How to calculate compensation for unfair dismissal

This extract from an unfair dismissal decision of the Fair Work Commission is a very useful explanation of how to calculate compensation for unfair dismissal.

“Conclusion

[78] I am therefore satisfied that the Applicant was unfairly dismissed within the meaning of

section 385 of the FW Act.

Remedy

[79] Being satisfied that the Applicant:

  • made an application for an order granting a remedy under section 394;
  • was a person protected from unfair dismissal; and
  • was unfairly dismissed within the meaning of section 385 of the FW Act,

I may, subject to the FW Act, order the Applicant’s reinstatement, or the payment of

compensation to the Applicant.

[80] Under section 390(3) of the FW Act, I must not order the payment of compensation to

the Applicant unless:

(a) I am satisfied that reinstatement of the Applicant is inappropriate; and

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(b) I consider an order for payment of compensation is appropriate in all the

circumstances of the case.

Is reinstatement of the Applicant inappropriate?

Submissions

[81] The Applicant seeks compensation. She submitted that she was not seeking

reinstatement as in the circumstances it would not be appropriate although she did not provide

details as to why this would be the case.

[82] The Respondent submitted that reinstatement is not inappropriate because it had no

performance concerns with the Applicant, she was a valued employee, and the Respondent had

no concerns about taking her back.

Findings

[83] I find that notwithstanding the Applicant’s lack of clarity regarding why reinstatement

would not be appropriate, I agree that this is the case. While I have found that the Respondent

did not act with malice, it is nonetheless the case that the Applicant was required to take a not

insignificant period of time off work certified by a medical practitioner as unfit due to stress

arising from the actions of the Respondent as she quite justifiably perceived them. While she

is now certified as fit, I am not persuaded that it would be reasonable to insist that she accept

reinstatement, particularly as she has, from the start of her application, not sought such

reinstatement. As Senior Deputy President Richards observed in Taylor v C-Tech Laser Pty

Ltd:

“the Applicant’s disposition is a sure guide to the Commission as to whether or not it

would be appropriate to reinstate or re-employ the Applicant. To act contrary to the

Applicant’s desired position in this respect would be to give effect to an order that may

not yield a productive or cooperative workplace.”10

Is an order for payment of compensation appropriate in all the circumstances of the case?

[84] Having found that reinstatement is inappropriate, it does not automatically follow that a

payment for compensation is appropriate. As noted by the Full Bench, “[t]he question whether

to order a remedy in a case where a dismissal has been found to be unfair remains a discretionary

one…”11

[85] Where an applicant has suffered financial loss as a result of the dismissal, this may be a

relevant consideration in the exercise of this discretion.12

Submissions

[86] The Applicant did not make detailed submissions as to why payment of compensation

is appropriate but rather simply suggested that as reinstatement was not appropriate,

compensation was sought.

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[87] In the first instance, the Respondent submitted that payment of compensation is not

appropriate because the Applicant ended her own employment. If further submitted that any

losses suffered had been addressed by virtue of a settlement of a workers’ compensation claim.

Findings

[88] In response to the Respondent’s first assertion, I note that I have already decided that

the termination was at the initiative of the employer. As regards the workers’ compensation

claim, I am not persuaded to accept that the settlement of that claim, on terms that are not in

evidence, should be considered to be a bar to compensation in this matter. It may well be that

the settlement terms of that claim reflect payment for time taken off work during the Applicant’s

employment for which no sick leave was paid. It may be the case that there are other elements

included that are beyond the scope of an unfair dismissal claim, such as provision for future

medical treatments. In taking this position I should note that I am distinguishing a settlement

of a workers’ compensation claim from ongoing payments of wages as workers’ compensation

for an employee who is unable to work due to an injury arising in the course of his or her

employment.

[89] To avoid any confusion over this issue, I sought submissions from the parties as to

whether any element of the workers’ compensation settlement could be said to be for wages

lost in the period subsequent to 1 May 2023. Both parties submitted that there was no such

element identified in the terms of the settlement agreement.

[90] Given the circumstances of the termination and the fact that the Applicant has lost a fulltime position she held for some eight years, I consider that an order for payment of

compensation is appropriate.

Compensation – what must be taken into account in determining an amount?

[91] Section 392(2) of the FW 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 the order on 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 the Applicant

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;

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(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.

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

Effect of the order on the viability of the Respondent’s enterprise

[93] Neither party made submissions on the effect an order of compensation would have on

the viability of the Respondent’s enterprise and I am not aware of any issues that require

consideration in regard to that viability. As such, this factor is neutral in considering an amount

of compensation.

Length of the Applicant’s service

[94] The Applicant’s length of service was approximately eight years. Neither party made

submissions on this issue. I find that the length of the Applicant’s service does not have any

bearing on the amount of compensation to be awarded.

Remuneration that the Applicant would have received, or would have been likely to receive,

if the Applicant had not been dismissed

[95] As stated by a majority of the Full Court of the Federal Court, “[i]n determining the

remuneration that the Applicant would have received, or would have been likely to receive…

the Commission must address itself to the question whether, if the actual termination had not

occurred, the employment would have been likely to continue, or would have been terminated

at some time by another means. It is necessary for the Commission to make a finding of fact as

to the likelihood of a further termination, in order to be able to assess the amount of

remuneration the employee would have received, or would have been likely to receive, if there

had not been the actual termination.”13

[96] While neither party made direct submissions on this issue, I have inferred that the

Respondent’s willingness to accept the Applicant back into its employment and its

characterisation of her in its submissions as a good employee suggests that, had the

circumstances that resulted in termination not occurred, the Applicant’s employment would not

have been at any risk. Further, the Applicant’s unchallenged evidence was that she enjoyed her

work and the residents who were in her care. As such, I find that the Applicant’s employment

would have continued for at least one year.

