A common question for those who have made or are making an unfair dismissal claim is how the compensation amount is calculated. The answer to this question is by no means simple.
If Fair Work Australia (FWA) is satisfied that an employe who was protected from unfair dismissal has been unfairly dismissed the FWA is bound to follow the law set out in Sections 390 – 392 of the Fair Work Act 2009 (Cth) in determining an appropriate remedy.
Section 390 of the Act lays down the general principles to be followed. First, FWA must not order compensation unless satisfied that reinstatement would be inappropriate. In fact reinstatement is relatively rare. Second, the payment of compensation must be appropriate in all the circumstances of the case.
Section 391 of the Act deals with reinstatement as a remedy.
Section 392 of the Act deals with compensation as a remedy. It provides for payment of compensation in lieu of reinstatement. In deciding how much compensation to order, FWA must take into account the following factors:
- the effect of the order on the viability of the employer’s enterprise; and
- the length of the person’s service with the employer; and
- the remuneration that the person would have received, or would have been likely to receive, if the person had not been dismissed; and
- the efforts of the person (if any) to mitigate the loss suffered by the person because of the dismissal; and
- 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
- 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
- any other matter that FWA considers relevant.
If FWA is satisfied that misconduct of a person contributed to the employer’s decision to dismiss the person, FWA must reduce the amount it would otherwise order by an appropriate amount on account of the misconduct.
The amount ordered by FWA to be paid to a person 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.
The amount ordered by FWA to be paid to a person must not exceed the compensation cap. The compensation cap is calculated according to a formula set out in the Act but basically compensation must not exceed the lesser of 6 months’ pay or half of the high income threshold ($108,300 in 2009-2010 = $54,150).
We must now look to case law to see how these statutory provisions are applied in practice.
In Sprigg v Paul’s Licensed Festival Supermarket (1999) 45 AILR the full bench of the Australian Industrial Relations Commission (AIRC) set out a number of steps that should be followed in calculating lost remuneration.
- Estimate the remuneration the employee would have received, or have been likely to have received, if the employer had not terminated the employment.
- Deduct moneys earned since termination. The failure of an applicant to mitigate his or her loss may lead to a reduction in the amount of compensation awarded.
- The remaining amount of compensation may be discounted for contingencies.
- The impact of taxation should be calculated to ensure that the employee received the actual amount they would have received if they had continued in their employment.
- Apply the legislative cap on compensation.
In Hughes v PrintLinx Pty Ltd (2001) 50 AILR a full bench stressed that the statutory cap is simply an arbitrary limitation on the compensation amount. The compensation cap does not operate as a maximum amount to be awarded only in the most grievous or serious cases.
In Smith v Moore Paragon Australia Ltd (2004) 130 IR 446 a full bench cautioned that while the guidelines in Spriggs case should generally be followed, the particular circumstances of the case needed to be considered to ensure that the compensation amount was neither clearly excessive or clearly inadequate.
As we can see from the above review of the relevant legislative provisions and of case law, the calculation of compensation in unfair dismissal cases is somewhat of an art rather than a precise science.
Goshawk Law provides employment law and unfair dismissal advice to employers and employees. Call us on 1300 918 788 or email goshawk@sent.com for a confidential and no-obligation discussion of your situation.
