Unfair dismissal and compensation in lieu of reinstatement

What follows is an extract from a recent unfair dismissal case in the Fair Work Commission which is an excellent summary and application of the legal principles for calculating compensation for unfair dismissal in lieu of reinstatement.


[108] The Applicant sought compensation as a remedy for his dismissal. The Applicant did not seek to be reinstated. The Respondent objected to reinstatement on the grounds that his dismissal was for alleged serious misconduct and submitted it has been faced with the difficult decision to reduce its workforce by approximately 1,200 employees during the COVID-19 pandemic, impeding its ability to accommodate any finding that the Applicant should be reinstated.

[109] Section 390(3)(b) of the Act provides the Commission may only issue an order for compensation if it is appropriate in all the circumstances. The remedy of compensation is designed to compensate an unfairly dismissed employee in lieu of reinstatement, for losses reasonably attributable to the unfair dismissal, within the bounds of the statutory cap on compensation that is to be applied. 41

[110] Having regard to all the circumstances of the case, including the reasons for the Applicant’s dismissal and his response, I consider that reinstatement is not appropriate. Further, having regard to the fact that the Applicant has been unfairly dismissed and has suffered financial loss as a result, I considered that an order for payment of compensation to him was appropriate. Accordingly, I assessed the amount of compensation that should be ordered to be paid to the Applicant having regard to the circumstances of the case including the matters in s. 392(2) as follows:

“(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.”

[111] A Full Bench of the Commission in Sprigg v Paul Licensed Festival Supermarket 42 set out the established approach to the assessment of compensation, and that approach has been consistently applied in the context of the current legislative provisions by Full Benches of the Commission in a number of cases.43 The approach to calculating compensation in accordance with these authorities 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.

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 5: Apply the legislative cap on compensation.

[112] In relation to each of the matters I was required to consider in deciding the amount of compensation to be awarded to the Applicant for his unfair dismissal, I reached the following conclusions.

The effect of the order on the viability of the Respondent – s.392(2)(a)

[113] The Respondent is a large business with holdings across Australia. While the Respondent has made submissions to the effect it has been required to reduce its workforce, and that it is reliant on the JobKeeper scheme to subsidize wages, the Respondent has not submitted that any order of compensation would impact on the viability of the Respondent’s business. Furthermore, the Respondent did not call any evidence about the effect of the COVID-19 Pandemic or the general economic environment, but rather made unsubstantiated assertions in its final submissions.

[114] I was not satisfied that the order I propose to make will have an effect on the viability of the Respondent.

Length of the Applicant’s service – s.392(2)(b)

[115] The Applicant had been employed by the Respondent sixteen years. This is a considerable period of time and is acknowledged by the Respondent as such. In addition to the Applicant having a relatively lengthy period of service his employment history is unblemished.

Remuneration the Applicant would have or would likely have received – s.392(2)(c)

[116] There is an element of speculation in determining an employee’s anticipated period of employment because the task involves an assessment of what would have been likely to happen in the future had the employee not been dismissed. 44

[117] The Applicant’s evidence was that he intended to continue to work for the Respondent for another two years. Had the Applicant been given a warning and a second chance to maintain his employment, there is no evidence to suggest that he would not have made full use of this opportunity and done all he could to maintain his employment for the two year period that he had planned. This is particularly so given the Applicant’s age and his wife’s health issues and the fact that he had over 1000 hours of accrued personal leave. However, there is also a degree of probability that the Applicant would not have been employed for the full two years given his age, his own health and the effects of the COVID-19 Pandemic on the Respondent’s workforce.

[118] I am satisfied on the balance of probabilities that if the Applicant had not been dismissed on 31 January 2020, he would have remained employed by the Respondent for at least a further twelve months. The Applicant had no record of any issues relating to his performance or capacity. The Applicant had worked for 16 years for the Respondent and for the reasons set out above would have little incentive to leave the Respondent prior to the two years he had planned.

[119] The Applicant’s evidence about his earnings during the period of his employment was uncontested and no evidence to the contrary was called from any witness for the Respondent. In its final submissions which were made after an evidentiary hearing, raised some marginal issues about matter such as the inclusion of an amount for private use of a telephone and a vehicle supplied by the Respondent to the Applicant and that the Applicant’s commission varied and was not guaranteed. However, this was not sufficient to counter the Applicant’s evidence of his earnings and I generally accept that evidence subject to the following matter.

[120] The Respondent submitted (also without placing any supporting evidence before the Commission) that due to the effects of the COVID-19 Pandemic, the majority of the Respondent’s employees are entering (or have entered) into mutual agreements to reduce their hours of work by 20%. The Respondent submitted that the Applicant’s income in the role of salesperson would likely have reduced to $830.76 (before tax) per week as at 16 March 2020 under an agreement to reduce hours of work by 20%. It was conceded in final submissions that no evidence had been placed before the Commission on this point and that the submission did not indicate which staff were on JobKeeper and whether there had been an impact on all staff or on salespersons to a greater or lesser degree than other staff. Notwithstanding the lack of evidence on this point, I accept that it is more probable than not that the COVID-19 Pandemic would have impacted on the Applicant’s earnings in the manner contended by the Respondent and this is a matter to which I have had regard, doing the best that I can given the lack of evidence from the Respondent.

[121] For the purposes of the required calculation pursuant to s. 392(2)(c) I am satisfied and find that had the Applicant remained in employment for a period of one year, he would have earned a reduced amount of $830.76 for a period of 6 months from 16 March. At the time his employment was terminated the Applicant’s earnings for the 26 week period prior to this dismissal, were $45,360.64. The Applicant contended that this figure comprised amounts to which he was entitled and the Respondent placed no evidence to the contrary before me. That amount equates to a weekly rate of $1,744.64.

