Compensation for unfair dismissal

This  extract from a Fair Work Commission decision in an unfair dismissal case sets out the orthodox legal principles which are used to assess compensation for unfair dismissal.

“Remedy

[25] In the circumstances where I have found Mr Dimkovski was protected from unfair

dismissal at the time of being dismissed and that he has been unfairly dismissed, s.390 of the

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Act prescribes that a remedy is available. Accordingly, I am required to determine whether to

order the reinstatement of Mr Dimkovski or, if I am satisfied reinstatement is inappropriate, to

order the payment of compensation if I am satisfied that such an order is appropriate in all the

circumstances.11

[26] Mr Dimkovski advised he did not seek the remedy of reinstatement and submits that

there has been a loss of trust and confidence between himself and the Respondent. Noting this

and the Respondent’s failure to deal with the application in any substantive way, I am satisfied

that reinstatement is inappropriate (s.390(3)(a)).

[27] I must therefore consider whether it is appropriate in all the circumstances to make an

order for payment of compensation (s.390(3)(b)).

[28] Section 392 of the Act sets out the criteria for determining the amount of compensation

that may be ordered:

“392 Remedy—compensation

Compensation

(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.

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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

(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.”

[29] In considering each of the criteria in s.392 of the Act, it is useful to refer to the

restatement of principles to be applied in the assessment of compensation in Mr Robert Johnson

v North West Supermarkets T/A Castlemaine IGA:

“[41] The well-established approach to the assessment of compensation under s 392 is to

apply the ‘Sprigg formula’, derived from the Australian Industrial Relations

Commission Full Bench decision in Sprigg v Paul Licensed Festival Supermarket. This

approach was articulated in the context of the current legislative framework in Bowden

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v Ottrey Homes Cobram and District Retirement Villages. Under that approach, the first

step to be taken in assessing compensation is to consider s.392(2)(c), that is, to determine

what the applicant would have received, or would have been likely to receive, if the

person had not been dismissed. In Bowden this was described in the following way:

“[33] The first step in this process – the assessment of remuneration lost – is a

necessary element in determining an amount to be ordered in lieu of

reinstatement. Such an assessment is often difficult, but it must be done. As the

Full Bench observed in Sprigg:

‘… we acknowledge that there is a speculative element involved in all such

assessments. We believe it is a necessary step by virtue of the

requirement of s.170CH(7)(c). We accept that assessment of relative

likelihoods is integral to most assessments of compensation or damages

in courts of law.’

[34] Lost remuneration is usually calculated by estimating how long the

employee would have remained in the relevant employment but for the

termination of their employment. We refer to this period as the ‘anticipated

period of employment’…”

[42] The identification of this starting point amount ‘necessarily involves assessments

as to future events that will often be problematic,’ but, as the Full Bench observed in

McCulloch v Calvary Health Care Adelaide, ‘while the task of determining an

anticipated period of employment can be difficult, it must be done.’

[43] Once this first step has been undertaken, various adjustments are made in

accordance with s.392 and the formula for matters including monies earned since

dismissal, contingencies, any reduction on account of the employee’s misconduct and

the application of the cap of six months’ pay. This approach is however subject to the

overarching requirement to ensure that the level of compensation is in an amount that is

considered appropriate having regard to all the circumstances of the case.” 12

(my emphasis – references omitted)

[30] The Sprigg formula was discussed and refined in Ellawala v Australian Postal

Corporation13 as follows:

“[31] The principles applicable to determining an amount to be ordered in lieu of

reinstatement are dealt with in Sprigg. In that case the Full Bench endorsed the following

approach:

Step 1: Estimate the remuneration the employee would have received, or have

been likely to have received, if the employer had not terminated the employment

(remuneration lost).

Step 2: Deduct monies earned since termination.

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Step 3: Discount the remaining amount for contingencies.

Step 4: Calculate the impact of taxation to ensure that the employee receives the

actual amount he or she would have received if they had continued in their

employment.

