Unfair dismissal remedies

This extract from a recent unfair dismissal case decision in the Fair Work Commission is an excellent summary of the legal issues which are relevant to remedies for unfair dismissal.

“Conclusion

[48] Having considered each of the matters specified in s.387 of the Act, I am satisfied the dismissal of Ms Zhang was harsh because the Respondent terminated her without warning or having raised the issues upon which it now relies. Additionally, the dismissal came after two challenging trading years and was effected by a person who had not, to Ms Zhang’s knowledge, previously held any position of authority with the Respondent. Moreover, she arrived at Ms Zhang’s place of work unannounced.

[49] Further, I am satisfied on the material and evidence before me that the dismissal was unjust and unreasonable because it had no sound, defensible or well-found basis. There was no valid reason for the dismissal related to Ms Zhang’s capacity or conduct and nor was the dismissal related to unsatisfactory performance. I am not satisfied Ms Zhao’s dismissal was consistent with the Code or that it was a case of genuine redundancy within the meaning of s.389 of the Act.

[50] Accordingly, I find that Ms Zhang’s dismissal was unfair. Ms Zhang’s application for unfair dismissal remedy is therefore granted.

Remedy

[51] In the circumstances where I have found Ms Zhang was protected from unfair dismissal at the time of being dismissed and that she 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 Ms Zhang or, if I am satisfied that reinstatement is inappropriate, an order for compensation if I am satisfied that such an order is appropriate in all the circumstances. 15

[52] Ms Zhang does not seek reinstatement and has submitted the following:

“The employer is a small business and the dismissal was a humiliating experience for the Applicant. The Applicant does not wish to return to the employer’s business as the trust relationship has broken down irretrievably. The Applicant has found new employment and will start in October 2022.”

[53] Having regard to this submission and the circumstances of this case, I am satisfied it is inappropriate to order reinstatement. 16 I must therefore consider whether it is appropriate in all the circumstances to make an order for payment of compensation17 and if so, what that amount should be.

[54] Taking into account my finding that the dismissal was unfair and the reasons for that conclusion I have outlined above, and since I am satisfied an order for reinstatement is inappropriate, I consider that an order for payment of compensation is appropriate in all the circumstances. I am not persuaded the material before me suggests otherwise. Section 390(3)(b) of the Act is therefore satisfied.

[55] Section 392 of the Act sets out the criteria for deciding an amount of compensation. The assessment of compensation I am required to undertake is directed towards the remuneration lost in consequence of Ms Zhang having been unfairly dismissed.

[56] Section 392 specifically prohibits including any component of compensation for shock, distress or humiliation, or other analogous hurt, caused to Ms Zhang by the manner of her dismissal and, via a compensation cap, imposes an upper limit of compensation that may be ordered.

[57] Section 392 provides as follows:

“392 Remedy—compensation

Compensation

(1) An order for the payment of compensation to a person must be an order that the person’s employer at the time of the dismissal pay compensation to the person in lieu of reinstatement.

Criteria for deciding amounts

(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.

Misconduct reduces amount

(3) If the FWC is satisfied that misconduct of a person contributed to the employer’s decision to dismiss the person, the FWC must reduce the amount it would otherwise order under subsection (1) by an appropriate amount on account of the misconduct.

Shock, distress etc. disregarded

(4) The amount ordered by the FWC to be paid to a person under subsection (1) must not include a component by way of compensation for shock, distress or humiliation, or other analogous hurt, caused to the person by the manner of the person’s dismissal.

Compensation cap

(5) The amount ordered by the FWC to be paid to a person under subsection (1) must not exceed the lesser of:

(a) the amount worked out under subsection (6); and

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

(6) The amount is the total of the following amounts:

(a) the total amount of remuneration:

(i) received by the person; or

(ii) to which the person was entitled;

(whichever is higher) for any period of employment with the employer during the 26 weeks immediately before the dismissal; and

(b) if the employee was on leave without pay or without full pay while so employed during any part of that period—the amount of remuneration taken to have been received by the employee for the period of leave in accordance with the regulations.”

