How to calculate compensation for unfair dismissal

Here is an extract from a very recent Fair Work Commission case which deals with the legal principles involved in assessing compensation for unfair dismissal.

“Section 390 of the Fair Work Act 2009 (Act) sets out the circumstances in which an order for reinstatement or compensation may be made:

“390 When the FWC may order remedy for unfair dismissal

(1) Subject to subsection (3), the FWC may order a person’s reinstatement, or the payment of compensation to a person, if:

(a) the FWC is satisfied that the person was protected from unfair dismissal (see Division 2) at the time of being dismissed; and

(b) the person has been unfairly dismissed (see Division 3).

(2) The FWC may make the order only if the person has made an application under section 394.

(3) The FWC must not order the payment of compensation to the person unless:

(a) the FWC is satisfied that reinstatement of the person is inappropriate; and

(b) the FWC considers an order for payment of compensation is appropriate in all the circumstances of the case.

Note: Division 5 deals with procedural matters such as applications for remedies.”

[3] That the Applicant was protected from unfair dismissal when he was dismissed and that he was unfairly dismissed was determined in my earlier decision. 2 Section 390(1) of the Act is therefore satisfied. It is uncontroversial that the Applicant has made an application under s.394. Section 390(2) is also satisfied.

[4] In his submissions on remedy, the Applicant did not expressly contend that no order of reinstatement should be made nor did he address, in any sufficient detail, the issues raised by the remedy provisions in ss. 390-394 of the Act. 3 This was despite the directions requiring him to file and serve “an outline of submissions and any documentary material on which he intends to rely in relation to the issue of remedy under ss.390 – 393 of the” Act. However he concluded his 4 paragraph submission by requesting “the Commission to order appropriate compensation”.4 The Respondent contends that reinstatement as a remedy is inappropriate as there has been a loss of trust and confidence in the Applicant and his ability to satisfactorily perform his role and therefore the employment relationship is irretrievably damaged.5 It says that “compensation is appropriate in all of the circumstances of this matter”.6 In his submissions in reply, the Applicant contends that a satisfactory employment relationship can be re-established if he is allocated to a different manager and suggests that the Commission may make an order of reinstatement with compensation.7 But again the Applicant concludes his reply submission by requesting “the Commission to consider my . . . ‘unblemished performance history’ that lasted over eight years in ordering appropriate compensation”.8

[5] The Commission does not have power to make an order for both reinstatement and compensation (as opposed to lost pay). The primary remedy is reinstatement and it is clear from ss.390(3)(a) that the discretion to order a remedy of compensation may only be exercised if the Commission is satisfied that reinstatement is inappropriate. An order for compensation is made in lieu of reinstatement and is directed to placing the former employee, so far as money can, in the position the person would have been in but for the unfair dismissal (taking into account the statutory considerations and the compensation cap).

[6] On the basis of my earlier findings that the Applicant was not guilty of the preponderance of conduct the subject of the allegations and there had been a condonation and waiver of the most serious of the allegations, I am not persuaded that objectively it can be concluded that there has been a loss of trust and confidence in the Applicant’s ability to satisfactorily perform his role. The Respondent’s subjective view does not persuade me otherwise.

[7] However, it is clear from the written submissions filed by the Applicant that he does not seriously seek reinstatement and seeks an order for compensation. The terms on which he says that he could return (raised only in reply) – by being him allocated to another manager – suggests that reinstatement to his former position (which would include working under the relevant manager) is something the Applicant accepts is not viable (at least subjectively). Despite the way in which the Applicant conducted his case, I made no adverse findings against the Applicant’s manager. I would not therefore make on order for reinstatement on the terms suggested. That leaves the position that the Applicant seeks only compensation and not reinstatement. In these circumstances I consider that an order for reinstatement is inappropriate.

[8] I turn then to consider whether an order for payment of compensation is appropriate in all the circumstances of the case, and if so, what that amount should be.

[9] Taking into account my earlier finding that the dismissal was unfair, and since an order for reinstatement is inappropriate, I consider that an order for payment of compensation is appropriate in all the circumstances. There is no material before me which would suggest a contrary conclusion and as I have already indicated the Respondent accepts that an order for compensation is appropriate. Its submissions were directed to the appropriate amount of compensation that should be fixed. 9 Section 390(3)(b) is therefore satisfied.