[32] Any amount provisionally arrived at by application of these steps is subject to

whether offsetting weight is given to other circumstances, including those that need now

to be taken into account under paragraphs 170CH(7)(a), (b) and (c). The legislative cap

on the amount able to be ordered is then applied pursuant to ss.170CH(8) and (9).

[33] The first step in this process – the assessment of remuneration lost – is a necessary

element in determining an amount to be ordered in lieu of reinstatement. Such an

assessment is often difficult, but it must be done. As the Full Bench observed in Sprigg:

“…we acknowledge that there is a speculative element involved in all such

assessments. We believe it is a necessary step by virtue of the requirement of

s.170CH(7)(c). We accept that assessment of relative likelihoods is integral to

most assessments of compensation or damages in courts of law.”

[34] Lost remuneration is usually calculated by estimating how long the employee

would have remained in the relevant employment but for the termination of their

employment. We refer to this period as the “anticipated period of employment”. This

amount is then reduced by deducting monies earned since termination. Only monies

earned during the period from termination until the end of the “anticipated period of

employment” are deducted. An example may assist to illustrate the approach to be taken.

[35] In a particular case the Commission estimates that if the applicant had not been

terminated then he or she would have remained in employment for a further 12 months.

The applicant has earned $3,000 a month for the 18 months since termination, that is

$54,000. Only the money earned in the first twelve months after termination – that is

$36,000 – is deducted from the Commission’s estimate of the applicant’s lost

remuneration. Monies earned after the end of the “anticipated period of employment”,

12 months after termination in this example, are not deducted. This is because the

calculation is intended to put the applicant in the financial position he or she would have

been in but for the termination of their employment.

[36] The next step is to discount the remaining amount for “contingencies”. This step is

a means of taking into account the possibility that the occurrence of contingencies to

which the applicant was subject might have brought about some change in earning

capacity or earnings.

[45] In relation to the fourth step set out in Sprigg we note that the usual practice is to

settle a gross amount and leave taxation for determination.”

(my emphasis, references omitted)

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[31] In Balaclava Pastoral Co Pty Ltd t/a Australian Hotel Cowra v Darren Nurcombe,

14 the

Full Bench stated that in quantifying compensation, it is necessary to set out with some

precision the way in which the various matters required to be taken into account under s.392(2)

(and s.392(3) if relevant), and the steps in the Sprigg formula, have been assessed and

quantified. The Full Bench also proffered that the way in which a final compensation amount

has been arrived at should be readily apparent and explicable from the reasons of the decisionmaker.

[32] I consider it is appropriate in all the circumstances to make an order for payment of

compensation and will assess compensation having regard to these considerations.

Remuneration that would have been received if the dismissal had not occurred – s.392(2)(c)

[33] This factor requires a speculative assessment of what might have occurred had Mr

Dimkovski not been dismissed on 17 November 2022 and how long he might otherwise have

remained employed by the Respondent. I have noted that in the 10 months of his employment,

Mr Dimkovski had no shortage of work and it would appear he had been asked by Mr Atay to

work at three different sites. I have also noted Mr Dimkovski was placed at Union Square and

that Mr Atay appears to have reacted negatively to Mr Dimkovski’s reluctance to continue

working at Leo’s. I am not persuaded by the submission from Mr Dimkovski that he would

have continued working for the Respondent for a further 10 years until his retirement. While I

accept Mr Dimkovski liked working at the Union Square location, I have formed the view,

based on the material before the Commission, that the Respondent is a very poor employer.

15 It

would appear the Respondent operated an opaque, irregular sub-contracting business model and

that Mr Atay applied whatever rates of pay he pleased, paying scant regard to both his

contractual obligations to Mr Dimkovski and the terms and conditions of the Cleaning Services

Award 2020. The account Mr Dimkovski gave of his interactions with Mr Atay and the

complete failure of Mr Atay to engage with the Commission’s processes leave the impression

that Mr Atay is an unimpressive and unscrupulous business operator. I am not persuaded that

Mr Atay’s treatment of Mr Dimkovski would have remained tolerable for much longer, let alone

10 years. Certainly I do not consider their ongoing working relationship was at all sustainable.

