Compensation for unfair dismissal and the statutory cap

Yesterday, I published a blog or post which was constituted by an entire decision of the Fair Work Commission on the issue of how to calculate compensation for unfair dismissal. Quite co-incidentally, on the same day that decision was published by the Commission, it also published another unfair dismissal decision on the same issue, and I have decided to publish the whole decision on my website again because of its brevity and because it deals inter alia with an interesting issue which is the approach of the Commission when an assessment of compensation results in a sum which exceeds the statutory cap.

“Introduction

[1] The Commission dealt with and determined Mr Andy Cowper’s unfair dismissal application in a decision handed down on 23 September 2019. It found he had been unfairly dismissed by St Joseph’s Flexible Learning Centre (“the Centre”) on the basis that his dismissal was at least harsh and unreasonable. The Commission then turned to consider what is an appropriate remedy in the context of the provisions contained in ss.390 and 392 of the Fair Work Act 2009 (Cth) (“the Act”). It concluded at [177] that it was not prepared to make an order for reinstatement based on what it considered to be a breakdown in the necessary relationship of trust and confidence between Mr Cowper and his former employer.

[2] In turning to deal with the issue of compensation the Commission noted that there was only a limited amount of material before it at the time dealing with the issue of compensation by way of remedy. It also noted that the parties had indicated that they were of the view that it was appropriate for further submissions and evidence to be provided about any consideration of an appropriate amount of compensation.

[3] The Commission accordingly established a timeframe for further submissions to be provided by the parties, and indicated that it would then determine the matter. This decision accordingly deals with the issue of what amount of compensation is appropriate in all the circumstances by way of remedy.

[4] The Applicant provided written submissions on 3 October 2019. The Respondent then provided its written submissions, together with a witness statement of Ms Chloe Hand on 10 October 2019. The Applicant provided further submissions in reply on 11 October 2019, and the Commission was then provided with further reply submissions by the Respondent on 14 October 2019.

[5] It is also noted that in the submissions provided on behalf of Mr Cowper he continues to press for reinstatement by way of remedy, and provided further submissions in support of this outcome. However, the Centre did not provide further submissions going to the issue of reinstatement on the basis that it understood this issue had already been determined. I also consider that the issue of whether reinstatement is an appropriate outcome by way of remedy has been dealt with in the decision handed down on 23 September 2019 and, regardless of the Applicant’s views about the merits or otherwise of that decision, it is not appropriate for it to be revisited now. This obviously does not preclude the processes of appeal against a decision of the Commission, as provided for under the Act, from being pursued.

Relevant Legislation

[6] Section 390(3) of the Act makes clear that the Commission must not order the payment of compensation unless it is satisfied that reinstatement is inappropriate, and that payment of compensation is appropriate in all the circumstances.

[7] Section 392 of the Act continues to state:

“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.

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.” 1

The Submissions and Evidence

The Applicant

[8] Mr Cowper indicated in his submissions that at the time he was dismissed his annual gross earnings were $85,953.92. He continues to submit that it is appropriate in all the circumstances to award the maximum amount of compensation provided for under the Act. In his submission the evidence in the proceedings makes clear that he had not received any warnings related to his performance or conduct during the time he was employed, or been placed on any form of performance management program, and he can be said to have had an exemplary employment record during that time. There was accordingly nothing to suggest that his employment would not have continued indefinitely in the foreseeable future, but for his unfair dismissal. Therefore, it is appropriate for an amount equivalent to the maximum period of 26 weeks’ compensation to be ordered.

[9] Mr Cowper was employed for a period of 3 years and 3 months and submits that this should be viewed as a “lengthy period of service,” 2 which again provides support for the maximum amount of compensation to be ordered.

[10] As to his current earnings, and his attempts to mitigate his loss, he submits that he has applied for many jobs since being dismissed, but has had difficulty finding other work. His desire to continue to work as a Youth Worker has also been impacted by potential employers having knowledge of these proceedings, and by the fact that the Centre provided a report to the Commission for Children and Young People about the events of 23 October 2017. This was done without a valid reason, and has meant he has been unable to return to his chosen profession as a Youth Worker.