[10] I turn then to consider the quantum of any compensation order that I might make.

[11] Section 392 of the Act sets out the circumstances that must be taken into account in determining an amount of compensation, the effect of any findings of misconduct on that compensation amount and the upper limit of compensation that may be ordered as follows:

“392 Remedy—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.”

[12] The method for calculating compensation under s.392 of the Act was consider by a Full Bench of the Commission in Bowden v Ottrey Homes Cobram and District Retirement Villages Inc. T/A Ottrey Lodge. 10 In that decision the Full Bench set out a suggested order in which the criteria and other factors might be applied, taking into account authorities under corresponding provisions of the Workplace Relations Act 1996 in Sprigg v Paul’s Licensed Festival Supermarket11 and Ellawala v Australian Postal Corporation.12 I have adopted the methodology in Bowden in determining the amount of a payment of compensation observing that Bowden and the formulation in Sprigg serve as a guide rather than postulating any decision rule.

Remuneration that the Applicant would have received: s.392(2)(c)

[13] A consideration of this circumstance requires an assessment to be made about the likely period of employment that would have ensued had the Applicant not been unfairly dismissed. An assessment of the likely period of employment is not to be conducted in a vacuum but rather against the backdrop of the circumstances of the dismissal and the reasons for concluding that the dismissal was unfair. The dismissal of the Applicant was effected for various reasons related to the Applicant’s conduct and performance, albeit on my assessment the preponderance of the performance and conducted related allegations were not made out. Such as were made out did not provide a valid reason for the dismissal.

[14] The Respondent contends that the employment relationship was ‘clearly on a trajectory to end’ and the likely period of employment that would have ensued had the Applicant not been unfairly dismissed would have been no more than three months. 13 This proposition was challenged by the Applicant in his reply submission. The Applicant submits that his employment was not ‘on a trajectory to end’ as the allegations forming the basis for his dismissal were ‘baseless’.14 While the Applicant contends that he would have remained employed with the Respondent had he not been fairly dismissed, the Applicant does not say how long he might have remained employed. I do not accept the Respondent’s assessment.

[15] What is left after the various allegations that were not made out are set to one side, is the inappropriate communications, part of which, relating to language, was already the subject of a warning. These transgressions in the context of 8 years of service, hardly suggest the employment relationship was ‘clearly on a trajectory to end’. To the contrary, a properly implemented performance improvement plan – one aimed at achieving improved performance rather than as a gateway to dismissal – would likely have yielded improvement in the Applicant’s communication style. Although, as I observed in my earlier decision, there is little doubt the Respondent found the Applicant challenging, I see no reason why the employment relationship would not have continued for a significant period in the circumstances.

[16] Although one cannot, with precision, determine over how long the Applicant would have remained employed with the Respondent and therefore the level of remuneration that would have been received, there seems be no rational reason why, having regard to my earlier findings, the employment of the Applicant would not have continued for at least a further 12 months. I therefore assess the remuneration the Applicant would have received by reference to a further period of employment of 12 months.

[17] It is not in dispute that the Applicant’s salary at the time of his dismissal was $70,000.00 per annum plus superannuation. 15 I am of the view that the remuneration the Applicant would have received, or would have been likely to receive, if he had not been dismissed would have been $70,000.00 plus superannuation.

Remuneration earned by the Applicant: s.392(2)(e)

[18] The Applicant appears not to have obtained any alternative employment or other work since his dismissal.  The Respondent does not cavil with this. 16 I accept the Applicant therefore did not earn any remuneration from employment or other work between the date of his dismissal and the making of the order for compensation. In the circumstances I do not propose any deduction on account of remuneration earned.

Income likely to be earned: s.392(2)(f)

[19] Given the Applicant remains unemployed he is not reasonably likely to earn any income between the date of the order and the payment of compensation. I therefore do not propose to make any deduction on account of this consideration.

Other matters: s.392(2)(g)

[20] No party suggested other relevant matters for the assessment of compensation, although the Respondent contended that if the Commission is of a view that the Applicant’s anticipated period of employment is greater than that submitted by the Respondent and would have continued beyond the date of decision, a deduction for contingencies is appropriate. 17 Given the amount of compensation thus far assessed, a small deduction for exigencies is appropriate. I factor in a deduction of 10% on account of exigencies to take into account that employment might have ended earlier than 12 months because of an exigent circumstance. In the result $7000.00 is to be deducted leaving $63,000.00. In addition, the Applicant was paid in lieu of notice an amount equal to 4 weeks’ pay, namely $5384.62 (described as “Term Sum C”).18 I propose to deduct this amount since it was made in lieu of notice that otherwise would run concurrently with the estimated further period of employment upon which the assessment under s.392(2)(c) has been made.