I also cannot be certain that the Respondent would have retained the Union Square work for

that period. Therefore, I am only prepared to find that Mr Dimkovski would have been

employed for another 6 months/26 weeks at most.

[34] The Respondent does not appear to have applied the correct Saturday and Sunday rates

when paying Mr Dimkovski for his work at Union Square. Applying them,16 I calculate 26

weeks paid at $259.44 gross per week (3 hours x $37.55 plus 3 hours x $48.93) produces a total

of $6,745.44 gross and find this to be the starting point of my calculation of appropriate

compensation.

Remuneration earned – s.392(2)(e) and income reasonably likely to be earned – s.392(2)(f)

and (g)

[35] Remuneration earned from the date of dismissal to the date of any compensation order

is required to be taken into account under s.392(2)(e) of the Act. Remuneration reasonably

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likely to be earned from the date of any compensation order to the date the compensation is

paid is also to be taken into account (under s.392(2)(f) of the Act).

[36] Mr Dimkovski produced evidence that he had earned remuneration from employment

totalling $421.07 since being dismissed,

17 which comprised $355.63 earnings from work for

Premier Cleaning Services Pty Ltd and $65.44 for work on 3 March 2023 with Borg Property

Services. Mr Dimkovski commenced his employment with Borg Property Services on 3 March

2023 for 12.5 hours per week on a 4pm – 6.30pm shift at the part time level 1 Cleaner rate of

pay (which is currently $29.59).18 At the time of the hearing, Mr Dimkovski was imminently

expecting a further payment for the pay period from 6 March 2023 – 19 March 2023. I calculate

his earnings for the 6-19 March 2023 pay period to be $739.75 and I further calculate that there

would be another $369.87 payable for the additional week worked immediately prior to the date

of this decision. These three components produce a total of $1,530.69. As to the consideration

in s.392(2)(f) of the Act, for the period until the actual compensation pursuant to the order I

intend to make, Mr Dimkovski would earn an additional $739.75 from his employment with

Borg Property Services. Adding the s.392(2)(e) and s.392(2)(f) components together produces

a total of $2,270.44.

Viability – s.392(2)(a)

[37] There was no evidence before me that would support a finding that an order for

compensation will affect the viability of the Respondent in any material way and as such, there

will be no deduction made having regard to this factor.

Mitigation efforts – s.392(2)(d)

[38] In considering whether Mr Dimkovski has taken steps to mitigate the loss suffered as a

result of the dismissal, I note that Mr Dimkovski made enquiries on ‘industry job boards’ and

with his contacts and applied for 5 jobs on Seek before securing alternative employment.

19 I

consider his job searching was likely punctuated by the Christmas/New Year holiday period

and note that he is limited to working part time.20 Having regard to these matters, I am not

inclined to make any adjustment that would reduce an award of compensation.

Length of service – s.392(2)(b) any other matters – s.392(2)(g)

[39] Mr Dimkovski was employed for 10 months. This is not an extensive period of time and

there will be no adjustment either way on account of this factor.

[40] A distinguishing feature of this case is that on 3 March 2023, Mr Dimkovski commenced

employment with a new employer in a position from which he derives a weekly wage that is

almost twice as much as his weekly earnings for his work at Union Square for the Respondent.

Any remuneration likely to be earned after the date of actual compensation (s.392(2)(f)) date to

the end of the period of anticipated employment determined for the purpose of s.392(2)(c) is a

relevant amount to be taken into account under s.392(2)(g) in accordance with the Sprigg

formula.21 Continuing in the new role during the 6-week balance of the 26-week period I have

determined that Mr Dimkovski would have remained in employment with the Respondent

would see Mr Dimkovski earning $369.87 gross per week and an additional total of $2,219.22.

