Compensation for unfair dismissal; how to calculate

“This extract from a recent unfair dismissal case is an excellent summary of the way in which compensation for unfair dismissal is calculated by the Fair Work Commission and therefore a very useful tool for practitioners to master for conciliation conferences.

COMPENSATION

[7] Section 392 of the FW Act sets out those matters to be taken into account in determining compensation.

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.

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.

[8] Compensation is designed to compensate a person found to have been unfairly dismissed from employment in lieu of reinstatement for losses reasonably attributable to the unfair dismissal. 12

CONSIDERATION

Criteria for considering the amount of compensation

[9] It is agreed by the Respondent, and I am satisfied, that an order of compensation will have no effect on the viability of the Respondent (s.392(2)(a)). This is not a matter that needs to be further considered.

[10] Further, it is agreed that the Applicant commenced employment with the Respondent on a causal basis working full time hours in January 2017. His employment was terminated on 18 September 2020. He therefore had completed 3 years and 10 months service at the time of dismissal (s.392(2)(b)). In the circumstances of the Applicant’s employment and the area in which he was employed this weighs neither for nor against the awarding of compensation.

[11] The Applicant gave evidence that he has applied for numerous positions without success except for some casual work. The Respondent acknowledges that the Applicant has taken steps to mitigate his loss and does not seek any deduction for any failure to do so.

[12] I am satisfied that the Applicant has sought to mitigate his losses. In reaching this conclusion I have taken into account the Applicant’s personal circumstances including his age and limited breadth of work experience as well as the economic circumstances of the area in which he lives. I am satisfied that no deduction should be made from the compensation I may order in this respect (s.392(2)(d)).

[13] At the time his employment was terminated the Applicant’s remuneration was ($146,271.00 + 12% superannuation =) $163,823.52.

[14] In order to determine the remuneration the Applicant would have received had his employment not been terminated it is necessary to first determine how long he would have remained in employment had he not been dismissed. Whilst this is not an easy task it is one that must be done.

[15] In his evidence the Applicant said that he intended to continue working until he was around 65 years of age. At the time of his dismissal he was 56 years old. The Applicant also says that, whilst acknowledging the decision of the Commission, had he been given an alternative disciplinary outcome other than dismissal he was capable of operating, and would have operated, in a safe manner.

[16] The Applicant says that he is aware, since his dismissal, of an announcement that the Yallourn site will close in 8 years. Whilst he does not (and I accept cannot) know if the Respondent would have found alternative work for him beyond that date he suggests that he would have remined in employment with the Respondent at least until the closure of the site.

[17] The Applicant says that the Commission should consider the time it would take for the Commission to deal with the dispute lodged by the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU). The Applicant suggests that the process of hearing that dispute would result in the Applicant remaining in employment until at least April 2021 (using the time taken to deal with the unfair dismissal application as a guide to the time required to deal with a dispute notification) or 5 months (based on the average time taken to deal with a dispute). Alternatively, the Applicant suggests on the basis of the disciplinary provisions in the Agreement and the “back one step” arrangement, the disciplinary outcome for the Applicant utilising the dispute settling procedure of the Agreement would have resulted in him not being dismissed but rather receiving a lesser disciplinary outcome. On the assumption that the Applicant’s progression through the disciplinary outcomes had not changed the Applicant would have remained in employment for at least another 3.5 years.

[18] The Applicant submits that the Commission should also accept that the Applicant’s recent “inattention to detail” would have likely improved following the issue of a written warning and should therefore find that the Applicant would have remained in employment for approximately 8-9 years’ time, based on the recent announcement with respect to the closure of the mine.

[19] The Respondent submits that the Applicant’s employment would not have continued beyond early February 2021 for four reasons:

