Dismissed for Being Unfit for Work? Know Your Rights Around Capacity

Most people know they can be dismissed for misconduct or poor performance. But there's another reason some employers give when letting someone go: a lack of capacity. Unlike performance issues, which involve how well you’re doing the job, capacity is about whether you’re able to do the job at all — whether that’s due to illness, injury, or some other long-term limitation.

While that might sound straightforward, the reality is far more complex — and many employees are dismissed under the banner of "lack of capacity" in ways that can be unfair, unlawful, or both.

Capacity, in simple terms, refers to an employee’s ability to fulfil the inherent requirements of their position. If someone becomes physically or mentally unable to carry out key parts of their job, the employer may argue that the person no longer has the capacity to continue working in that role. But this doesn’t give employers free rein to terminate whenever an employee faces health issues or time off work. There’s a process they must follow — and many don’t get it right.

The Commission has made it clear in multiple decisions that employers must rely on clear, objective evidence when making capacity-related decisions. In one case, Birdi v Rail Corporation NSW, the employee was declared medically unfit to work as a train guard, and there were no alternative roles available that met the employer’s safety requirements. Because the assessment was thorough and grounded in evidence, the dismissal was upheld. Similarly, in Ermilov v Qantas Flight Catering, the Commission accepted that long-term physical incapacity — even in the face of competing medical opinions — could still justify termination, so long as the employer properly investigated the situation.

But not every case goes that way. Employers must consider more than just convenience. For example, in Harte v Hunt Boilers, the employee had been placed on lighter office duties following an injury. While he couldn’t return to his original role, the Commission examined whether the employer genuinely considered alternatives. In that case, the dismissal was upheld, but the fairness of the process was still critical.

Another important reminder comes from J Boag & Son Brewing v Button, where an employee with a medical condition was on restricted duties. The Commission stressed that it’s the inherent requirements of the original position — not a temporary workaround — that must be considered. The employee also breached company policy by drink-driving, which supported the employer’s decision. Still, the case demonstrates that both the employee’s condition and conduct are considered together.

There are also cases where capacity isn’t physical at all. In one decision involving the Department of Defence, an employee was dismissed after losing a required security clearance — something they needed to legally do their job. The Commission ruled that this was a legitimate loss of capacity, even though the employee’s technical skills hadn’t changed.

These examples show that employers must consider more than assumptions. The law doesn’t allow them to jump straight to termination just because someone is off work or facing health struggles. A dismissal for lack of capacity can only be justified if the employer takes steps to understand the situation, obtains reliable medical advice, and genuinely explores whether the person can still do the job — or be placed somewhere else.

It’s not just physical injuries that come into play. Mental health issues — including stress, anxiety, PTSD or depression — can affect capacity, and employers must handle these situations sensitively and lawfully. Dismissing someone based on stigma, assumption, or a vague idea that they’re “not in the right headspace” to work can be both unfair and discriminatory.

The law does not expect your employer to keep your job open indefinitely. But it does expect them to make a reasonable effort to understand your circumstances, seek proper medical information, and consider whether you might be able to return — even in a reduced or modified form — before moving to termination.

In unfair dismissal claims, the Fair Work Commission looks at whether the employer had a valid reason for dismissal related to your capacity, whether they made that decision fairly, and whether you were given a chance to respond. If the decision was rushed, based on assumption, or failed to consider reasonable alternatives — the dismissal might be found to be harsh, unjust or unreasonable.

If you’ve been dismissed on the basis that you were “no longer fit for work,” but weren’t asked to supply medical evidence, weren’t consulted, or were still in the process of recovering — you may be entitled to challenge the decision.

At Workplace Justice, we help employees stand up when they’ve been pushed out due to illness, injury or capacity-related issues. We understand that recovery takes time — and that your employer doesn’t get to decide alone whether you’re finished.

Before accepting their word for it, let us help you challenge the process — and make sure it was fair.