Calculating compensation for unfair dismissal

Here is an extract from a recent decision of the Fair Work Commission which is a very useful analysis of the principles used by the Commission when calculating compensation for unfair dismissal.

“Compensation

[96] Section 392 of the Act provides:

“392 Remedy—compensation

Compensation

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(1) An order for the payment of compensation to a person must be an order that the

person’s employer at the time of the dismissal pay compensation to the person in lieu of

reinstatement.

Criteria for deciding amounts

(2) In determining an amount for the purposes of an order under subsection (1), the

FWC must take into account all the circumstances of the case including:

(a) the effect of the order on the viability of the employer’s enterprise; and

(b) the length of the person’s service with the employer; and

(c) the remuneration that the person would have received, or would have

been likely to receive, if the person had not been dismissed; and

(d) the efforts of the person (if any) to mitigate the loss suffered by the

person because of the dismissal; and

(e) the amount of any remuneration earned by the person from employment

or other work during the period between the dismissal and the making of the

order for compensation; and

(f) the amount of any income reasonably likely to be so earned by the person

during the period between the making of the order for compensation and the

actual compensation; and

(g) any other matter that the FWC considers relevant.

Misconduct reduces amount

(3) If the FWC is satisfied that misconduct of a person contributed to the employer’s

decision to dismiss the person, the FWC must reduce the amount it would otherwise

order under subsection (1) by an appropriate amount on account of the misconduct.

Shock, distress etc. disregarded

(4) The amount ordered by the FWC to be paid to a person under subsection (1)

must not include a component by way of compensation for shock, distress or

humiliation, or other analogous hurt, caused to the person by the manner of the person’s

dismissal.

Compensation cap

(5) The amount ordered by the FWC to be paid to a person under subsection (1)

must not exceed the lesser of:

(a) the amount worked out under subsection (6); and

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(b) half the amount of the high income threshold immediately before the

dismissal.

(6) The amount is the total of the following amounts:

(a) the total amount of remuneration:

(i) received by the person; or

(ii) to which the person was entitled;

(whichever is higher) for any period of employment with the employer during

the 26 weeks immediately before the dismissal; and

(b) if the employee was on leave without pay or without full pay while so

employed during any part of that period—the amount of remuneration taken to

have been received by the employee for the period of leave in accordance with

the regulations.”

Authorities

[97] The approach to the calculation of compensation is set out in a decision of a Full Bench

of the Australian Industrial Relations Commission in Sprigg v Paul’s Licensed Festival

Supermarket.

14 That approach, with some refinement, has subsequently been endorsed and

adopted by Full Benches of the Commission in Bowden v Ottrey Homes Cobram and District

Retirement Villages inc T/A Ottrey;

15 Jetstar Airways Pty Ltd v Neeteson-Lemkes16 and

McCulloch v Calvary Health Care (McCulloch).

17

[98] I have had regard to the above authorities.

The effect of the order on the viability of the Respondent

[99] The Respondent did not submit that an order of compensation would affect the viability

of the Respondent.

The length of Ms Duncan’s service

[100] Ms Duncan was employed for a period of approximately 11.5 years. This is a very long

period of time.

The remuneration that Ms Duncan would have received, or would have been likely to receive,

if she had not been dismissed

[101] I consider that Ms Duncan would have likely to have remained employed for at least a

period of one year. She was a skilled and loyal employee. She had not been addressed in

respect of her costings being out and when asked about her previous months’ costings, it is clear

that this did form the substantial reason for the dismissal; Kathy’s situation did.

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[102] It was entirely unfair for Mr Pfeiffer to place blame on Ms Duncan on account of

Kathy’s hospitalisation, and a rational employer would have been grateful that an employee as

skilled and experienced as Ms Duncan could maintain business continuity in the face of the

temporary loss of Kathy.

[103] I consider that one year is the likely period of time on account of the fact that Ms Duncan

had become entitled to long service leave and it is a valuable entitlement in addition to four

weeks of annual leave per annum. Ms Duncan had no intention of leaving the employment,

and one year is an appropriate period to reassess life’s experiences, goals and location for work.

[104] I consider that Ms Duncan would have received remuneration of $87,750 per annum for

one year’s employment.