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[41] Adding this $2,219.22 to the actual and likely income for Mr Dimkovski for the period

from the date of his dismissal until the actual compensation ($2,270.44)

22 produces the total of

$4,489.66. Deducting this from the $6,745.44 starting point would leave $2,255.78

compensation.

[42] I observe that Mr Dimkovski is 57 years old and served in his position without

performance or conduct issues until he was terminated. I accept Mr Dimkovski held the

expectation that he would have remained employed, although I disagree this would have been

for 10 years for the reasons I have outlined above.

Misconduct – s.392(3)

[43] I am not persuaded there is evidence of misconduct and as such, this factor does not

arise in the case.

Compensation cap – s.392(5)&(6)

[44] Section 392(5) of the Act dictates that the compensation available to the applicant is

capped at the lesser of the following two figures.

  • half of the high income threshold at the time of the dismissal (i.e. $81,000.00); or
  • the higher of total amount of remuneration that Mr Dimkovski either received or to

which he was entitled, during the 26 weeks of his employment immediately before his

dismissal.

[45] Having regard to the payslips he produced,

23 I have calculated the total amount of

remuneration to which Mr Dimkovski was entitled in the 26 weeks immediately before the

dismissal (19 May 2022 – 16 November 2022) was $7070.50.

24 Since this amount is less than

half of the income threshold at the time of the dismissal ($81,000.00), the compensation cap for

Mr Dimkovski is $7,070.50 gross.

[46] The amount of compensation I intend to order does not exceed the compensation cap.

Instalments – s.393

[47] There having been no submissions made on this point, I do not consider that there is any

reason for compensation to be made by way of instalments.

Shock, Distress – s.392(4)

[48] The amount of compensation calculated must not and will not include a component for

shock, distress, humiliation or other analogous hurt caused to Mr Dimkovski by the manner of

his dismissal.

Conclusion

[49] I am satisfied that Mr Dimkovski was protected from unfair dismissal, that the dismissal

was unfair and that order for compensation is an appropriate remedy in all the circumstances.

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In this case, I have noted that the Respondent appears not to have paid Mr Dimkovski notice on

termination, his annual leave accrual and his wages for the work at Leo’s on 31 October 2023.

I also note that it would appear the Respondent did not apply the correct penalty rates to Mr

Dimkovski’s work at Union Square. These are not matters about which the Commission can

make orders when determining an unfair dismissal application. Mr Dimkovski will need to

pursue such entitlements for non-payment and underpayment in a Court of competent

jurisdiction.

[50] The overarching requirement in assessing compensation is to ensure that the level of

compensation is in an amount that is considered appropriate having regard to all the

circumstances of the case.25 It has been observed by previous Full Benches of the Commission,

that if the application of the Sprigg formula ‘yields an amount which appears either clearly

excessive or clearly inadequate’ then the Commission should reassess the assumptions made or

reached.

26

[51] My assessment is that in all the circumstances of this case, it is appropriate to award

compensation to Mr Dimkovski for the 15-week period between his dismissal and his

commencement with Borg Property Services on 3 March 2023 based upon the rates of pay in

the Cleaning Services Award 202027 less the only remuneration he earned during that time

($355.63).

28 This amount totals $3,535.97 and is calculated as follows:

  • 15 weeks x $259.44 (3 hours x $37.55 plus 3 hours x $48.93) = $3,891.60 minus

$355.63.

[52] To this $3,535.97, I will add 10.5% superannuation, which gives a gross figure of

$3,907.24.

[53] An order29 requiring the payment of $3,907.24 less taxation as required by law before 8

April 2023 will be issued with this decision.”

 

Dimkovski v Majorsite Property Group Pty Ltd  [2023] FWC 726 delivered 27 March 2023 per Clancy DP