[122] Accordingly for the six week period from 31 January 2020 (when the Applicant was dismissed) until 16 March 2020 (when the Applicant would have been in receipt of JobKeeper payments) the Applicant would have earned the amount of $10,467,84. For the 26 week period from 16 March 2020 to 14 September 2020, the Applicant would have earned the amount of $21,599.76. Thereafter, for the period 20 week period from 14 September 2020 to 31 January 2021 the Applicant would have earned the amount of $34,892.80. The projected earnings total $66,960.40.

[123] Applying step 2 in the Sprigg formula, this amount exceeds the statutory cap in s. 392(5) and applying the cap results in the amount of $45,360.64.

[124] There was some evidence that the Applicant had sustained an injury to his arm which required surgery, which had prevented him from working for part of the period covered by the award of compensation I have determined. I have made no deduction for this amount as had the Applicant remained in employment he would have been entitled to use his accrued personal leave which well exceeded the amount of time he required to recover from the surgery. Further, while the injury may prevent the Applicant from pursuing alternative employment as a bus driver it would probably not have prevented him from working as a vehicle salesperson particularly during the COVID-19 Pandemic and the resulting down turn.

[125] Given the period over which I have assessed compensation already factors in contingency I make no other deduction for this.

The Applicant’s efforts to mitigate loss – s.392(2)(d)

[126] The Applicant’s evidence and submission was that he had attempted to obtain other employment but had been unable to do so. I am satisfied that in circumstances where the Applicant was 69 years of age and lost his employment in circumstances where his honesty and integrity were unjustly called into question, he has made reasonable attempts to mitigate the loss of his employment. That these attempts have been hindered by an injury the Applicant sustained, is not a basis to reduce his compensation on.

The amount of any remuneration earned since dismissal – s.392(2)(e)

[127] The Applicant earned an amount of $500.00 net (having regard for the fact that it cost the Applicant $500.00 to earn that amount) following the termination of his employment. The Applicant was also paid an amount of five weeks notice in lieu of the termination of his employment which appears on his pay slip as an amount of $5,192.30 which represents five weeks at his base hourly rate of $27.3276. Accordingly I deduct these amounts from his projected earnings leaving a total of $61,268.10.

The amount of any income reasonably likely to be earned during the period between the making of the order for compensation and the actual compensation – s. 392(2)(f)

[128] In all of the circumstances including the Applicant’s age, the manner in which he was dismissed, the effect of the COVID-19 Pandemic and the period of time over which I have assessed compensation, I do not think it reasonable to make a deduction for income likely to be earned between the making of the order for compensation and the actual compensation.

Any other matter that the FWC considers relevant – s.392(2)(g)

[129] I consider it relevant to the calculation of compensation, that shortly after the Applicant was dismissed and at the point at which the COVID-19 Pandemic took effect, the Respondent significantly downsized its employee numbers. If the Applicant had not been unfairly dismissed, he would have been employed at that time and but for his unfair dismissal may have been made redundant thereby entitling him to a redundancy payment. Based on the Applicant’s period of service, he would have been entitled to a redundancy payment comprising five weeks in lieu of notice and a further 12 weeks’ severance payment. These amounts would have been taxed in a manner that was advantageous to the Applicant. The unfair dismissal of the Applicant may have deprived him of ending his career on this basis.

[130] Even if the Applicant obtains other employment, he has lost the benefit of personal leave credits accrued during his 16 years of employment in circumstances where there was no valid reason for his dismissal.

Misconduct – s.392(3)

[131] While the Applicant did not engage in conduct for which dismissal would be a sound, well-founded and defensible response, I am satisfied that the Applicant did engage in misconduct which contributed to the situation he found himself in on 22 January 2020. The Applicant was told not to leave the vehicle without having received a remittance advice from the bank and notwithstanding that he had reasons mitigating his non-compliance, he did disregard that instruction. I have decided that it is appropriate to reduce the Applicant’s compensation to reflect this misconduct by an amount of 20%. I have applied the reduction to the amount of compensation after the cap is applied on the basis that to apply the reduction before the application of the cap would have no practical effect in reducing the compensation amount.

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

[132] In accordance with s 392(4) of the Act, the amount of compensation calculated does not include a component for shock, humiliation or distress.

Compensation cap – s.392(5)-(6)

[133] Applying the compensation cap in s. 392(5) results in amount of $45,360.64. That amount is less than half the amount of the high income threshold immediately before the dismissal. It is the total amount of remuneration to which the Applicant was entitled in his employment with the Respondent during the 26 weeks immediately before his dismissal. Applying the reduction of 20% which I have determined in accordance with s. 392(3) results in an amount of $36,288.51.

Instalments – s.393

[134] No application has been made to date by the Respondent for any amount of compensation awarded to be paid in the form of instalments.

Conclusion on compensation

[135] In my view, the application of the Sprigg formula does not, in this case, yield an amount that is clearly excessive or clearly inadequate. Accordingly, my view is that there is no basis for me to reassess the assumptions made in reaching the amount of $36,288.51. 45

[136] For the reasons I have given, I concluded that a remedy of compensation in the sum of $36,288.51 (less taxation as required by law) in favour of the Applicant was appropriate in the circumstances of this case. I also determined that superannuation contributions in the amount of $3,304.08 should be paid to the Applicant’s nominated superannuation fund. An Order requiring that the Respondent pay compensation to the Applicant in those amounts was issued on 2 November 2020 46.”

Mather v AHG Services (QLD) Pty Ltd (2020) FWC 5805 delivered 16 November 2020 per Asbury DP