Viability: s.392(2)(a)

[21] The Respondent does not contend that its financial position is such that an order of compensation might impact its viability. 19 In the circumstances I do not consider that the order I propose be made will adversely affect the viability of the Respondent’s business.

Length of service: s.392(2)(b)

[22] At the time of his dismissal the Applicant had completed over eight years of service with the Respondent. This is a significant period of employment. The Here

Respondent also submits the Applicant’s length of service was significant. 20 In the circumstances I do not consider a deduction is warranted on account of length of service.

Mitigating efforts: s.392(2)(d)

[23] The Applicant has not, since his dismissal, obtained alternative employment. 21 The Applicant contends he had taken steps to find alternative employment or work by submitting 36 job applications since his dismissal.22 The Respondent contends that the Applicant’s mitigation efforts were limited to registering with a job seeker agency and this is a ‘blatant failure’ to mitigate his loss.23 The Respondent submits that during the period following the Applicant’s dismissal there were many cleaning jobs available as a result of increased cleaning being required by government departments and private organisations.24

[24] Accordingly, the Respondent contends that the period in which the Applicant was not actively looking for work, including by taking more proactive steps than simply registering with a job seeker agency, should warrant a deduction from any compensation amount. 25

[25] The Applicant accepts the Respondent’s contention that during the period subsequent to his dismissal there were alternative cleaning jobs available. 26 However, the Applicant submits these alternative jobs were not suitable in light of his family circumstances and parental responsibilities.27 He does however not provide any detail which identifies how the particular jobs that were available were not suitable. The Applicant further contends that due to the COVID-19 pandemic and the subsequent restrictions imposed in Melbourne, the number of employment opportunities following his dismissal were limited as compared to previous years.28

[26] I accept that the absence of mitigation efforts is a factor that must be taken into account in assessing compensation. The Applicant provided no material with his initial submissions supporting a contention that he took steps to mitigate. Only in reply did the Applicant provide a list of jobs in relation to which he said he made applications. No other detail is provided. No copies of applications and no responses to applications said to have been made, from prospective employers are provided. In the circumstances I am not persuaded that the Applicant has made out that he took reasonable steps to mitigate. I therefore propose to make a deduction of 15% of the amount assessed under s.392(2)(c) above on account of any failure to mitigate. A deduction of $10,500.00 will be made.

Misconduct: s.392(3)

[27] On the basis of my earlier conclusions, it seems clear that misconduct played no part in the Respondent’s decision to dismiss the Applicant because the allegations relating to the Applicant’s conduct relied upon by the Respondent for effecting the dismissal are not made out. Therefore, no reduction in compensation on the account of misconduct is necessary.

Calculation of total compensation

[28] At the time of his dismissal the Applicant earned $70,000.00 per annum ($1,346.15 per week) plus superannuation.

Applying the Compensation cap: s.392(5)

[29] The compensation amount after deductions is $47,115.38 and is above the statutory cap which in this case is $35,000.00. I therefore must only order no more than that amount.

Shock, distress or humiliation, or other analogous hurt (s 392(4))

[30] I note that in accordance with s 392(4) of the Act, the amount of compensation does not include a component for shock, humiliation or distress

Payment by instalments: s.393

[31] No suggestion was made that the compensation amount should be paid by instalments and I do not propose to so order.

Conclusion on compensation

[32] I am satisfied in the circumstances that reinstatement is inappropriate but that a remedy is appropriate and I am satisfied compensation is appropriate. In my view, the application of the Sprigg formulation does not, in this case, yield an amount that is clearly excessive or clearly inadequate and I would order the Respondent to pay to the Applicant compensation in the amount of $35,000.00 to be taxed as required by law plus make a 9.5% contribution to the Applicant’s nominated superannuation account. The order I make will require payment within 14 days of the date of the order. The order is published contemporaneously with this decision in PR728735.”

Dalby Salu v ISS Facility Services Pty Ltd (2021) FWC 2120delivered 19 April 2021 per Gostencnik DP