for different aspects of the dispute. For the full distinction, see what is employers liability insurance.

What do you need for an EPL quote?

You are usually asked for your ABN, industry, turnover, number of employees, HR support arrangements, recent terminations or redundancies, current or threatened claims, workplace policies, preferred limit, and whether you want standalone EPL or management liability.

upcover arranges employment practices liability insurance for eligible Australian businesses. Get a quote.

How upcover can help

upcover arranges employment practices liability insurance as part of management liability for eligible Australian businesses. Depending on insurer and policy wording, cover may help with legal defence costs and some claim outcomes for unfair dismissal, wrongful termination, bullying, harassment, discrimination, and other employment-related claims.

• 70,000+ businesses covered across Australia.
• 4.9/5 customer rating.
• 80+ insurance partners.

For related guides, see what is EPL insurance, what is employers liability insurance, and what is management liability insurance.

upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.

Frequently asked questions

Does EPL insurance cover unfair dismissal claims?

It may help with defence costs and some claim outcomes for unfair dismissal claims, subject to policy terms, limits, and exclusions.

Does EPL cover the employer's legal costs?

It may cover legal defence costs for responding to an unfair dismissal application, including representation at conciliation and hearings, subject to policy terms.

Does EPL cover settlements?

It may cover some settlement amounts if the claim is covered and the insurer consents, subject to policy terms.

Does EPL cover claims from former employees?

EPL may respond to claims from current and former employees, depending on the policy wording.

Does EPL cover discrimination alongside dismissal?

If an employee adds a discrimination or harassment allegation to a dismissal claim, EPL may respond to those additional claims, subject to policy wording.

Does EPL cover unpaid wages?

Usually not. Wages, superannuation, redundancy, and employee entitlements are commonly excluded or limited.

Is unfair dismissal covered by workers compensation?

No. Workers compensation relates to work-related injury or illness. Unfair dismissal is an employment practices claim about how the employee was dismissed.

Is EPL included in management liability?

Often, yes. Many SME management liability policies include EPL as a section alongside D&O, statutory liability, crime, and tax audit.

Does EPL make a dismissal lawful?

No. EPL insurance does not make a dismissal lawful or remove employer obligations. It may help with defence costs and some claim outcomes if a covered claim is made.

Can a small business face an unfair dismissal claim?

Yes. Small businesses can face unfair dismissal claims, although the Small Business Fair Dismissal Code may apply for employers with fewer than 15 employees.

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_{The information in this article is general in nature and provided for informational purposes only. It does not constitute personal insurance, financial, or legal advice. Fair Work Commission processes, eligibility rules, and compensation caps are subject to change. Cover types, inclusions, exclusions, and policy structure vary between insurers and policies. Always read the relevant Product Disclosure Statement before purchasing. All insurance products arranged through upcover are subject to the terms, conditions, limits and exclusions in the relevant PDS. Before deciding whether a product is right for you, consider your circumstances. upcover Pty Ltd ABN 17 628 197 437, CAR 1299211 of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.}