Unfair dismissal; how to calculate compensation

Here is an extract from a very recent Fair Work Commission unfair dismissal case which contains a classic assessment of compensation for unfair dismissal.

“Remedy

Having found that Ms Anderson was protected from unfair dismissal, and that her dismissal was harsh, unjust and unreasonable, it is necessary to consider what, if any, remedy should be granted to her. Ms Anderson requested the remedy of reinstatement, but I am satisfied that it would be inappropriate to reinstate Ms Anderson in circumstances where the Greenhills Salon has recently closed down, I do not have any evidence as to any other hair salons owned by Beautiful Hair or any of its Associated Entities, nor do I have any evidence concerning any position in any such business which may be suitable to Ms Anderson, and having regard to the way in which Ms Anderson was treated in the process leading up to her dismissal, I am satisfied that her relationship with Mr and Ms Hamed has deteriorated to a significant extent. As a result, I need to consider whether compensation is appropriate.

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. A compensation remedy 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. 13

Having regard to all the circumstances of the case, including the fact that Ms Anderson has suffered financial loss as a result of her unfair dismissal, I consider that an order for payment of compensation to her is appropriate.

It is necessary therefore for me to assess the amount of compensation that should be ordered to be paid to Ms Anderson. In assessing compensation, I am required by s 392(2) of the Act to take into account all the circumstances of the case including the specific matters identified in paragraphs (a) to (g) of this subsection.

In undertaking this task, I shall use the established methodology for assessing compensation in unfair dismissal cases which was set out in Sprigg v Paul Licensed Festival Supermarket 14 and applied and elaborated upon in the context of the current Act by Full Benches of the Commission in a number of cases.15 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.

Remuneration Ms Anderson would have received, or would have been likely to receive, if she had not been dismissed (s 392(2)(c))

Like all calculations of damages or compensation, 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. 16

Ms Anderson gave evidence, which I accept, that she enjoyed working at Beautiful Hair and intended to remain working for Beautiful Hair until at least the end of her apprenticeship, which was due to be completed at the end of this year. Also of relevance is the fact that Ms Anderson was not given any warnings in relation to her performance or conduct during her employment with Beautiful Hair. Further, four of the seven employees working in the Greenhills Salon were kept on after 24 February 2019. On the basis of the text message sent by Ms Camilleri to Ms Neilson and Ms Easter on 18 February 2019, I find, on the balance of probabilities, that those four employees retained employment with Beautiful Hair after 24 February 2019.

The fact that the Greenhills Salon closed down shortly before the hearing is significant. No evidence was adduced as to what happened to the employees working in that business at the time it closed down. There is the prospect that they were employed by other businesses owned by Beautiful Hair or an Associated Entity of it. However, the greater likelihood is that the employees working in that business at the time it closed down had their employment terminated at that time, particularly having regard to the fact that the only hair salons of which Ms Anderson was aware that were owned by Beautiful Hair or connected to Mr or Ms Hamed were based in Sydney or the Central Coast.

In all the circumstances, I find that Ms Anderson would have remained employed by Beautiful Hair until the Greenhills Salon closed down. Ms Anderson gave evidence that the closure took place about a month or two before the hearing. I find, on the balance of probabilities, that the closure occurred on 28 June 2019, which is half-way between 13 June 2019 (two months before the hearing) and 13 July 2019 (one month before the hearing).

In the period from about the start of January 2019 until her dismissal, Ms Anderson worked about 30 hours per week (including 7 hours paid work per week at TAFE) for Beautiful Hair, mostly from Monday to Friday. I find that Ms Anderson would have continued to work the same hours and earn the same income from Beautiful Hair had she not been dismissed on 24 February 2019. Ms Anderson’s hourly rate was $16.97 per hour. That equates to $509.10 per week ($16.97 x 30 = $509.10). The period from 24 February 2019 to 28 June 2019 was 18 weeks. It follows that in that period Ms Anderson would have received $9,163.80 gross ($509.10 x 18 = $9,163.80).

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

At the time of the hearing (13 August 2019), the only remuneration earned by Ms Anderson since her dismissal on 24 February 2019 was one month’s worth of work she undertook, on a trial basis, at a hair salon in Cardiff, New South Wales in May 2019. Ms Anderson was not offered on-going employment at that salon at the conclusion of her one-month trial period. During that one-month trial period, Ms Anderson worked 38 hours per week, including 4 hours on a Saturday. Her weekly gross earnings in that job were $667.26 ($16.97 x 34 hours + $22.5701 x 4 hours = $667.26). It follows that in the month of May 2019 Ms Anderson earned $2,891.46 ($667.26 x 4.33333 = $2,891.46).

