General protections’ cases; discounts for contingencies

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In a very rare appeal concerning compensation for a breach of the general protections, a Full Bench of the Fair Work Commission has issued a decision which contains a very useful analysis of the legal principles which apply to assessing compensation for economic loss, and in particular the application of the doctrine of discounts for contingencies.

“The Commissioner then considered whether there should be any further deduction for contingencies, and in that connection referred to 15% as being the “usual figure” on the basis of the decision in Sagona v R & C Piccoli Investments Pty Ltd & Ors, 17 and also referred to 15% being applied in Masson-Forbes v Gaetjens Real Estate Pty Ltd.18 The Commissioner determined that he should make a deduction for contingencies of 25% based on the following reasoning:

“[74] In reaching my conclusions in the substantive matter I also determined that the mind of the decision maker did not reach a subjective view that the Applicants were not Barada Barna because only three of the seven members of the Board who voted at the meeting in August 2016 had arrived at the requisite view at that time. Had I been satisfied that one more member of the Board had reached the requisite subjective view at that time the result would have been different.

[75] The evidence indicated that the Board did not have the power to suspend the Kitchener line and subsequent events led to the general meeting of members of the BBAC in April 2017 voting to remove the Kitchener line. However I am inclined to the view on the evidence that had the Board not moved to terminate the employment of the Applicants at the August 2016 meeting, they may well have done so before the general meeting. The result of the vote at the general meeting in April 2017 indicates the tide was turning against acceptance of the Kitchener line amongst the majority of the membership of the BBAC and, whilst uncertain, it is quite possible a majority of the Board may have arrived at that requisite view and decided to act on it before the April 2017 meeting, and such a decision would have fallen within the exception in s.351(2)(b).”

The Commissioner made no further deduction for any failure to mitigate loss, 19 and accordingly he determined the compensation to be awarded for economic loss to be the amounts identified in paragraph [72] of his decision (earlier set out) less 25%, plus 9.5% superannuation and less deduction of any tax as required by law.20…………………….

We consider however that the grant of permission to appeal in relation to the first ground of appeal would be in the public interest. For the reasons which follow, we consider that the Commissioner’s approach in deducting 25% for contingencies was attended by appealable error, that this error caused an injustice to the appellants and raises questions of broader principle.

The deduction for contingencies

The principles applicable to the application of a percentage deduction for contingencies and the vicissitudes of life were summarised in the High Court in Wynn v NSW Insurance Ministerial Corporation 36(Wynn) as follows:

“It is necessary to say something as to contingencies or `vicissitudes’. Calculation of future economic loss must take account of the various possibilities which might otherwise have affected earning capacity. The principle and the relevant considerations were identified by Barwick CJ in Arthur Robinson (Grafton) Pty Ltd v Carter as follows:

‘Ill health, unemployment, road or rail accidents, wars, changes in industrial emphasis, so that industries move their location, or are superseded by new and different techniques, the onset and effect of automation and the mere daily vicissitudes of life are not adequately reflected by merely – and blindly – taking some percentage reduction of a sum which ignores them.’ [(1968) 122 CLR 649 at 659]

It is to be remembered that a discount for contingencies or `vicissitudes’ is to take account of matters which might otherwise adversely affect earning capacity and as Professor Luntz notes, death apart, `sickness, accident, unemployment and industrial disputes are the four major contingencies which expose employees to the risk of loss of income’. Positive considerations which might have resulted in advancement and increased earnings are also to be taken into account for, as Windeyer J pointed out in Bresatz v Przibilla, [(1962) 108 CLR 541 at 544] ‘(a)ll “contingencies” are not adverse: all “vicissitudes” are not harmful’. Finally, contingencies are to be considered in terms of their likely impact on the earning capacity of the person who has been injured, not by reference to the workforce generally. Even so, the practice in New South Wales is to proceed on the basis that a 15 per cent discount is generally appropriate, subject to adjustment up or down to take account of the plaintiff’s particular circumstances.” 37

In short, the purpose of a deduction for contingencies is to apply a discount to an assessment of future economic loss in order to account for future unknown matters which might detrimentally affect that earning capacity. In the employment context, where it is necessary to compensate an employee for the wrongful or unfair deprivation of employment, a deduction for contingencies is usually applied after an assessment has been made of the period the employee would have remained employed but for the termination of employment and that has been applied to an estimate of future earnings over that period. Importantly, the deduction for contingencies is applied to any future estimate of loss of employment earnings – that is, earnings that would be lost after the date of hearing – consistent with the principles stated in Wynn. If the assessment is that the employment, but for the termination, would only have endured for a short period ending before the date of the hearing, then a deduction for contingencies becomes irrelevant because the earning capacity of the employee over that part period is a known fact, not a hypothetical. 38

Having regard to these principles, it is necessary to analyse the process by which the Commissioner assessed compensation for the economic loss suffered by Mr Roos and Ms Roos as a result of their dismissals. The first step which the Commissioner undertook was to assess the period they would have remained employed. As earlier explained, the Commissioner initially determined that the appellants would not have been employed past the 29 April 2017 meeting 39 but this was overtaken by his finding that they would have been employed for 20 weeks if Winnaa had not contravened the FW Act. In making that assessment, the Commissioner took into account the casual and fluctuating nature of the employment, its relatively short duration, and Winnaa’s demand for cultural heritage work. The Commissioner then applied the 20 week period to the past average weekly earnings for Mr Roos and Ms Roos to reach compensation figures of $24,810.80 and $24,900.20 respectively. The deduction of 25% then applied by the Commissioner appears to have taken into account two factors: a “standard” deduction for contingencies of 15% and a further 10% based on an assessment that, if the dismissal had not occurred on 12 August 2016, the board of BBAC may have formed the “requisite view” that they were not Barada Barna at some later stage prior to the 29 April 2017 general meeting and dismissed them.

There are two significant errors of principle in this process of analysis. The first is that the so-called “standard” deduction of 15% for contingencies was applied to past rather than future economic loss. There was no proper basis to make this deduction at all, since any matters detrimentally affecting the appellants’ earning capacity over the relevant 20 week period of putative further employment could have been, but were not, the subject of evidence. In short, there was no basis to conclude that there was anything which had affected the appellants’ earning capacity over that part period.

Second, the Commissioner added another 10% to the deduction because of the possibility of termination prior to 29 April 2017, in circumstances where he had already formed an estimate that the employment would have continued only for another 20 weeks but for the dismissals. In effect, the Commissioner took into account in assessing compensation the hypothetical duration of further employment twice – once through the 20 weeks’ estimate, and the second time through the 10% deduction. This error is compounded by the fact the deduction of 10% was expressed as taking into account termination at any time prior to 29 April 2017, when the Commissioner had already determined that the employment would not have lasted beyond the end of 2016.

This error of principle in the exercise of the discretion concerning the award of compensation decision caused injustice to the appellants by reducing the amount of compensation properly payable to them for what were found to be unlawful dismissals. We consider that the appropriate course is to uphold the appeal with respect to the first ground of appeal, and exercise our power under s 607(3)(a) to vary the compensation decision and the accompanying orders by adding back into the amounts of compensation for economic loss the amounts that were deducted for contingencies.”

Roos v Winnaa Pty Ltd (2018) FWCFB 7394 delivered 21 December 2018 per Hatcher VP, Binet DP and McKenna C