[11] He has also suffered significant and ongoing financial loss, as well as diminished employability, and his career progression, and professional reputation has been significantly impacted. As indicated, his earning capacity has also been affected, and in the six months after being terminated he was only able to obtain limited work as a contract labourer, earning a gross amount of $17,212.50 during that time. A series of invoices issued by Mr Cowper between 8 June 2018 and 8 December 2018 concerning these payments were attached to his submission.

[12] Mr Cowper submits that in these circumstances the Commission should make no reduction to the total amount of compensation it is able to award. In addition, a strict application of the Sprigg formula 3 could potentially leave an amount that is inadequate in all the circumstances. He refers to the decision of the Full Bench in Smith v Moore Paragon Australia Ltd4 in this context, and submits it is authority for the proposition that if the Sprigg formula yields an amount that is clearly inadequate, then the Commission should reassess that outcome in order to arrive at an amount that is appropriate, having regard to all the circumstances of the case.

[13] He has now lost the security associated with full-time employment and, in his submission, the Centre should not be rewarded by having the amount of compensation reduced, in circumstances where the Commission has found he was at no fault in the sequence of events that led to his employment being terminated. The Commission has also made no findings of misconduct and, therefore, no reduction should be made on this account.

[14] He accordingly seeks an order for payment of compensation of 26 weeks’ pay, being a total amount of $42,976.96.

[15] Mr Cowper also objects to the content of the witness statement of Ms Chloe Hand, filed with the Respondent’s submissions on 10 October 2019, being admitted as evidence. He submits that this was evidence that the Centre could have adduced during the course of the substantive proceedings, but chose not to. In addition, evidence about his disciplinary record should be confined to evidence that was before the Commission at the time of the hearing, and disciplinary issues raised ‘after the event’ should not provide a basis to reduce the amount of compensation that would otherwise have been ordered.

[16] Mr Cowper also submits that he is entitled to be compensated for the harm and anguish he has suffered as a result of his unfair dismissal, which has prevented him from returning to the workforce in his chosen profession, and from receiving a comparable level of income.

The Respondent

[17] The Centre submits at the outset that the well-established formula derived from the decision in Sprigg v Paul’s Licensed Festival Supermarket (“Sprigg”), 5 and applied in the context of the Act in Bowden v Ottrey Homes Cobram and District Retirement Villages (“Bowden”),6 should be used in the assessment of compensation in this matter. It also acknowledges that it has been established that where the Sprigg formula yields an amount that is clearly excessive or clearly inadequate, then the Commission may reassess the assumptions made in coming to that figure.

[18] In its submission it is appropriate to order an amount of compensation in the sum of $13,258.90 in all the circumstances of this matter.

[19] It agrees that Mr Cowper’s length of service was 3 years and 3 months, but submits that this should not be viewed as a lengthy period of employment, and is therefore a neutral factor in assessing any amount of compensation to be ordered.

[20] It continues to rely on the evidence of Ms Hand in the earlier proceedings to submit that at the time of the incident that eventually led to the termination of Mr Cowper’s employment the Centre was considering taking disciplinary action against him for reasons unconnected to that incident. It also notes in this context that the Commission in its decision indicated that it had difficulty in reaching a “firm conclusion” about whether Mr Cowper had been deliberately dishonest in the responses he provided to the Centre after the events that occurred on 23 October 2017. In its submission, “This is not a case of an employee of long standing with an otherwise unblemished employment record whose employment could reasonably be expected to continue for a considerable time.” 7

[21] It also provided a further witness statement from Ms Hand, who is the Network Co-Principal of Youth+ South East Flexible Schools Network (VIC/TAS). She indicated in her evidence, under the heading “Intention to discipline,” that she had made reference in her previous witness statement to issues concerning Mr Cowper’s honesty and ability to follow reasonable instructions, as well as to staff complaints concerning his differential treatment of male and female staff.

[22] She continued to state that at the time of the incident on 23 October 2017 she was intending to discipline him in regard to an issue concerning personal leave, and about allegations of differential treatment of female and male staff. She was seeking advice at the time from the Industrial Relations team at the Catholic Education Office, and intended to return to these matters at the resolution of the process concerning the events of 23 October 2017.