[58] In considering each of the criteria in s.392 of the Act, it is useful to refer to the statement of principles to be applied in the assessment of compensation by the Full Bench of the Commission in Johnson v North West Supermarkets T/A Castlemaine IGA (Johnson): 18

“[41] 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’…”

[42] 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.’

[43] 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.” 19

(my emphasis, references omitted)

[59] In Balaclava Pastoral Co Pty Ltd t/a Australian Hotel Cowra v Darren Nurcombe, 20 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.

[60] Ms Zhang seeks an order for compensation to cover the period from the date of her dismissal on 9 July 2022 until the date she expected to commence new employment on 22 October 2022, a period of 15 weeks.

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

[61] Ms Zhang stated that her gross earnings were $1,653.00 per week and she worked 45 hours per week. 21 This was not disputed by the Respondent. As such, I will assess compensation using a gross weekly salary of $1,653.00.

[62] I have outlined above that I have not been persuaded that there were issues of performance raised with Ms Zhang prior to her dismissal on 9 July 2022. I consider that if the Respondent had in fact had issues with Ms Zhang prior to this, or issues with “the long-term underperformance of the shop”, it had not disclosed these to Ms Zhang. It was not the case that Ms Zhang was at the point of resigning and there is nothing to indicate she did not expect to be in continuing employment with the Respondent.

[63] As was outlined by the Full Bench in Johnson, the identification of the starting point amount in s.392(2)(c) “necessarily involves assessments as to future events that will often be problematic”. 22 It has previously been held that an assessment of the likely period of employment is not to be conducted in a vacuum but rather against the backdrop of the circumstances of the dismissal and the reasons for concluding that the dismissal was unfair.23

[64] If the Respondent had issues with the performance of Ms Zhang and/or the shop at which she had been working, I consider a “fair go all round” required it to raise the issues with Ms Zhang and provide her with an opportunity to respond. Noting however the size of the Respondent and the personal nature of the services it offers its customers, my assessment is that Ms Zhang would have remained in employment with the Respondent for a further period of no more than 12 weeks. Within such period, I consider the parties would have been able to give the task of improving the performance of the business and the quality of their employment relationship their focus and Ms Zhang would have had a reasonable opportunity to respond to performance issues raised by the Respondent. Based on the rate of earnings Ms Zhang was receiving at the date of her dismissal, the gross remuneration she would have received for such a 12-week period would have been $19,836.00 (excluding superannuation)). This is the starting point.

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

[65] 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 to be taken into account under s.392(2)(f) of the Act. However, as outlined above, it was stated by the Full Bench in Ellawala v Australian Postal Corporation: 24

“Monies earned after the end of the “anticipated period of employment” … 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.”

[66] Ms Zhang seeks compensation from the date her dismissal took effect (that is, 9 July 2022) to the date of commencement of her new employment (that is, 22 October 2022). Her evidence was that she had not earned any income from 9 July 2022 to the date of the determinative conference, and she did not expect to earn any income until 22 October 2022.

Viability – s.392(2)(a)

[67] The evidence before me regarding the state of the Respondent’s business was only expressed in broad terms. There was not an agreed position and in the absence of particulars, I am not persuaded to reduce the compensation amount I have assessed on the basis of the impact it might have on the viability of the Respondent.

Mitigation efforts – s.392(2)(d)

[68] The question in applying this factor is whether Ms Zhang has acted reasonably. As held by the Full Bench in McCulloch v Calvary Health Care Adelaide, 25 the reasonableness of an applicant’s efforts taken to mitigate loss depends on the circumstances of the case. I have noted the submissions of Ms Zhang that being over 45 years of age, it has been difficult for her to obtain new employment, particularly as there had been a lack of training opportunities for her when employed by the Respondent. Nonetheless, Ms Zhang gave evidence that she had attended four job interviews and secured new employment on 22 August 2022. She says she participated in over 10 training sessions arranged by her new employer, none of which were remunerated. Ms Zhang said the new employer was completing renovations and she expected to commence employment on 22 October 2022. Correspondence from the new employer confirmed the new employment and this starting date.26

