Damages for breach of employment contract

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How to calculate damages for breach of employment contract

“At common law, damages for breach of contract are awarded in order to compensate the innocent party for losses incurred as a result of the breach.  The underlying principle was explained by Mason CJ, Dawson, Toohey and Gaudron JJ in Haines v Bendall (1991) 172 CLR 60 at 63 as follows:

“The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed …  Compensation is the cardinal concept.  It is the ‘one principle that is absolutely firm, and which must control all else’ …  Cognate with this concept is the rule, described by Lord Reid in Parry v Cleaver [1970] AC 1 at 13 as universal, that a plaintiff cannot recover more than he or she has lost.”

See also Robinson v Harman (1848) 1 Exch 850 at 855; Tabcorp Holdings Limited v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 286.

The injured party is entitled “to recover such damages as arise naturally, that is, according to the usual course of things, from the breach of contract, or such damages as may reasonably be supposed to have been in the contemplation of both parties concerned at the time they made the contract as the probable result of the breach”:  European Bank Limited v Evans (2010) 240 CLR 432 at 438.

Ms Romero’s claim for damages focussed on the second limb of the European Bank statement of principle. She argued that it must have been in the contemplation of the parties to her contract of employment that, if the obligations imposed on Farstad by the Policy were not fulfilled, she would have wasted the costs incurred in studying for her Masters certificate and would incur further costs in retraining for another career.

To be liable, the offending party need not contemplate the degree or extent of the loss suffered, nor the precise events giving rise to it, but only the “kind or type of loss” in question.  In Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, McHugh JA (as he then was) said:

“In later cases … there has been a tendency to play down the distinction between reasonable foreseeability and reasonable contemplation as semantic only.  However, I think that the difference is a real one which results in a significant narrowing of liability.  The word “contemplation” seems to be used in Koufos in the sense of “thoughtful consideration” or perhaps “having in view in the future”.  It emphasises that, if the parties had thought about the matter, they would really have considered that the result had at least a “serious possibility” of occurring.

An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage.  The parties need not contemplate the degree or extent of the loss or damage suffered … Nor need they contemplate the precise details of the events giving rise to the loss.  It is sufficient that they contemplate the kind of loss or damage suffered.

The most difficult question in determining the relevant kind of damage concerns the level of classification of the damage which the parties must have contemplated.  Clearly the level must not be so high that the parties are required to contemplate the very loss in question or the precise manner of its occurrence.  Nor must it be so low that any loss or damage, no matter how unusual in nature or occurrence, would fall within the classification.”

The Court will look to the facts rather than proceed upon an improbable factual hypothesis: TCN Channel Nine Pty Ltd v Hayden (1989) 16 NSWLR 130 at 154–6; McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375; TWU v K& S Lake City Freighters Pty Ltd [2010] FCA 1225. In McDonald, Buchanan J said at [70]:

“Normally a party to a contract is entitled to perform the contract in a way which is open to it. Sometimes damages are assessed by reference to a principle that a defendant would have performed a contract, if not in breach, in the manner least burdensome to it. However, it is clear that such a principle does not operate as an automatic restriction on the quantum of damages (see TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154–156; Amann at 93). Instead a court will look to the facts. It is not obliged, nor entitled, to proceed upon ‘an improbable factual hypothesis’.”

(Emphasis added.)

In Van Efferen v CMA Corporation Ltd (2009) 183 IR 319 these principles were applied. An employee was found to be entitled to damages for an employer’s failure to comply with a grievance procedure contained in an Australian Workplace Agreement (“AWA”). The damages for the breach of the AWA were calculated on the normal contractual basis. The breach of the grievance procedure was a proximate cause of the employee’s loss of salary and benefits to which he was entitled under the contract. Had the employer complied with the grievance procedure, the contract would not have been terminated and the employee would have continued working until the completion of the project on which he was engaged……………………

“Ms Romero is only entitled to nominal damages for the breaches of contract identified by the Full Court.  In my view an award of $100 is appropriate in the circumstances.  This appears to me to be consistent with the principles relating to, and purposes of, awarding nominal damages, as discussed in (for example) Motium Pty Ltd v Arrow Electronics Australia Pty Ltd (Supplementary Decision) [2011] WASCA 65 at [6]–[7], State of New South Wales v Stevens (2012) 82 NSWLR 106 at [14]–[26] and [66]–[67], and Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at300–1, 305, 312.”

Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453 delivered 8 December 2016 per TRACEY J