[23] Her evidence also indicated that if Mr Cowper had not been dismissed he would have been issued with a warning as a consequence of what occurred on 23 October 2017, and would separately have been put through a disciplinary process in regard to the other matters. That process is detailed and can take time to work through, depending on whether or not an investigation is required. It was possible that termination of employment could have been an outcome from those processes, depending upon how they played out. Ms Hand concluded by stating, “In these circumstances, given the various disciplinary issues and their cumulative effect, Andy’s long term employment was not guaranteed.” 8

[24] The Centre continues to submit that “considerable doubt exists” 9 about whether Mr Cowper’s employment would have continued beyond October 2018. He also received three weeks’ pay in lieu of notice, being an amount of $4,958.76, meaning he was effectively paid until the end of June 2018. The anticipated period of future employment for the purposes of the Sprigg formula should therefore be four months, being the period from July to October 2018. The consequent lost remuneration would therefore be $28,596.21, based on Mr Cowper’s gross weekly earnings of $1,652.96 multiplied by 17.3, being the number of weeks between July and the end of October.

[25] In addition, Mr Cowper provided no evidence of his attempts to obtain other work, and his varied work history, prior to his employment at the Centre, makes it reasonable to expect he could have found other alternative employment after August 2018 had he been actively looking for work.

[26] The Centre also submits that his reliance on the harm and anguish he has suffered to support the view that no deduction should be made as a consequence of his post-dismissal earnings, is contrary to the Act, which provides that no allowance can be made for any shock, distress or humiliation caused by the employee’s dismissal. Therefore, those submissions do not provide a sound basis for departing from the usual rule that compensation is reduced by post-dismissal earnings, and his earnings of $12,997.50 for work performed in the period from July to October 2018 should therefore be deducted, leaving an amount of $15,598.71. In its submission it is also appropriate to reduce this amount by 15% on the basis that there is significant doubt about the genuineness of Mr Cowper’s efforts to mitigate his loss.

[27] It therefore submits, in conclusion, that an amount of compensation in the sum of $13,258.90, which represents approximately 8 weeks’ pay, is appropriate in all the circumstances.

Consideration

[28] It is evident from previous authorities that it is necessary to take into account all of the circumstances involved in a particular matter in considering any order for an amount of compensation. The Commission is also required to have a specific regard to the matters set out in s.392, and in sub section (2)(a) – (g) and (3), in particular. As made clear by the parties the long established approach to the assessment of compensation requires that the formula derived from the Full Bench decision in Sprigg is to be applied as well. This approach was most recently confirmed in the context of the present legislative framework by the Full Bench in Bowden. I have accordingly sought to determine the matter on the basis of the statutory framework and those authorities that I consider relevant.

The effect of the order on the viability of the Centre

[29] The Centre did not address this issue in its submissions and there is no suggestion that any order made by the Commission would be likely to impact on the viability of the Centre.

The length of service

[30] Mr Cowper was employed for a period of 3 years and 3 months. He submits that this is a lengthy period of service. The Centre disagrees. I am satisfied that he can be said to have been employed by the Centre for a reasonable period at the time his employment was terminated, particularly given the challenging and complex nature of the work environment. This provides some support for increasing the amount of compensation to be ordered.

Remuneration that would have been received, or would likely to have been received if the dismissal had not occurred

[31] One of the most important matters to be determined is what the employee would have received by way of remuneration, or would have been likely to receive, if they had not been dismissed. This was described in Bowden, citing Ellawala v Australian Postal Corporation, 10 in the following terms:

“[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.” 11

[32] The identification of this amount obviously involves assessments about future events that will often be problematic, but as the Full Bench observed in McCulloch v Calvary Health Care Adelaide, 12 “while the task of determining an anticipated period of employment can be difficult, it must be done.”13

[33] It is noted at the outset that the Centre seeks to rely in this context on the additional evidence contained in the witness statement of Ms Chloe Hand, dated 10 October 2019, that was filed in conjunction with its submissions on the issue of compensation. Mr Cowper submits this evidence should not be admitted as the Centre could have provided it during the course of the substantive proceedings, but elected not to do so.

[34] I am satisfied, in response, that it is appropriate to admit this evidence. The Commission is now dealing at first instance with the issue of compensation on the basis that both parties had previously acknowledged the matter had not been adequately addressed in the submissions and evidence provided previously in the substantive proceedings.

