How to calculate compensation for unfair dismissal

Here is a very useful extract from a recent decision of the Fair Work Commission dealing with how to calculate compensation for unfair dismissal.

“Introduction

[1] In my decision in Aadeela Natasha Raffie v Allied Express Transport Pty Ltd [2022] FWC 2398 (9 September 2022), I found that the Applicant was unfairly dismissed by the Respondent, and that compensation is an appropriate remedy. This decision concerns the calculation of the amount of compensation to be awarded to the Applicant.

[2] Section 392(2) of the Fair Work Act 2009 (Act) requires all of the circumstances of the case to be taken into account when determining an amount to be paid as compensation to the Applicant in lieu of reinstatement, including:

(a) the effect of any order upon the viability of the Respondent’s enterprise;

(b) the length of the Applicant’s service;

(c) the remuneration that the Applicant would have received, or would have been likely to receive, if the Applicant had not been dismissed;

(d) the efforts of the Applicant (if any) to mitigate the loss suffered by her because of the dismissal;

(e) the amount of any remuneration earned by the Applicant from employment or other work during the period between the dismissal and the making of the order for compensation;

(f) the amount of any income reasonably likely to be so earned by the Applicant during the period between the making of the order for compensation and the actual compensation; and

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

[3] I consider all of the circumstances of the case below.

Viability (s.392(2)(a))

[4] The Respondent is a business of significant size and there is no evidence (nor were any submissions made) that an order of compensation in favour of the Applicant would impact upon the viability of the Respondent’s enterprise.

Remuneration that would have been received, or would have been likely to receive (s.392(2)(c))

[5] The Respondent submits that the Applicant would have been employed for no longer than 12 weeks based upon her performance and conduct issues. 1

[6] In my view, but for her unfair dismissal, the Applicant would have likely remained in employment with the Respondent for a further period of 12 months. I make this assessment on the basis that the Applicant had been employed with the Respondent for 15 years, and had worked in the role of NSW Call Centre or Customer Service Manager since July 2017. Immediately prior to her dismissal, the Respondent offered the Applicant on-going employment in a new permanent role. 2 As to performance and conduct issues, I rely upon my findings at paragraphs [19] to [21] of this decision, and consider such matters not to impact, in any substantive sense, upon my assessment of the Applicant’s likely or anticipated period of employment post her unfair dismissal.

[7] The Applicant’s average weekly earnings in the six months prior to her dismissal were $1,809.42 gross per week. I find that this is the amount that the Applicant is likely to have earned before tax each week in the relevant period of six months post her dismissal. 3 In making this finding, notwithstanding the Respondent’s submissions to the contrary,4 I specifically exclude the effect of the unlawful breach of contract visited upon the Applicant via a purported salary reduction on 24 December 2021.5

[8] On that basis, I find that the Applicant would have earned a gross amount of $47,045.00 in the six month period (ending on 6 July 2022) had she not been unfairly dismissed. She would have also been entitled to 10 percent superannuation on this amount. 6

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

[9] Given that the Applicant was dismissed by the Respondent for reasons of purported serious misconduct, she did not receive notice of termination, nor did she receive payment in lieu of that notice.

[10] Since her termination, the evidence before me is that the Applicant has received income for work performed by her in the gross amount of $14,249.99 for the period 7 January 2022 to 6 July 2022.

[11] Accordingly, the calculation of compensation is adjusted as follows:

(a) $47,045.00 (anticipated gross earnings in the six month period after the Applicant’s dismissal)

(b) Less $14,249.99 (earnings by the Applicant between 7 January 2022 and 6 July 2022)

(c) Subtotal = $32,795.01 gross. 7

[12] This calculation is intended to put the Applicant in the position she would have been in but for her unfair dismissal.

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

[13] The Applicant had 15 years’ service with the Respondent. I make no adjustment in the amount of compensation on this account.

Mitigation efforts (s.392(2)(d))

[14] Whether an employee has acted reasonably to mitigate their loss will depend upon all of the circumstances. 8

[15] The evidence before me is that the Applicant has applied for 16 jobs between 26 June 2022 and 25 July 2022. Whilst there is no evidence of the Applicant applying for jobs prior to 26 June 2022, the income received by the Applicant post 7 January 2022 (by reference to her payslips) indicates that she has engaged in sporadic work since mid-March 2022.

[16] Whilst there is no evidence of any steps taken by the Applicant to mitigate her loss in the two months immediately post her dismissal, I take into account the abrupt nature of the Applicant’s dismissal, the time of year that the dismissal occurred, and the absence of any notice of termination provided or paid to her. I consider that in all of the circumstances, the Applicant has acted reasonably to mitigate her loss and decline to reduce the amount of compensation on the basis of her mitigation efforts.