The efforts of Ms Duncan (if any) to mitigate the loss suffered because of the dismissal

[105] I am satisfied that Ms Duncan made every effort to mitigate her loss by applying for

appropriate roles suitable to the geographical area and the skills and experience she possesses.

I note that she secured suitable alternative employment approximately six weeks later at the

rate of $65,000 per annum.

The amount of any remuneration earned by the person from employment or other work during

the period between the dismissal and the making of the order for compensation and the amount

of any income reasonably likely to be so earned by Ms Duncan during the period between the

making of the order for compensation and the actual compensation

[106] Ms Duncan was paid four weeks’ pay in lieu of notice on dismissal. This is recorded

on the separation certificate as an amount of $6,840.

[107] In the period 5 December 2022 to 24 October 2023 (that being one year from the date

of the dismissal), Ms Duncan is likely to earn in her new employment the amount of $65,000

per annum. The period is six weeks short of one year, therefore the amount is 46 weeks. The

total remuneration likely to be earned in the new employment is $57,500.

Other relevant matters

[108] I have already taken into account Ms Duncan’s lengthy period of service in determining

how likely she would have remained in the employment had she not been dismissed. I have

also taken into account the relative small size of the business in determining how much

compensation should be awarded.

[109] I do not consider there are other relevant matters affecting the amount of compensation

to be awarded.

Misconduct reduces amount

[110] Section 392(3) of the Act requires that if the Commission is satisfied that the misconduct

of a person contributed to the employer’s decision to dismiss the person then the Commission

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must reduce the amount it would otherwise order by an appropriate amount on account of the

misconduct.

[111] The section requires that consideration be given by the Commission, amongst other

things, as to whether a person’s misconduct contributed to the decision to dismiss an employee

even if the Commission has found that there was no valid reason for the person’s dismissal.

However, if there was no valid reason for the dismissal that may be relevant to the

Commission’s decision as to the appropriate amount by which the amount of compensation

should be reduced.18

[112] I am not satisfied that Ms Duncan engaged in any misconduct. Accordingly, I cannot be

satisfied a reduction should be made.

Shock, distress etc. disregarded

[113] I confirm that any amount ordered does not include a component by way of

compensation for shock, distress or humiliation, or other analogous hurt caused to Ms Duncan

by the manner of the dismissal.

Compensation Cap

[114] I must reduce the amount of compensation to be ordered if it exceeds the lesser of the

total amount of remuneration received by the applicant, or to which the applicant was entitled,

for any period of employment with the employer during the 26 weeks immediately before the

dismissal, or the high income threshold immediately prior to the dismissal.

[115] The high income threshold immediately prior to the dismissal was $162,000, and the

amount for 26 weeks was $81,000. The amount of compensation the Commission will order

does not exceed the compensation cap nor the amount that Ms Duncan was entitled to during

the 26 weeks immediately before the dismissal.

Payment by instalments

[116] I am mindful that the sum to be ordered may not be readily available to the Respondent

within 14 days, which is my usual period of time to allow for payment when ordering

compensation. Accordingly, I will order the compensation to be made in four payments as

specified in the order.

Order of compensation

[117] I have determined that Ms Duncan would have been likely to receive $87,750 in

remuneration if she had not been dismissed. From this amount there will be a deduction of

$6,840 on account of four weeks’ payment made to her, and a further $57,500 deduction on

account of remuneration earned and to be earned by her in the period I consider she would have

remained employed by the Respondent.

[118] The amount to be paid to Ms Duncan is $23,410 gross, less tax as required by law.

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[119] In addition, the Respondent is to pay superannuation at the rate of 10.5% being an

amount of $2,458.05 into Ms Duncan’s superannuation fund.

[120] The above amounts are to be paid as follows:

(a) $7,800 gross, less taxation by 11 April 2023;

(b) $7,800 gross, less taxation by 26 April 2023;

(c) $7,810 gross, less taxation by 9 May 2023; and

(d) $2,458.05 superannuation into Ms Duncan’s superannuation account by 23 May

2023.

[121] An Order of compensation [PR760648] will be issued concurrently with this decision.”

 

Duncan v PKK Transport Pty Ltd ATF the PKK Family Trust T/A Ashtons Removals [2023] FWC 444 delivered 28 March 2023