How to calculate damages for breach of employment contract: a technical analysis
How are damages calculated for breach of an employment contract, specifically a failure by an employer to terminate the contract with the appropriate notice?
From the employee’s perspective the breach may be thought to create significant damages measured by the loss of the value if the job until another is found. From the employer’s perspective however the damages should not exceed the amount which would have been required to be paid if the contractual right to notice or pay in lieu had been provided.
The answer is found in a recent case of the Federal Court of Australia in Larné-Jones v Human Synergistics Australia Limited & Ors  FCCA 968 delivered on 17 April 2015 per Barnes J who wrote;
“The Applicant acknowledged that the minimum amount of damages to which she would be entitled for such a breach would be an amount equivalent to the four weeks’ notice to which she would be entitled under cll.12(b) and (c) of the 2003 Agreement (see Robinson v Harman  EngR 135; [1843-60] All ER Rep 383; (1848) 1 Exch 850 at 855 per Parke B; The Commonwealth of Australia v Amann Aviation Pty. Limited (1991) 174 CLR 64;  HCA 54 at 80 per Mason CJ and Dawson J, at 98 per Brennan J, at 117 per Deane J, at 134 per Toohey J, at 148 per Gaudron J and at 161 per McHugh J). This amount (together with interest) was subsequently paid to her by HSA.
350. However, it was pointed out that in Fishlock v The Campaign Palace Pty Ltd (2013) 234 IR 1;  NSWSC 531 Sackar J had stated (at ):
o It is a general principle in the assessment of damages for breach of contract that where there are two or more ways in which a defendant might perform the contract, the court, in assessing damages, adopts the mode of performance which is most beneficial to the defendant (Commonwealth v Amann Aviation Pty Ltd  HCA 54; (1991) 174 CLR 64 at 92 per Mason CJ and Dawson J). However, this does not prevent the making of an assessment of damages based upon the evidence and the findings of primary fact (see Walker v Citigroup Global Markets Australia Pty Ltd  FCAFC 101;(2006) 233 ALR 687 at  –  and  per Gyles, Edmonds and Greenwood JJ). In McDonald v Parnell Laboratories (Aust) Pty Ltd  FCA 1903; (2007) 168 IR 375, Buchanan J said (at ):
 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 (seeTCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd ( 1989) 16 NSWLR 130 at 154-156; Amman at 93). Instead a court will look to the facts. It is not obliged, nor entitled, to proceed upon “an improbable factual hypothesis”.
351. The Applicant submitted that on the basis that the assessment of damages was a factual inquiry (as considered in Transport Workers Union of Australia v K & S Freighters Pty Ltd (2010) 205 IR 137;  FCA 1225 at  – ) the Court was entitled to make an assessment as to when the entitlement to lawfully terminate Ms Larné-Jones’ contract might have been exercised by HSA. It was submitted that the quantum of damages was not necessarily confined to the remuneration to which the Applicant would have been entitled had she been lawfully dismissed upon notice given on 22 September 2011 (the date of the breach of contract). It was said to be necessary to determine how long the Applicant would have remained in her employment had HSA not breached the employment contract by its wrongful conduct (see Walker v Citigroup Global Markets Australia Pty Ltd (2006) 233 ALR 687;  FCAFC 101 at  to  and Fishlock at ).
352. In support of this proposition, reference was made to the principles applied to determine what was reasonable notice as a matter of judicial discretion reflecting the particular circumstances of the case such as the nature of the employment, the degree of responsibility and the required dedication to the job, the importance of the position, the length of service, the professional standing, age, qualifications and experience of the employee and the expected period of time it would take to find alternative employment (see Rankin v Marine Power International Pty Ltd  VSC 150; (2001) 107 IR 117 at 139,  VSC 150, Taske v Occupational & Medical Innovations Ltd (2007) 167 IR 298;  QSC 118 per Moynihan J at 149 and Macauslane v Fisher & Paykel Finance Pty Ltd (2002) 1 Qd R 503;  QCA 282 per Holmes JA at )…..
357. Given that there was a breach of the 2003 Agreement, the starting point in the cases cited for the Applicant is that damages are to be assessed on the basis of the “least burdensome” rule and limited to the amount for which the Respondent could have lawfully terminated the contract (see Amann at 92 – 93 and McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375;  FCA 1903 at ). In this case the contract provided for a period of 4 weeks’ notice or payment in lieu thereof.
358. While it is open to the Applicant to claim damages in relation to a claim of loss of an expectation created by the contract she “must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation” (Amann at 80 per Mason CJ and Dawson J). As stated in Amann (at 80) “the amount of damages awarded will be commensurate with [the Applicant’s] expectation objectively, determined, rather than subjectively ascertained”. If, as in McDonald v Parnell Laboratories (Aust), there is found to be “no adequate factual foundation for speculation that she would not have been dismissed at all, if not summarily… there is no basis upon which to conjecture about the loss of a chance to remain in employment” (per Buchanan J at )…….
365. I am satisfied on the balance of probabilities that the evidence is consistent with a decision having been made to terminate the Applicant’s employment prior to 22 September 2011 and the decision being effected on that date. Apart from the Applicant’s assertion, there is no evidence to support her contention that she would not have been dismissed on 22 September 2011 if the First Respondent had not breached the contract by dismissing her without notice (cf Amann at 80). I am not satisfied that the absence of the pleaded breach (by summary dismissal) that the Applicant’s employment by HSA would have continued beyond the period of notice required under her contract of employment. It follows that “there is no basis upon which to conjecture about the loss of a chance to remain in employment” (McDonald v Parnell Laboratories (Aust) per Buchanan J at ). Hence it is not necessary to consider the submissions in relation to calculation of any longer or “reasonable” period of notice on the speculative basis suggested by the Applicant that, had she not been dismissed as she was, her employment may have continued for an extended period of time.
366. Under cl.12 of the 2003 Agreement Ms Larné-Jones was entitled to four weeks’ notice or payment in lieu of notice on termination. HSA breached the contract by failing to give her such notice in September 2011. However I am not satisfied that there is any basis for an entitlement to damages for breach of contract beyond four weeks’ notice (together with interest). Such an amount has been proffered by HSA. In these circumstances it appears to be unnecessary to order HSA to pay her this amount but, on the basis discussed above, the parties should have liberty to apply.”