[69] Amongst the circumstances the Commission is required to take into account in determining an amount of compensation, is the requirement to assess remuneration earned (and likely to be earned) following the dismissal and the efforts to mitigate the loss suffered because of the dismissal. New employment and/or work generating remuneration, plus efforts to secure these are therefore key considerations. In the circumstances of this case, I consider Ms Zhang made appropriate efforts to mitigate her loss during the 6-week period between her dismissal and 22 August 2022, when she secured her new employment. Her efforts met the ‘reasonableness’ standard. However, Ms Zhang’s duty to mitigate her loss did not cease then. A period of inactivity followed in the 7 weeks that passed until the date of the determinative conference and the material before me, or absence thereof, leaves me unpersuaded that Ms Zhang was prevented from undertaking mitigation efforts after 22 August 2022 due to medical or other grounds. A period of 13 weeks elapsed from the date of Ms Zhang’s dismissal until the determinative conference. Having regard to Ms Zhang’s inactivity when it came to mitigation in the 7-week period after 22 August 2022 until the determinative conference, I consider a 50% deduction in the amount of compensation to be awarded is warranted.

[70] Applying this to the sum I calculated in [64] above ($19,836.00 gross) results in a deduction of $9,918.00 and a revised total of $9,918.00 gross.

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

[71] Ms Zhang had been employed for approximately 2 years and 4 months at the time of her dismissal. It is necessary to take this into account but as it is not an extensive period of time, there will be no material adjustment either way on account of this factor alone.

[72] I accept the evidence from Ms Zhao that Ms Zhang was provided with two weeks’ pay in lieu of notice and was paid her accrued annual leave entitlements totalling $4,577.54. Records of payment in net terms were produced. 27 Issues relating to notice are connected with Ms Zhang’s length of service and/or are relevant matter under s.392(2)(g).28 I consider it is appropriate to deduct a component of 2 weeks’ pay from the award of compensation to reflect the payment in lieu of notice made to Ms Zhang following her dismissal. A deduction of $3,306.00 gross for the notice payment received from the $9,918.00 assessed at [71] above will be applied. This leaves $6,612.00 gross. However, as outlined above, Ms Zhang was entitled to three weeks’ notice. She put this to Ms Zheng on the day she was summarily dismissed and gave evidence that Ms Zheng replied with words to the effect of “You should be happy that you are getting any payment.” Happily for Ms Zhang however, parliament has determined the minimum standards for notice of termination and employers are obliged to adhere to them. I consider it appropriate in the circumstances of this case to add an additional weeks’ pay to the amount I have assessed. This brings the amount to be awarded to $8,265.00 gross.

[73] I do not consider there is any basis for any deduction for contingencies in this matter and it will be left to the Respondent to deduct taxation required by law.

Misconduct – s.392(3)

[74] I have found there is no basis to conclude there was misconduct on the part of Ms Zhang that contributed to the decision of the Respondent to dismiss her. I therefore will not make any reduction on account of this factor in the proposed compensation.

Compensation cap: s.392(5)&(6)

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

1) the amount Ms Zhang received, or was entitled to receive, during the 26 weeks immediately prior to her dismissal (in this case $1,653.00 gross x 26 weeks = $42,978.00); and

2) half the amount of the high income threshold immediately before the dismissal (in this case $162,000 ÷ 2 = $81,000.00).

[76] As such, the compensation cap in this matter is $42,978.00 and the amount of compensation proposed must not, and does not exceed this.

Instalments: s.393

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

Shock, Distress: s.392(4)

[78] While I accept Ms Zhang is aggrieved by the manner of her dismissal, the amount of compensation calculated must not and does not include a component for shock, distress, humiliation or other analogous hurt caused to her as a result.

Conclusion

[79] I am satisfied that Ms Zhang 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. 29 In this case, I consider the appropriate amount of compensation to be awarded to Ms Zhang equates to $8,265.00 less taxation as required by law. An order requiring the payment of this amount plus the requisite amount of superannuation within 14 days will be issued with this decision.”

Zhang v Kevin Australia Pty Ltd (2022) FWC 2928 delivered 3 November 2022 per Clancy DP