The appropriate test for capacity is not whether the employee was working to their personal best, but whether the work was performed satisfactorily when looked at objectively.
Inability to perform the inherent requirements of the position may be a valid reason for the termination of an employee. This issue was considered in J Boag & Son Brewing Pty Ltd v Button: 
Where an employer relies upon an employee's incapacity to perform the inherent requirements of his position or role, it is the substantive position or role of the employee that must be considered and not some modified, restricted duties or temporary alternative position that must considered. [emphasis added].
The Fair Work Act protects an employee from being dismissed due to a temporary absence for illness or injury for up to three months, or up to three months in total over a 12 month period, or where an employee is on paid personal/carer's leave for the duration of the absence. After three months it becomes a question of whether the employee is likely to return to their duties in the short or medium term. Medical evidence could have a bearing on the adequacy of the reason for termination.
Where an employee has been dismissed for poor performance, another relevant criterion is whether or not they were warned about their performance.
 Walton v Mermaid Dry Cleaners Pty Limited  IRCA 267 (12 June 1996), [(1996) 142 ALR 681 at p. 684].
 Crozier v Palazzo Corporation Pty Limited t/as Noble Park Storage and Transport, Print S5897 (AIRCFB, Ross VP, Acton SDP, Cribb C, 11 May 2000) at para. 62, [(2000) 98 IR 137].
 J Boag & Son Brewing Pty Ltd v Button  FWAFB 4022 (Lawler VP, O'Callaghan SDP, Williams C, 26 May 2010) at para.22, [(2010) 195 IR 292].
 Fair Work Act s.387(e).