Unfair dismissal principles for employers

Recently there have been a spate of cases in the Fair Work Commission in which the Commission has held that although there was a valid reason for the applicant’s dismissal, it was nonetheless harsh, unjust and unreasonable. The following passages from a recent case explain how the Commission reached that view and also contains an analysis of the principles which apply to the assessment of compensation for unfair dismissal.

“Having regard to the consistent medical opinion in the evidence before me and the evidence from Mr Felsbourg regarding the nature of the AUC role, which I prefer over that given by Mr Dyke, I find that that Mr Ewen’s condition was such that he could not perform the inherent requirements of the AUC as at the date of his termination. Nor were there any reasonable adjustments which could be made to his AUC role to accommodate him. I also note that none of the doctors who assessed Mr Ewen were able to proffer a firm prognosis as to a realistic timeframe within which a return to work would be possible. In particular, Dr Rahgozar’s opinion in relation to a return to work was expressed as being theoretical and subject to a firm diagnosis, implementation of an effective management plan and significant improvement in Mr Ewen’s condition. Further, Mr Ewen’s testimony at the hearing confirmed that very little had changed since his dismissal. Mr Ewen said that even though he felt he was slowly getting better, he was still unfit for work and that the timeframe for any return to work remained unknown. This evidence was consistent with what had been suggested in the medical opinions obtained prior to Mr Ewen’s termination. Indeed, by the time the hearing took place four months after the termination of his employment, there was still no medical evidence suggesting that Mr Ewen was anywhere near on track to overcome his incapacity, which had by then persisted for approximately 19 months since March 2019, anytime soon. Having regard to the circumstances before me, I am satisfied there was a valid reason for the termination of Mr Ewen’s employment relating to his capacity……………………….

Section 387(h) of the Act provides the Commission with a broad scope to consider any other matters it considers relevant. Having regard to the material before me, I consider there are a number of matters that render Mr Ewen’s dismissal harsh, unjust or unreasonable and therefore, unfair.

Firstly, the process adopted was an extraordinarily deficient one to subject to an employee with 43 years’ service. Mr Ewen was advised that the consultation with Dr Rahgozar was for the purpose of assessing his eligibility for Income Maintenance and yet he was then for the first time advised, only three days before his ultimate termination, that EnergyAustralia was considering terminating his employment based on Dr Rahgozar’s opinion. Even then, and with just three days to prepare for a show cause meeting, Mr Ewen was only provided with a copy of Dr Rahgozar’s report on the day before, leaving him virtually no time to absorb its contents or provide a considered response. I am persuaded that given Mr Ewen’s particular medical condition, he was not provided with sufficient or reasonable time to respond to the findings of Dr Rahgozar’s IME. Mr Ewen deserved better treatment and I do not accept that providing Mr Ewen with a reasonable period to respond would have imposed an unreasonable burden on EnergyAustralia or his colleagues due to any additional absence having to be covered by relief workers and overtime. This is because EnergyAustralia had itself agreed to set staff ratios.

Secondly, in circumstances where a feature of the highly conditional theoretical pathway to a return to work outlined by Dr Rahgozar was the compromised timing (due to COVID-19 restrictions) of obtaining the further suggested neurological assessment and an EEG and the undertaking of any subsequent management plan, the decision not to allow Mr Ewen to access his accrued annual and/or long service leave while doing so was unfair. Clause 17.2(f)(i) of the Yallourn Enterprise Agreement provides that in the event an ill or injured employee exhausts his or her personal leave, he or she may elect to access annual leave and/or long service leave in place of personal leave (my emphasis). Unlike an election to access the Income Maintenance Insurance Policy in clause 17.2(f)(ii) of the Yallourn Enterprise Agreement, which is subject to an applicant meeting pre-requisites, the ability to access accrued leave would not appear to be subject to conditions. While EnergyAustralia sought to rely on clause 17.2(g) of the Yallourn Enterprise Agreement as a constraint on the clause 17.2(f)(i) entitlement, I consider that having regard to the circumstances of this case, Energy Australia needlessly and unreasonably denied Mr Ewen the option available under clause 17.2(f)(i). Mr Ewen could have remained an employee on leave while following suggestions of Dr Rahgozar even if doing so did not ultimately result in the significant improvement required to enable him to return to work.