  1. The Applicant engaged in misconduct which formed a valid reason for dismissal;
  2. The Applicant’s conduct in relation to the light vehicle followed an earlier instance of misconduct, both of which were a breach in policy and both of which occurred because the Applicant was rushing. The Applicant’s claim that his recent “inattention to detail” would have improved had he been given a warning is belied by the water spray incident for which he received a warning, but that did not stop the light vehicle incident occurring;
  3. In his application to the Commission to deal with a dispute, the Applicant sought that the Commission determine the appropriate discipline outcome based on the submissions of the parties. That application did not assert that dismissal was not open to the Respondent but rather that dismissal would be disproportionate to the breach of policy. The matters under consideration in the dispute application would therefore not vary substantially from those canvassed in this unfair dismissal hearing. In the unfair dismissal application two matters lead the Commissioner to conclude the dismissal was unreasonable – firstly a failure to comply with the dispute resolution clause in the Agreement and, second, the differential treatment of the Applicant compared to the Mr Kilpin. However, the findings in relation to Mr Kilpin’s conduct and that there was, in any event, a valid reason for the dismissal of the Applicant, suggest that the disputes proceeding would be unlikely to have arrived at a different outcome other than dismissal in relation to the Applicant’s employment.
  4. As to timing, the dispute was listed for conciliation on 14 October 2020. Assuming it did not settle it would have been listed for arbitration most likely within 6 weeks with a decision issued a further 8 weeks after that (based on the timeliness benchmarks). On this basis a decision could have been expected in early February 2021 – some 20 weeks after the actual dismissal of the Applicant – and this would have been the outer limit of his employment.

[20] I accept the Applicant’s submission that it was his intention to remain employed with the Respondent until age 65 (or at least for the next 8 years given advice as to the site closure). However, it is necessary for me to consider what would have occurred had the Applicant not been dismissed and the dispute settling procedure run its course. Had the Applicant’s employment not been terminated, the dispute notified by the CFMMEU to the Commission on 1 September 2020 in relation to the Applicant would have been heard. There is little reason to doubt that the material before me would have been put to the Member dealing with the dispute application.

[21] In the dispute application the CFMMEU conceded, by its description of the incident, that the Applicant had parked a vehicle in a manner not consistent with policy (the Procedure), that the car rolled and that it struck a contractor’s truck. The CFMMEU sought, if the matter could not be resolved in conciliation, that the Commission should arbitrate “as to the appropriate penalty…based on submissions of both parties.”

[22] I reject the proposition of the Respondent that the dispute would be unlikely to have come to a different conclusion than that in the unfair dismissal matter. I therefore have not used the possible timeline for the dispute to be heard (with dismissal the outcome) as a basis on which to determine how long the Applicant may have remained in employment. The question answered by the Commission in an application for relief from unfair dismissal is if the dismissal was harsh, unjust or unreasonable. A necessary part of that inquiry is to determine if there was a valid reason for dismissal, the dismissal at that stage being a matter of fact. That is a different inquiry from that required of the Commission in the dispute notification. In the latter case, given the form of dispute notification, the inquiry would start from the conduct and determine the most appropriate disciplinary penalty. The two matters approach the issue from different points in time and different perspectives – the outcome of one (ie dismissal) cannot be simply imposed on the other. That is, that it was found in the unfair dismissal application that there was a valid reason for dismissal does not mean that a consideration of the conduct would necessarily determine dismissal to be the appropriate outcome. This is because in the unfair dismissal application, the question before the Commission is not if dismissal is the appropriate outcome but rather if it is “sound, defensible and well founded”.

[23] Further, in determining the dispute it is inevitable that what would be before the Commission would be the conduct and disciplinary penalty imposed on Mr Kilpin and Mr Burton. Whilst Mr Cavanough’s view as to the appropriate penalty for Mr Kilpin would also be before the Commission, the disciplinary outcome deemed appropriate to the Applicant would have been considered in that light.

[24] I consider it more likely that while the Commission may have considered dismissal a justifiable response to the conduct, balancing those matters I considered in ultimately finding the dismissal unreasonable may well lead the Commission in a dispute hearing to determine that dismissal would be unreasonable in all of the circumstances. For these reasons I therefore do not accept the likely period of employment as estimated by the Respondent.

[25] I would observe that, even if I did accept the correctness of the approach of the Respondent, I would not accept its timelines. Rather, I would add a further 4-8 weeks to the period suggested by it. Such an assessment is based on the reality of time taken for a matter to proceed to hearing, slippages that occur and the potential for appeal.

[26] I have, however, taken into account that the incident that led to the Applicant’s dismissal and the earlier water spray incident both occurred within a 6-month period. The incidents occurred because the Applicant was rushed or thought he knew better and ignored warnings and clear policy advice. The apparent deterioration of his attention to safety is a cause of some concern, particularly after a relatively short period of employment, and is a direct contribution to the erosion of confidence in him.

[27] The Applicant says that had he received a final written warning (and not been dismissed) it would have been a wake-up call to him in relation to safety at work. I do not accept this. The Applicant received a warning after the water spray incident and that had no apparent effect. A serious safety incident should not be needed to deliver a “wake-up call”. As I said in the decision as to unfairness of the Applicant’s dismissal “safety is not something to be observed 99% of the time”. I would add that it also not something only to be observed after a “wake-up call.”

