Unfair dismissal compensation

Compensation for unfair dismissal; the care required to calculate

What follows is an extract from a recent decision of a Full Bench of the Fair Work Commission which identifies the care and the principles which must be applied to the task of calculating compensation for unfair dismissal.

“We are satisfied that the grant of permission to appeal in relation to the eighth ground of appeal would be in the public interest, because it is apparent that the Commissioner’s quantification of compensation was attended by appealable error and raises issues of general application. There is a difficulty at the outset in identifying, from the Decision, the basis upon which the Commissioner arrived at the conclusion that the amount of $22,882.00 should be awarded. We have earlier set out the process of reasoning in the Decision which led to this conclusion. Although nominal regard was had to the matters required to be taken into account under s 392(2), there was no identification of how each matter was taken into account in a mathematical sense. It is important to remember that the discretion to award compensation is not at large; it is a guided discretion, and it is not sufficient merely to mention the matters which are required to be taken into account without treating them as matters of significance. Further, although the Decision 23 made reference to the decision in Sprigg v Paul Licensed Festival Supermarket,24 which sets out a well-established, structured and transparent methodology for the assessment of compensation, that methodology was not followed. It is necessary to reiterate what was said in the Full Bench decision in Balaclava Pastoral Co Pty Ltd v Nurcombe,25 where the same type of error was identified:

“[43] We would add to this that in quantifying compensation, it is necessary to set out with some precision the way in which the various matters required to be taken into account under s.392(2) (and s.392(3) if relevant), and the steps in the Sprigg formula, have been assessed and quantified. That is to say, the way in which a final compensation amount has been arrived at should be readily apparent and explicable from the reasons of the decision-maker.

[44] We consider (consistent with two arguments advanced by Balaclava in support of appeal ground 6) that the Commissioner’s quantification of compensation did not conform to these principles and manifested appealable error in two respects. First, there was no proper engagement with the critical first step in the Sprigg formula to assess the anticipated period of employment. Engagement with this step is necessary in order to make the finding required by s.392(2)(c) concerning “the remuneration that the person would have received, or would have been likely to receive, if the person had not been dismissed”. The Commissioner observed that there was some prospect that the employment may not have endured for a considerable period, and that the conduct and performance issues may ultimately have led to Mr Nurcombe’s dismissal. However no anticipated period of employment was identified for the purpose of the first step in the Sprigg formula, and no amount of remuneration lost because of the dismissal was quantified for the purpose of s.392(2)(c).

[45] Second, the Commissioner concluded that 24 weeks’ pay, amounting to $18,552.00, should be awarded as compensation without adequately identifying the basis upon which this amount was calculated. It is clear that the Commissioner took into account at least the anticipated period of employment, Mr Nurcombe’s period of service, and the loss of non-transferable employment credits in assessing compensation. However the monetary value assigned to these components was not identified, making it impossible to determine whether the compensation amount was properly calculated pursuant to s.392 in accordance with established principle.”

[34] The same difficulty was raised in the Full Bench decision in Jimenez v Platypus Pty Limited: 26

“[20] We make the observation that we have grave reservations about the manner in which the Commissioner dealt with the issue of remedy, particularly his assessment of the amount of compensation to be awarded. The Decision does not articulate any basis for the conclusion in paragraph [83] that Mr Jimenez “may have been properly terminated within a very short period” if he had not been dismissed. It is not clear how each matter required to be taken into account under s.392(2) was considered and weighed. The manner by which the final amount of one week’s pay as compensation was arrived at was not explained. Nor was s.392(3) applied in the process.”

[35] The Decision does not, for example, disclose whether the “recognition” that Chesson was a small business led to a reduction in the amount of compensation that would otherwise have been awarded; 27 how long the Commissioner assessed Ms Knutson would have been employed if not dismissed (beyond being a “significant period of time”);28 or precisely what period of monetary loss the award of 17 weeks’ pay actually related to.29 As to this last matter we infer that, since the Commissioner appears to have found that there was no monetary loss after Ms Knutson gained new employment from 5 March 2018, the compensation was for the 17 week period ending on that date. Such a period would commence on or about 6 November 2017, the date upon which Chesson gave notice of the dismissal to Ms Knutson.