The calculation at this point is $9,163.80 – $2,891.46 = $6,272.34.

Viability (s 392(2)(a))

No evidence was adduced that any particular amount of compensation would affect the viability of Beautiful Hair’s business.

No adjustment will be made on this account.

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

Ms Anderson’s relatively short period of service does not justify any adjustment to the amount of compensation.

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

Ms Anderson has made numerous efforts to obtain alternative employment following her dismissal on 24 February 2019. In particular, she has made job applications using a variety of sources, including SEEK, and for a range of jobs, not just hairdressing. Further, Ms Anderson sought and obtained the one-month paid work trial in May 2019.

In all the circumstances, I am satisfied that Ms Anderson acted reasonably to mitigate the loss suffered by her because of the dismissal and do not consider it appropriate to reduce the compensation on this account.

Any other relevant matter (s 392(2)(g))

It is necessary to consider whether to discount the remaining amount for “contingencies”. This step is a means of taking into account the possibility that the occurrence of contingencies to which Ms Anderson was subject might have brought about some change in earning capacity or earnings. 17 Positive considerations which might have resulted in advancement and increased earnings are also taken into account.

The discount for contingencies should only be applied in respect to an “anticipated period of employment” that is not actually known, that is a period that is prospective to the date of the decision. 18

Because I am looking in this matter at an anticipated period of employment which has already passed (25 February 2019 to 28 June 2019), there is no uncertainty about Ms Anderson’s earnings, capacity or any other matters during that period of time.

In all the circumstances I have decided that it is not appropriate to discount or increase the figure of $6,272.34 for contingencies.

For the reasons stated, I have found, on the balance of probabilities, that if Ms Anderson had not been unfairly dismissed on 24 February 2019, she would have remained in employment with Beautiful Hair until the Greenhills Salon closed down on 28 June 2019. At that time, her employment would have been terminated and I am satisfied, on the balance of probabilities, that she would have been given actual notice of termination prior to the closure of the Greenhills Salon and the reason for dismissal would have been redundancy, in which case she would have been entitled to receive four weeks’ redundancy pay under s 119 of the Act. Having regard to the purpose of a compensation remedy 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, 19 I consider it relevant in the circumstances of this case to include the four week redundancy payment to which Ms Anderson would have been entitled on 28 June 2019 to the compensation calculated thus far. The compensation amount then becomes $8,308.74 gross ($6,272.34 + (4 x $509.10 = $2,036.40). This amount represents the gross sum Ms Anderson would likely have received (less tax) had she not been dismissed by Beautiful Hair on 24 February 2019 and instead continued to be employed by Beautiful Hair until 28 June 2019. This calculation is intended to put Ms Anderson in the position she would have been in but for her unfair dismissal on 24 February 2019.20

Save for the matters referred to in this decision, there are no other matters which I consider relevant to the task of determining an amount for the purposes of an order under s 392(1) of the Act.

I have considered the impact of taxation, but I prefer to determine compensation as a gross amount and leave taxation for determination.

Misconduct (s 392(3))

Ms Anderson did not commit any misconduct, so this has no relevance to the assessment of compensation.

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

I note that 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))

The amount of $8,308.74 is less than half the amount of the high income threshold immediately before the dismissal. It is also less than the total amount of remuneration to which Ms Anderson was entitled in her employment with Beautiful Hair during the 26 weeks immediately before her dismissal. In those circumstances, I am satisfied that there is no basis to reduce the amount of $8,308.74 by reason of s 392(5) of the Act.

Instalments (s 393)

No application was made by Beautiful Hair for any amount of compensation awarded to be paid in the form of instalments.

Conclusion on compensation

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, there is no basis for me to reassess the assumptions made in reaching the amount of $8,308.74. 21

For the reasons I have given, I am satisfied that a remedy of compensation in the sum of $8,308.74 (less taxation as required by law) in favour of Ms Anderson is appropriate in the circumstances of this case. I will issue an order PR711543 to that effect.

Anderson v Beautiful Hair Burwood Pty Ltd (2019) FWC 5808 delivered 21 August 2019 per Saunders DP