[28] I am not satisfied that, had the Applicant remained at work, he would continue to observe safety requirements at the site. I do accept that, had his employment not been terminated, he would have paid attention to the safety requirements but consider this attentiveness would have waned over time. Two incidents 6 months apart give testament to this. I therefore cannot accept that the Applicant would have remained employed for the next 8 years (or more). I am however satisfied that he would have remained employed for 9 more months – that is, until 18 June 2021. In reaching this conclusion I have taken into account that the Applicant, although only employed 3 ½ years had an attitude to safety procedures which was wanting, as demonstrated by the water spray incident, the light vehicle incident and the earlier electrical cubicle incident (which, while it played no role in my decision as to the merits of the case, is another example of the Applicant not exercising diligence in relation to safety).

[29] At the time the Applicant was dismissed (18 September 2020) his remuneration was $163,823.52. Under the provisions of the Agreement this was due to increase on 10 October 2020 to $167,919.36 (inclusive of superannuation).

[30] The remuneration the Applicant would have received had his employment not been terminated is $125,679.52 13 (s.392(2)(c)). I have made no deduction from this for contingencies.

[31] The Applicant received 5 weeks’ pay of $14,064.50 14 in lieu of notice on termination of his employment.

[32] Since his dismissal the Applicant has had limited employment. He has been engaged as a casual employee and has earnt $8,086.47 + $768.21 superannuation up to 20 April 2021. The Applicant has not had on-going work in this employment and from his commencement on 9 March until 20 April 2021 but says he has had worked 5 (out of a possible 6) weeks in total.

[33] The Applicant says, and I accept, that there is no guarantee of on-going work in his casual employment and that he is told at the end of the week if he is to come in the following week.

[34] As at 20 April 2021 the total amount of remuneration earned by the Applicant is therefore $22,919.18 15 (s.392(2)(e)).

[35] Whilst the Applicant is employed on a casual basis I have taken into account that, at the time of fling submissions and evidence, he had worked 5 of the 6 weeks available since he commenced that employment. Whilst I accept that his employment is precarious, absent any evidence or reason to assume otherwise, I consider it reasonable to assume that he would work for 70% of the available time in that employment up until 18 June 2021 (when I consider his employment with the Respondent would have ended). Whilst this may prove to be an underestimation of time worked, I have taken into account and adjusted for contingencies that necessarily arise from casual employment. Such an adjustment would necessarily result in a reduction in anticipated future earnings. I consider that this assessment of earnings amount should apply from 20 April 2021 to 18 June 2021 – a period of 8.4 weeks.

[36] The Applicant’s weekly remuneration in his casual employment is $1,526.67. 16 Had he worked full time until 18 June 2021 (8.4 weeks) his total remuneration would be $12,824.03. Given my assumption above and contingencies I am satisfied that an amount of $8,976.82 should also be included as anticipated future earnings (s.392(2)(f)).

[37] The Applicant submits that the Commission should take into account the negative effects of the dismissal on the Applicant in circumstances where the dismissal occurred contrary to a legally binding agreement “specifically intended to protect the Applicant from such an outcome”. It would be reasonable, the Applicant submits, in determining compensation, to consider the position the Applicant would have been in had the Respondent not breached the Agreement. I have taken this matter into account in determining the remuneration lost by the Applicant had his employment not been terminated. To consider it again would be unfair as it would result in it being used multiple times in bolstering the compensation to be paid.

[38] Had the Applicant remained in employment for the period I have determined (9 months) he would have received a total remuneration of $125,679.52. The remuneration he has received since his dismissal is $22,919.18 and his anticipated earnings are $8,976.82 to 18 June 2021. The remuneration lost by the Applicant brought about by the dismissal is therefore $93,783.52. 17

[39] The loss to the Applicant, “reasonably attributable to the unfair dismissal”, is therefore $93,783.52.

Reduction for misconduct

[40] Section 292(3) of the FW Act requires that, if the Commission is satisfied that the person’s misconduct contributed to the employer’s decision to dismiss the employee, the Commission must reduce the amount it would otherwise have ordered. This is not a discretionary matter although the amount of any reduction in such circumstances is to the Commission to decide.