[36] Ms Knutson advanced her case on the basis that the termination of her employment took effect on or about 27 November 2017, she having been dismissed on notice. Her claim for personal leave was advanced on the basis that she was serving a period of notice commencing on 6 November 2017, although she was awaiting confirmation as to what that period of notice was. She never contended that she was summarily dismissed, and there is no evidence that she was summarily dismissed. The fact that she may not have been paid for a period of personal leave to which she was entitled did not have the effect of retrospectively converting a dismissal on notice to a summary dismissal effective from 6 November 2017. In those circumstances, it was not open for the Commissioner to find that she had been summarily dismissed on that date. As Chesson pointed out, if she had been dismissed on that date, then her application was lodged beyond the 21-day time period prescribed by s 394(2); that would have the consequence that, because she was never granted an extension of time pursuant to s 394(3), she could not validly have been granted an unfair dismissal remedy. That makes plain the nature of the error.

[37] The inference we have drawn as to the basis upon which the amount of 17 weeks’ pay was awarded by the Commissioner suggests that he awarded compensation for a three week period prior to the dismissal taking effect. That was an error of principle. The function of compensation ordered pursuant to s 392 is to compensate for loss arising from the dismissal. Any loss which Ms Knutson suffered in the period 6-27 November 2017 is the result of her not being afforded her personal leave entitlements under the NES, and is not the result of her dismissal. Unfair dismissal remedies are not the means by which unpaid NES entitlements are to be recovered; separate provision for that is made in Pt 4-1 of the FW Act.

[38] We also accept that the Commissioner erred in quantifying compensation in the second respect identified by Chesson. The evidence and submissions before the Commissioner demonstrated that Ms Knutson had obtained approval to use her accrued annual leave entitlements for an overseas holiday prior to her dismissal. She was paid those accrued entitlements upon the termination of her employment, and took the holiday as planned. That holiday was, on the basis of what was put to the Commissioner, for a period of three weeks. It cannot be said therefore that during the holiday period Ms Knutson suffered any loss arising from the dismissal. That three week period should not have been included in the assessment of compensable loss.

[39] Because of the two identified instances of error, the amount of compensation awarded exceeded what it should have been by six weeks’ pay. The correct amount should have been eleven weeks’ pay, which at the weekly rate of pay of $1,346.00 identified in the Decision 30 totalled $14,806.00. We will therefore uphold the eighth ground of appeal, quash the Decision insofar as the assessment of compensation is concerned, as well as the Order, and replace it with a further order for the payment of compensation inthe amount of $14,806.00. That amount has already been paid by Chesson pursuant to the Stay Order, so no further payment will be required by Chesson.

[40] Chesson sought an order that Ms Knutson pay it an amount of $4,737.20 in order to cover the tax which it says it is liable to pay, at the rate of 32%, on the amount of $14,806.00. It contends that the Stay Order did not permit it to deduct tax on that amount, and accordingly it made the payment without deducting tax.

[41] The Order made by the Commissioner did not require any deduction of tax but, as earlier set out, identified the amount of compensation as a “gross figure”, and stated that “appropriate taxation treatment is a matter for the Parties”. The difficulty with this is that it does not actually identify what the payment required to be made is; the more usual approach is to identify an amount to be paid by the employer to the applicant less any tax required to be deducted by law. The Stay Order required the amount of $14,806.00 to be paid as condition of the stay that was granted, and Chesson did not raise prior to making the payment any issue of tax liability. Even if Chesson has a tax liability on the amount it has paid pursuant to the Stay Order (a matter about which we make no finding), we do not consider that it can now be rectified by the making of an order that the relevant amount of the liability be paid back to Chesson by Ms Knutson. There is no power under Pt 3-2 to make an order requiring an employee to pay money to an employer, and we doubt that s 607(3)(b), which empowers an appeal bench to “make a further decision in relation to the matter that is the subject of the appeal…”, means that the bench is at large to make any decision as it considers appropriate, as distinct from a decision (in an appeal in an unfair dismissal case) in substitution for the original decision under Pt 3-2. Ms Knutson herself will no doubt have to bring to account for taxation purposes the amount she has been paid.”

Chesson PTY Limited T/A Pay Per Click v Knutson (2018) FWCFB 4149 delivered 30 July 2018 per Hatcher VP, Anderson DP and Wilson C