Efforts of the Applicant to mitigate the loss suffered by the Applicant because of the

dismissal

[97] The Applicant must provide evidence that they have taken reasonable steps to minimise

the impact of the dismissal.14 What is reasonable depends on the circumstances of the case.15

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[98] The Applicant conceded, in response to the Respondent’s closing submissions, that the

Applicant could have done a better job of mitigating her loss.

[99] The Respondent submitted that the Applicant had not taken reasonable steps to minimise

the impact of the dismissal because the Applicant had failed to seek alternative employment for

some period after her dismissal and even when she commenced her search for employment, she

had not made sufficient efforts given the number of available positions. The Respondent

submitted that there were a great many jobs for disability support workers available in the

period subsequent to the Applicant being declared medically fit for work on 24 May 2023 and

that the Applicant had not availed herself of the opportunity to apply for them. The Applicant

rejected the number of jobs available claimed by the Respondent, noting that the figure was an

unsubstantiated assertion from the bar table.

[100] In her evidence the Applicant conceded that she had, at the time of the hearing, applied

for 40 positions in total, albeit that she had not started applying until late August. When

challenged on this she conceded that she had considered not returning to employment as a

disability support worker and this was the reason for the delay.

Findings

[101] While I have some sympathy for the Applicant’s state of mind at the time of the

dismissal and it is perhaps understandable that she toyed with the idea of not returning to

disability support work, it is nonetheless the case that she bears a responsibility to mitigate her

loss, and such mitigation is not limited to seeking jobs in the field of disability support work.

If it was the case that the Applicant was of a mind to change career, it was incumbent upon her

to commence looking for work in some other field. As such, I am not satisfied that, at least

initially, the Applicant took reasonable steps to mitigate her loss, which warrants a reduction of

her compensation by 50%.

Amount of remuneration earned by the Applicant from employment or other work during

the period between the dismissal and the making of the order for compensation

[102] The Applicant’s evidence is that the Applicant has not earned any amount from

employment or other work since the dismissal. That evidence is not challenged by the

Respondent and I am satisfied that the amount of remuneration earned by the Applicant from

employment or other work during the period since the dismissal is $0.

Amount of 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

[103] The Applicant’s unchallenged evidence was that the positions for which she had lodged

an application were unlikely to be decided for some time. Apart from this, there was no

evidence before me on the issue of the Applicant earning any income between the making of

the order for compensation and the payment of compensation. As such, I find that it is unlikely

the Applicant will earn any income in the period between the making of an order for

compensation and the actual compensation.

Compensation – how is the amount to be calculated?

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[104] As noted by the Full Bench, “[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).16 This approach was articulated in the context of the FW Act in

Bowden v Ottrey Homes Cobram and District Retirement Villages17.”18

[105] 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

[106] 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

$63,192.48 on the basis of my finding that the Applicant would likely have remained in

employment for a further period of one year. This estimate of how long the Applicant would

have remained in employment is the “anticipated period of employment”.19

 

[107] As I found that the Applicant did not make a reasonable effort to mitigate her loss, I

determined to apply a 50% discount to the amount of compensation, leaving the figure at

$31,596.24.

Step 2

[108] I have found that the amount of remuneration earned by the Applicant from the date of

dismissal was zero, and that the amount of income reasonably likely to be earned by the

Applicant between the making of the order for compensation and the payment of compensation

is also zero.

[109] There is therefore no deduction to be made at this step.

Step 3

[110] I now need to consider the impact of contingencies on the amounts likely to be earned

by the Applicant for the remainder of the anticipated period of employment.20

Neither party

made any submissions with respect to this issue. However, I note that the Applicant has some

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health issues that have prevented her from working in the past. Noting that in one year the

Applicant would accrue paid sick leave that would cover two weeks of absences, if I assume a

further two weeks of absence it would reflect an amount time unpaid equal to approximately

four percent of the year. Accordingly, I find that it is appropriate to make a deduction for

contingencies equivalent to four percent. The deduction is therefore $2,527.70, leaving the

gross figure at $29,068.54.

Step 4

[111] I have considered the impact of taxation but have elected to settle a gross amount of

$29,068.54 and leave taxation for determination.

[112] 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.”21 Given my consideration as set out above, I am satisfied that the

amount of $29,068.54 is appropriate.

Compensation – is the amount to be reduced on account of misconduct?

[113] If I am satisfied that misconduct of the Applicant contributed to the employer’s decision

to dismiss, I am obliged by section 392(3) of the FW Act to reduce the amount I would

otherwise order by an appropriate amount on account of the misconduct. In this case I am

satisfied there was no misconduct by the Applicant and therefore, the amount of the order for

compensation is not to be reduced on account of misconduct.

Compensation – how does the compensation cap apply?

[114] Section 392(5) of the FW Act provides that the amount of compensation ordered by the

Commission must not exceed the lesser of:

(a) the amount worked out under section 392(6); and

(b) half the amount of the high income threshold immediately before the dismissal.

[115] The amount worked out under section 392(6) and in accordance with Regulation 3.06 is

$31,596.24.

[116] The high income threshold immediately before the dismissal was $162,000. Half of that

amount is $81,000.

[117] The amount of compensation ordered by the Commission must therefore not exceed

$31,596.24.

[118] In light of the above, I will make an order that the Respondent pay $29,068.24 gross

less taxation as required by law to the Applicant in lieu of reinstatement within seven days of

the date of this decision.”

 

 

Conrad v Rocky Bay Limited [2023] FWC 2727 delivered 18 October 2023 per O’Keeffe DP