[41] The Respondent submits that a reduction in the range of 20-30%, and not less than 20%, of the amount capable of being rewarded is warranted because:

  • The incident did not arise from a mere “inattention to detail” but was misconduct by the Applicant despite being aware of the Respondent policies;
  • The misconduct was serious. As was observed in the decision, someone could have been seriously injured and it was mere good fortune that this did not occur;
  • The misconduct was not an isolated incident.

[42] The Applicant accepts that, as a matter of fact, his misconduct contributed to the decision of the Respondent to dismiss him from his employment. However, he submits that any reduction for misconduct should be minimal, taking into account the “unique circumstances” of the matter. In particular the Applicant relies on:

  • He was found not to have “deliberately set out to engage in misconduct”;
  • Having found the conduct was not serious and wilful means the Commission can be satisfied that the Respondent was “legally bound” under clause 2.11 to not dismiss the Applicant. In breaching the agreement it would be contrary to the objective of a “fair go all round” for the Respondent to be advantaged by a substantial reduction in compensation;
  • Whilst the misconduct was a catalyst for the dismissal the Respondent was obliged not to dismiss the Applicant on that basis given the provisions of the Agreement.

[43] I am satisfied that a deduction of 25% should be applied to the compensation amount I would otherwise award to the Applicant.

[44] In reaching this decision I have taken into account that the Applicant was well aware of the Procedure (the relevant policy) in relation to leaving vehicles in a fundamentally stable manner and that he did not do so. As I found in the decision I do not consider that he set out to deliberately engage in misconduct but he was in breach of policy when he failed to park the vehicle in a fundamentally stable manner. It was this misconduct, engaged in without justification, that caused the Respondent to dismiss him.

[45] I acknowledge the submissions of the Applicant in relation to the actions of the Respondent which relate to the provisions of the Agreement. For the reason given above however I am not prepared to consider the actions of the Respondent again. I have taken this into account in determining how long I consider the Applicant would have remained employed had he not been dismissed. It would not be fair to consider this again and for this reason I have not done so.

[46] I have, however, taken into account that the Applicant was not aware of the faulty handbrake. As I found in the decision, had he been aware of the faulty handbrake – and hence the consequences of parking as he did – I did not consider that he would have done so. I have also taken into account the differential treatment afforded to the Applicant compared to that of Mr Kilpin. Mr Kilpin’s conduct contributed to the incident which led to the Respondent deciding to dismiss the Applicant from his employment. Had Mr Kilpin not failed as he did to have the handbrake fixed (in circumstances where he knew the handbrake was “not 100%”) the chances of the incident occurring would be substantially diminished. That is not to absolve the Applicant of all responsibility for his conduct but is, in my view a relevant factor to take into account. However, that Mr Kilpin was not treated the same as the Applicant cannot detract from the conduct of the Applicant.

[47] I did find however that the Applicant’s conduct in not parking in a fundamentally stable manner was conduct which provided a valid reason for dismissal. The conduct may not have been wilful and serious misconduct (as that term is used in the Agreement) but it did otherwise provide a valid reason for his dismissal and this cannot be ignored.

[48] This reduces the amount of compensation awarded to $70,337.64.

Shock, distress etc. disregarded

[49] I have not included any amount for any shock, humiliation or distress caused to the Applicant.

Compensation cap

[50] The Applicant was entitled to total remuneration $163,823.52 per annum in the period prior to his dismissal. In the 26 weeks prior to dismissal he was entitled to remuneration of $81,911.76 (including superannuation) (s.392(6)(a)). The high income threshold that applied at the time of the dismissal of the Applicant was $153,600.00. Half of this amount is $76,800.00 (s.392(5)(b)).

[51] In these circumstances the compensation cap for this matter is $76,800.00, being the lesser of the two amounts (s.392(5)(a)).

[52] The amount I have calculated as reasonable compensation for the losses to the Applicant caused by his unfair dismissal is $70,337.64. 18

[53] This is less than the compensation cap of $76,800.00 that applies in this case.

Conclusion

[54] For the reasons given, I have determined that the Applicant should be awarded $70,337.64 (inclusive of superannuation). This amount should be subject to normal taxation.

[55] I do not consider the amount I have settled on in compensation to be inappropriate. In this case the Applicant was unfairly dismissed from a very well paying job. The work he has found pays much less.

[56] An order 19 reflecting my decision, and that the amount should be paid within 14 days of the making of the order, will be issued with this decision.”

Passage from Drowley v RTL Mining and Earthworks Pty Ltd (2021) FWC 3268 delivered 10 June 2021 per Bissett C