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

[17] The Respondent made the following submissions on the issue of contingencies:

“Allowance should be made for the contingency that the Applicant may not have served out 26 weeks or more with the Respondent for reasons such as lawful termination by the Respondent: see, Basse v Prestige Paving Pty Ltd [2016] FWC 2228 at [122]. For example, in the Full Bench in Ellawala v Australian Postal Corporation [2000] AIRC 1151 reduced its assessment of remuneration lost of 6 months by the amount of 15%, citing with approval at [37] authority for the proposition that 15% discount is generally appropriate. The Full Bench noted that in that case, the uncertainty surrounding ongoing employment as a result of past performance had already been taken account of in its assessment of lost remuneration. The Respondent submits that with respect to contingencies, an adjustment of 15% should be applied.” 9

[18] In my view, the amount of compensation does not need to be adjusted for contingencies as the six month period following the Applicant’s dismissal has passed at the time of this decision. There is no suggestion that the Applicant would have been made redundant during this six month period. As to performance and conduct issues, I rely upon my findings at paragraphs [19] to [21] of this decision in relation to contingencies. No other matters have been brought to my attention that would reduce the amount of compensation to be awarded to the Applicant on the basis of contingencies. Each case will turn upon its own facts and circumstances in relation to any reduction for contingencies (the decisions cited by the Respondent do not assert otherwise).

Misconduct (s.392(3))

[19] In determining the amount by which it is appropriate to reduce an order for compensation on account of misconduct, the Commission must consider, amongst other things, whether the Applicant engaged in misconduct and, if so, whether that misconduct contributed to the Respondent’s decision to dismiss the person. A Full Bench of this Commission has observed that, “[t]he section seems to require such consideration even if the FWC has found there was no valid reason for the person’s dismissal.” 10 However, the Full Bench goes on to say that, “if there was no valid reason for the dismissal we think that may be relevant to the FWC’s decision as to the ‘appropriate’ amount by which to reduce the amount of compensation the FWC would otherwise order.”11

[20] I have found that the Applicant’s dismissal on 6 January 2022 was not for a valid reason. I have also found that:

(a) the Applicant did not engage in any misconduct on 24 December 2021;

(b) the substance behind the warning and performance letters issued to the Applicant in 2021 were not proven before me; and

(c) the remainder of the warning and performance letters relied upon by the Respondent go back many years (2011, 2013 and 2014), and there is no readily apparent connection between them and the Applicant’s dismissal on 6 January 2022. 12

[21] In summary, I am not satisfied, on the evidence before me, that the Applicant has engaged in misconduct during her employment with the Respondent, or more relevantly, engaged in misconduct that contributed to the Respondent’s decision to dismiss her. I decline to reduce the amount of compensation based upon any alleged misconduct by the Applicant.

Shock, Distress (s.392(4))

[22] The amount of compensation does not include a component for shock, humiliation or distress.

Compensation cap (s.392(5)&(6))

[23] The gross amount of $32,795.01 is less than the compensation cap of 26 weeks’ pay. No further adjustment of the amount is necessary.

Instalments (s.393)

[24] The Respondent did not apply to pay any award of compensation by instalments. No order will be made to that effect.

Application of the Sprigg formula

[25] As noted by a Full Bench of this Commission, “[t]he well-established approach to the assessment of compensation under s.392 of the FW Act… is to apply the “Sprigg formula” derived from the Australian Industrial Relations Commission Full Bench decision in Sprigg v Paul’s Licensed Festival Supermarket (Sprigg). 13 This approach was articulated in the context of the FW Act in Bowden v Ottrey Homes Cobram and District Retirement Villages.14”15

[26] The approach in Sprigg is as follows:

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. Workers’ compensation payments are deducted but not social security payments. The failure of an applicant to mitigate his or her loss may lead to a reduction in the amount of compensation ordered.

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.

Step 1 of the Sprigg formula

[27] I have estimated the remuneration the Applicant would have received, or would have been likely to have received, if the Respondent had not terminated the employment to be $47,045.00 on the basis of my finding that the Applicant would likely have remained in employment for a further period of one year (limited, for the purposes of these compensation calculations, to the statutory six months compensation amount). This estimate of how long the Applicant would have remained in employment is the “anticipated period of employment”. 16

Step 2 of the Sprigg formula

[28] I have found that the actual amount of remuneration earned by the Applicant for the six month period post her dismissal was $14,249.99.

[29] Only monies earned since termination for the anticipated period of employment are to be deducted. 17 I therefore deduct the sum of $14,249.99 from $47,045.00, leaving $32,795.01.

Step 3 of the Sprigg formula

[30] I have considered the impact of contingencies on the amount earned by the Applicant for the remainder of the anticipated period of employment, 18 and made no deduction.

Step 4 of the Sprigg formula

[31] I have considered the impact of taxation but have elected to settle upon a gross amount of $32,795.01. I leave taxation for determination in accordance with applicable taxation legislation.

Conclusion in respect of the Sprigg formula

[32] Having applied the formula in Sprigg, I am nevertheless required to ensure that “the level of compensation is an amount that is considered appropriate having regard to all the circumstances of the case.” Having regard to my findings at paragraphs [4] to [22] of this decision, I am satisfied that the amount of compensation that I have determined above takes into account all the circumstances of the case as required by s.392(2) of the FW Act.

Conclusion on remedy

[33] In my view, the compensation figure arrived at in this case does not yield an amount that is clearly excessive or clearly inadequate. I am satisfied that a remedy of compensation in the sum of $32,795.01 gross in favour of the Applicant, along with the payment of superannuation on that amount, is appropriate in all of the circumstances of this case. Orders to this effect will be issued contemporaneously with this decision.”

Raffie v Allied Express Transport Pty Ltd (2022) FWC 2464 delivered 15 September 2022 per Boyce DP