Thirdly, in this particular case, the manner of the dismissal whereby EnergyAustralia decided to pay Mr Ewen in lieu of notice of termination and not give him the option, contemplated under law, to serve his five week notice period had a harsh impact on him. Had Mr Ewen, who had already been incapacitated for a considerable period, been able to serve out a final five week notice period, his employment would have terminated during the next financial year and he would therefore not have met the significant and negative consequences of the taxation treatment of his accrued entitlements that resulted from being terminated with immediate effect on 12 June 2020.

Finally, I have noted the evidence that other EnergyAustralia employees have been permitted be absent due to long-term illness and of a discretionary decision having been made for another employee to be absent on income maintenance, despite the operational pressure this might have imposed on the rosters.

In terms of the submissions made regarding Income Maintenance Insurance, I note that while clause 23.5 of the Yallourn Enterprise Agreement outlines that EnergyAustralia will provide group salary continuance insurance that gives additional salary protection for up to two years to employees who are absent due to a long-term illness, its application is subject to the terms and conditions of the Income Maintenance Insurance policy. While the parties are in dispute as to if and when Mr Ewen became eligible for an Income Maintenance Insurance benefit, Dr Rahgozar’s report and opinion was the catalyst for EnergyAustralia’s rejection of Mr Ewen’s claim, on the basis that he was unable to meet what it asserted were the “eligibility requirements” of the policy – specifically, that there was medical information/documentation that supported the view that there was little prospect of Mr Ewen returning to his substantive role or any other suitable role if available. I am satisfied that the nature of the medical opinion expressed by Dr Rahgozar supported such a view. The outlining of a no more than 50% likelihood of Mr Ewen being able to return to the full inherent requirements of the AUC role in 12 months predicated on the three not insignificant preconditions of a firm diagnosis, implementation of an effective management plan and significant improvement of his condition, is capable of supporting the view that there is “little prospect” of a return to work. I therefore do not consider that the rejection of Mr Ewen’s claim for Income Maintenance Insurance rendered his dismissal unfair……………

Remedy

In the circumstances where I have found Mr Ewen was protected from unfair dismissal at the time of being dismissed and that he has been unfairly dismissed, s.390 of the Act prescribes that a remedy is available. Accordingly, I am required to determine whether to order the reinstatement of Mr Ewen or, if I am satisfied reinstatement is inappropriate, to order the payment of compensation if I am satisfied that such an order is appropriate in all the circumstances. 40

The primary remedy under the Act is reinstatement, however I have had regard to how Mr Ewen has framed his submission regarding reinstatement and the circumstances of this case, and am satisfied it is inappropriate to order reinstatement (s.390(3)(a)). Mr Ewen’s evidence at the hearing confirms a continuing incapacity and inability to resume his duties and there was no evidence submitted that persuades me that the prognosis of Dr Rahgozar has been displaced or that Mr Ewen is no longer ineligible for Income Maintenance Insurance. Nor would I be persuaded in such circumstances to recredit the leave paid out upon Mr Ewen’s termination. I consider that Mr Ewen remains unable to perform the inherent requirements of the AUC role and I remain unpersuaded that there are any reasonable adjustments which could be made to his AUC role to accommodate him.

I must therefore consider whether it is appropriate in all the circumstances to make an order for payment of compensation (s.390(3)(b)).

Section 392 of the Act sets out the circumstances that must be taken into consideration when determining an amount of compensation, the effect of any findings of misconduct on that compensation amount and the upper limit of compensation that may be ordered.

 

In considering each of the criteria in s.392 of the Act, it is useful to refer to the helpful restatement of principles to be applied in the assessment of compensation in Johnson v North West Supermarkets T/A Castlemaine IGA: 41

“[9] The well-established approach to the assessment of compensation under s 392 is to apply the ‘Sprigg formula’, derived from the Australian Industrial Relations Commission Full Bench decision in Sprigg v Paul Licensed Festival Supermarket. This approach was articulated in the context of the current legislative framework in Bowden v Ottrey Homes Cobram and District Retirement Villages. Under that approach, the first step to be taken in assessing compensation is to consider s.392(2)(c), that is, to determine what the applicant would have received, or would have been likely to receive, if the person had not been dismissed. In Bowden this was described in the following way:

“[33] The first step in this process – the assessment of remuneration lost – is a necessary element in determining an amount to be ordered in lieu of reinstatement. Such an assessment is often difficult, but it must be done. As the Full Bench observed in Sprigg:

‘… we acknowledge that there is a speculative element involved in all such assessments. We believe it is a necessary step by virtue of the requirement of s.170CH(7)(c). We accept that assessment of relative likelihoods is integral to most assessments of compensation or damages in courts of law.’