[35] I also accept that this evidence could have been provided in the earlier proceedings, but both parties acknowledged in those proceedings that the issue would need to be revisited, depending on the nature of the Commission’s decision on the issue of whether Mr Cowper was unfairly dismissed. The Commission has now determined that matter and found he was unfairly dismissed, but that reinstatement is not an appropriate course by way of remedy. It is accordingly now required to consider the issue of compensation, hence the directions issued to provide for the filing of any further submissions and evidence in regard to the issue of compensation. I am satisfied on this basis that the witness statement of Ms Hand should be admitted into evidence.

[36] As indicated, I am satisfied that Mr Cowper can be said to have been employed for a reasonable period at the time his employment was terminated, given he had been employed for a period of approximately three and a quarter years. He had also managed to remain in that employment for that time in what is evidently a difficult and challenging work environment.

[37] However, there is obviously some divergence of view about the nature of Mr Cowper’s work performance during the time he was employed. He submits that he was not warned or disciplined during that time in relation to any matters concerning his conduct or work performance, and was not required to be part of any performance management plans in that time. Ms Bethany Johnson, who is the Wellbeing and Practice Development Manager at the Centre, and has been the Acting Campus Principal since October 2017, also acknowledged in her evidence in the earlier proceedings that Mr Cowper had not been given a formal warning in the time he was employed, but there were some concerns raised with him on an informal basis at different times.

[38] Ms Connie Pretto, the Associate Head of Campus at the Centre, also indicated in her evidence that she did not consider that Mr Cowper had an unblemished work record, and there had been some issues about him being behind in his paperwork, as well as his habit of walking around the Centre and engaging in conversation with various people at times when he should have been in the classroom. However, she also acknowledged that she had never directly accused him of anything serious, and had not sought explanations from him when she considered he had acted inappropriately. It is also noted that the Commission concluded in the earlier decision that there was “nothing significant in the evidence to suggest that he was anything other than a person who was dedicated and committed to his work at the Centre, and to the students in his care.” 14

[39] Mr Cowper also notes that only one performance review was carried out with him in the time he was employed, and the fact that it was not considered necessary to conduct regular performance review meetings provides further evidence to support the view that there were no performance issues that were likely to impact upon his ongoing employment. The Centre acknowledges that this was the case, but that a further performance review had been scheduled for late October in 2017, but did not take place because by then Mr Cowper had been stood down from his employment. However, Mr Cowper continues to submit that he should be considered to have had an exemplary employment record in the time he was employed, and this provides strong support for the view that he would likely have continued in ongoing employment for an indefinite period if not for his unfair dismissal.

[40] The Centre submits, in response, that there were other outstanding and unresolved issues concerning Mr Cowper’s employment at the time he was dismissed, including his failure on one occasion to maintain proper observance of a particular “at risk” student, as well as another issue relating to some carers’ leave he had taken, and subsequent delays in him providing evidence to support the requirement to take that leave. I have also made reference to the evidence provided by Ms Hand in her witness statement dated 10 October 2019. It makes reference to her intention to discipline Mr Cowper in regard to the personal leave issue, and the issue concerning his differential treatment of female and male staff. She had been seeking advice about these matters, and any required disciplinary process could take some time to play out, depending on whether an investigation was required.

[41] However, while Ms Hand may have been intending to embark upon this course of action, and I have no reason to doubt her credibility, she had not in circumstances where the personal leave issue, at least, had occurred sometime previously, with no action taken in response up to that point. This suggests that it was not viewed as anything particularly significant. I also note that Mr Cowper provided credible explanations about these matters in his evidence, and whether any further action would have been taken as a consequence of any review process or subsequent investigation is entirely a matter of speculation. For example, those processes might have completely exonerated Mr Cowper.

[42] Ms Hand also states that Mr Cowper would have been issued with a warning in regard to his conduct on 23 October 2017 if the decision had not been made that the termination of his employment was instead appropriate in all the circumstances. This may well have been the case, and Mr Cowper might well have accepted that outcome without further challenge. The warning would then have been part of his employment record, and increased the chances of his employment being terminated at some point in the future if he was subject to further disciplinary action. However, I am satisfied that there was nothing in his three and a quarter years of employment that suggested a pattern of behaviour or conduct that was likely to require further warnings to be given to him.