[34] Lost remuneration is usually calculated by estimating how long the employee would have remained in the relevant employment but for the termination of their employment. We refer to this period as the ‘anticipated period of employment’…”

[10] The identification of this starting point amount ‘necessarily involves assessments as to future events that will often be problematic,’ but, as the Full Bench observed in McCulloch v Calvary Health Care Adelaide, ‘while the task of determining an anticipated period of employment can be difficult, it must be done.’

[11] Once this first step has been undertaken, various adjustments are made in accordance with s.392 and the formula for matters including monies earned since dismissal, contingencies, any reduction on account of the employee’s misconduct and the application of the cap of six months’ pay. This approach is however subject to the overarching requirement to ensure that the level of compensation is in an amount that is considered appropriate having regard to all the circumstances of the case.” (my emphasis – references omitted)

The Sprigg formula was discussed and refined in Ellawala v Australian Postal Corporation 42 as follows:

“[31] The principles applicable to determining an amount to be ordered in lieu of reinstatement are dealt with in Sprigg. In that case the Full Bench endorsed the following approach:

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.

[32] Any amount provisionally arrived at by application of these steps is subject to whether offsetting weight is given to other circumstances, including those that need now to be taken into account under paragraphs 170CH(7)(a), (b) and (c). The legislative cap on the amount able to be ordered is then applied pursuant to ss.170CH(8) and (9).

[33] The first step in this process – the assessment of remuneration lost – is a necessary element in determining an amount to be ordered in lieu of reinstatement. Such an assessment is often difficult, but it must be done. As the Full Bench observed in Sprigg:

“…we acknowledge that there is a speculative element involved in all such assessments. We believe it is a necessary step by virtue of the requirement of s.170CH(7)(c). We accept that assessment of relative likelihoods is integral to most assessments of compensation or damages in courts of law.”

[34] Lost remuneration is usually calculated by estimating how long the employee would have remained in the relevant employment but for the termination of their employment. We refer to this period as the “anticipated period of employment”. This amount is then reduced by deducting monies earned since termination. Only monies earned during the period from termination until the end of the “anticipated period of employment” are deducted. An example may assist to illustrate the approach to be taken.

[35] In a particular case the Commission estimates that if the applicant had not been terminated then he or she would have remained in employment for a further 12 months. The applicant has earned $3,000 a month for the 18 months since termination, that is $54,000. Only the money earned in the first twelve months after termination – that is $36,000 – is deducted from the Commission’s estimate of the applicant’s lost remuneration. Monies earned after the end of the “anticipated period of employment”, 12 months after termination in this example, are not deducted. This is because the calculation is intended to put the applicant in the financial position he or she would have been in but for the termination of their employment.

[36] The next step is 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 the applicant was subject might have brought about some change in earning capacity or earnings.

[45] In relation to the fourth step set out in Sprigg we note that the usual practice is to settle a gross amount and leave taxation for determination.” (my emphasis, references omitted)

In Balaclava Pastoral Co Pty Ltd t/a Australian Hotel Cowra v Darren Nurcombe, 43 the Full Bench stated 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. The Full Bench also proffered that 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.

I consider it is appropriate in all the circumstances to make an order for payment of compensation and will assess compensation having regard to these matters.

Remuneration that would have been received if the dismissal had not occurred – s.392(2)(c)

Given my findings regarding the evidence relating to Mr Ewen’s capacity for work and prognosis and Mr Ewen’s evidence at the hearing, I do not consider that I am in a position to conclude that Mr Ewen would have received or would have been likely to receive any remuneration if he had not been dismissed on 12 June 2020. That his condition was largely unchanged at hearing was consistent with the medical opinions available at the time of his dismissal and Dr Rahgozar’s prognosis has not been proven to be inaccurate. Bearing in mind one of Dr Rahgozar’s three preconditions for the prognosis of a not more than 50% likelihood of Mr Ewen being able to return to full inherent requirements of the AUC role in 12 months was “significant improvement” in a condition that has exhibited little improvement since March 2019, I am satisfied there is a sound basis for concluding the receipt of any future remuneration as an AUC would have been highly unlikely.