[43] It is also acknowledged that the Commission indicated in the earlier decision that it was difficult to come to a firm conclusion about whether Mr Cowper, deliberately or otherwise, sought to recast his original version of what occurred on the afternoon of 23 October 2017, after becoming aware of what later transpired that evening. However, the decision also refers to the various explanations provided by Mr Cowper for his responses and came to the conclusion that “he was not subsequently attempting to ‘sugarcoat’ what occurred.” 15

[44] I am not satisfied, in conclusion, that it is possible to point definitively to anything that can be said to indicate or suggest that Mr Cowper’s employment was likely to come to an end at a particular point in time, if not for the fact of his unfair dismissal. I am therefore satisfied that it is reasonable to conclude, based on his previous period of employment and his otherwise good employment record, that if his employment had not been terminated he would have likely remained in employment for the a further period of at least two years. Based on his annual salary of $85,953.92 this amounts to a figure of $171,907.84 that he would have received, or would likely to have received, if his employment had not been terminated. This figure is accordingly the starting point for any assessment of compensation.

The efforts made to mitigate the loss suffered

[45] Mr Cowper has provided some information in his submissions, and in invoices he attached to his submissions, about his earnings since the time his employment was terminated. He has also indicated in his submissions that he has applied for a significant number of jobs, but with little success. However, he provided no evidence in support of this submission. He also submits that his desire to continue in employment as a Youth Worker has been made more difficult by the knowledge of these proceedings by some potential employers. He also referred to the impact of the Centre’s notification to the Commission for Children and Young People. Whilst the necessity to have measures in place that ensure, as far as possible, that children and young people are protected is entirely understood and supported, the impact on Mr Cowper of the reporting in this case is clearly most unfortunate.

[46] However, it is also noted that Mr Cowper indicated in his evidence in the earlier proceedings that he has worked in a variety of roles in the past, and it could accordingly have been expected that he might have done more to obtain other employment in the time since his employment was terminated by the Centre. I am therefore satisfied that it is appropriate to make a deduction of 25% on account of these circumstances. That represents an amount of $42,976.96, and when this amount is deducted from the earlier figure it leaves an amount of $128,930.88.

[47] It is also noted that Mr Cowper received an amount equivalent to 3 weeks’ pay at the time he was dismissed. This amount of $4,958.88 should also be deducted, leaving a figure of $123,972.00.

Contingencies

[48] The decision in Sprigg also requires that consideration be given to a percentage deduction on account of contingencies. These principles were summarised in Roos v Winnaa Pty Ltd 16 at [36] and [37]. A deduction for contingencies applies a discount to an assessment of future economic loss so as to account for future unknown matters, which might adversely impact on the anticipated future earning capacity. Such a deduction is usually applied after the assessment of the period for which the employee would otherwise have remained employed. It applies to any future estimate of loss of earnings. As indicated earlier there will always be some degree of significant speculation about any future estimate of lost earnings. I accordingly consider that a reduction for contingencies should be made, and that a figure of 20% is appropriate in this case. This amount of $24,794.40 is to be deducted from the amount of $123,972.00, leaving an amount of $99,177.60.

Taxation

[49] The amount of compensation ordered is specified as a gross amount, and it will be left to the Centre to deduct any amount of taxation required by law.

Misconduct

[50] The Act makes clear that if the Commission is satisfied that the employee’s misconduct contributed to the decision to dismiss the employee then the amount that might otherwise be ordered is to be reduced. Mr Cowper submits that the Commission’s decision handed down on 23 September 2019 did not disclose any evidence of misconduct on his part, and it is accordingly not appropriate for any deduction to be made on this basis. The Centre did not make any reference in its submissions to the issue of misconduct, or suggest that a deduction should be made on this account. I am not aware of any evidence that suggests that a deduction should be made on the basis of Mr Cowper’s misconduct.

Compensation cap

[51] The amount of $99,177.60 gross is evidently more than the compensation cap of 26 weeks’ pay, and an adjustment to the maximum amount of compensation cap is therefore required. This results in a figure of $42,976.96.

Conclusion

[52] I am satisfied, in conclusion that it is appropriate for the Commission to exercise its discretion to make an order for compensation. I am also satisfied that the amount of compensation that is to be ordered is appropriate in all the circumstances of this matter. I accordingly order that a gross amount of compensation in the sum of $42,976.96 is to be paid by the Centre to Mr Cowper within 28 days of the date of this decision. An order giving effect to this decision is now separately issued.”

Cowper v St Joseph’s Flexible Learning Centre (2019) FWC 7192 delivered 25 October 2019per Gregory C