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

Remuneration earned from the date of dismissal to the date of any compensation order is required to be taken into account under s.392(2)(e) of the Act. Remuneration reasonably likely to be earned from the date of any compensation order to the date the compensation is paid is also to be taken into account (under s.392(2)(f) of the Act). Any remuneration likely to be earned after that date to the end of the period of anticipated employment determined for the purpose of s.392(2)(c) is a relevant amount to be taken into account under s.392(2)(g) in accordance with the Sprigg formula. 44

Mr Ewen has not earned any additional remuneration from employment or other work since being dismissed. As to the consideration in s.392(2)(f) of the Act, there is no evidence suggesting Mr Ewen is reasonably likely to earn any income during the period between now and the date upon which I would order that the compensation be payable (21 days).

Length of service – s.392(2)(b) and any other matters – s.392(2)(g)

Mr Ewen had been employed full time for 43 years at the time of his dismissal. He was dismissed with five weeks’ payment in lieu of notice on 12 June 2020. Had he been permitted to serve his notice period, his employment would have terminated during the new financial year of 2020/2021. I have concluded above that EnergyAustralia’s failure to give Mr Ewen this option had a harsh impact on him. Mr Ewen gave unchallenged evidence that having been terminated in the 2019/2020 financial year has left him $26,503.00 worse off because of the way his accrued annual and long service leave was taxed, compared with how it would have been taxed if he had been allowed the option of taking it during the 2020/2021 financial year.

Mr Ewen sought to access his accrued annual and long service leave by invoking clause 17.2(f) of the Yallourn Enterprise Agreement. As I outlined above, I consider that having regard to the circumstances of this case, Energy Australia needlessly and unreasonably denied Mr Ewen the option available under clause 17.2(f)(i). Accordingly, I consider it is appropriate in this matter for Mr Ewen to be compensated for the total additional annual and long service leave he would have accrued, and the additional public holiday benefits payable, had he been afforded the opportunity to remain employed while accessing the accrued annual and long service leave he was entitled to as at 12 June 2020. Mr Ewen was denied the opportunity of accruing this additional leave and additional public holiday benefits because of his unfair dismissal. The unchallenged evidence Mr Ewen gave regarding the quantum of the additional annual and long service leave he would have accrued ($14,645.00) and the public holiday benefits payable ($4,321.00) had he been able to access his existing leave, plus the superannuation payable during that additional leave ($15,867.00), produces a total of $34,833.00 gross.

Adding the $26,503.00 and $34,833.00 components I have outlined above produces a total of $61,366 gross. I do not consider there is any basis for any deduction for contingencies in this matter and it will be left to EnergyAustralia to deduct taxation required by law.

Viability – s.392(2)(a)

There was no evidence before me that would support a finding that an order for compensation will affect the viability of EnergyAustralia in any material way and there will be no deduction made having regard to this factor.

Mitigation efforts – s.392(2)(d)

In considering whether Mr Ewen has taken steps to mitigate the loss suffered as a result of the dismissal, I note that following his dismissal Mr Ewen had, consistent with recommendations of Dr Rahgozar, undertaken an EEG and consulted a neurologist and was due to attend a follow-up appointment with the neurologist shortly after the evidentiary hearing. There will be no adjustment on account of this factor.

Misconduct – s.392(3)

This factor does not arise in the case.

Compensation cap – s.392(5)&(6)

The amount of compensation I order must not exceed the lesser of:

1) the amount Mr Ewen received or was entitled to receive during the 26 weeks immediately prior to his dismissal (in this case it would not appear to be in dispute that this amount would have exceeded $100,000.00); 45 and

2) half the amount of the high-income threshold immediately before the dismissal (in this case $148,7000 ÷ 2 = $74,350.00). 46

As such, the compensation cap in this matter is $74,350.00 gross. The amount of compensation proposed does not exceed this.

Instalments – s.393

I do not consider that there is any reason for compensation to be made by way of instalments.

Shock, Distress – s.392(4)

The amount of compensation calculated must not and will not include a component for shock, distress, humiliation or other analogous hurt caused to Mr Ewen by the manner of his dismissal.

Conclusion

I am satisfied that Mr Ewen was protected from unfair dismissal, that the dismissal was unfair and that order for compensation is an appropriate remedy in all the circumstances. The overarching requirement in assessing compensation is to ensure that the level of compensation is in an amount that is considered appropriate having regard to all the circumstances of the case. 47 In this case, I consider the appropriate amount of compensation to be awarded to Mr Ewen equates to $61,336.00, less taxation as required by law.

An order requiring the payment of this amount within 21 days will be issued with this decision.”

Ewen v EnergyAustralia Yallourn Pty Ltd (2021) FWC 697 delivered 10 February 2021 per Clancy DP