Unfair dismissal compensation

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There is a reasonably methodical formula which the Fair Work Commission applies to calculating the amount of compensation which should be ordered when it has found that a dismissal is relevantly unfair and that reinstatement is not appropriate. Here is an example of the process in action.

“The methodology to be adopted by the Commission in calculating compensation having regard for each of the matters set out in s.392 of the Act, (often referred to as the Sprigg formula), was considered by a Full Bench of the Commission in Bowden v Ottrey Homes Cobram and District Retirement Villages Inc. t/a Ottrey Lodge [2013] FWCFB 431 (‘Ottrey’); see also: Sprigg v Paul’s Licensed Festival Supermarket (1998) 88 IR 21 and Ellawala v Australian Postal Corporation [1999] AIRC 1250. A Full Bench said in Balaclava Pastoral Co Pty Ltd ATF O’Connor-Fifoot Family Trust v Nurcombe [2017] FWCFB429 (‘Balaclava’) at [42]- [43]:

‘[42] The correct approach to the assessment of compensation was summarised by the Full Bench in the recent decision in Double N Equipment Hire Pty Ltd t/a A1 Distributions v Alan Humphries as follows (footnotes omitted):

“[16] The well-established approach to the assessment of compensation under s.392 of the FW Act, taking into account the matters specified in s.392(2), 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 FW Act 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’…’

[17] The identification of this starting point amount “necessarily involves assessments as to future events that will often be problematic” . 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.”

[43] We would add to this 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. That is to say, 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.’ (footnotes omitted)(my emphasis)

In adopting the above methodology, I make specific findings as follows:

(a) As the respondent put no evidence as to the effect any order of compensation would have on the viability of its enterprise, I am not satisfied that the order I intend to make would have any deleterious effect on the respondent’s viability.

(b) The applicant had two and a half years’ service with the respondent – a reasonable period of employment.

(c) It is notoriously difficult to speculate, with any certainty, how long a period an unfairly dismissed employee would have continued in employment, but for their dismissal. In McCulloch v Calvary [2015] FWCFB 873, the Full Bench of the Commission put it this way and said at para [27]:

‘[27] We would also observe that, in our view, the evidence upon which the Commissioner relied was insufficient to sustain the inference that, but for the dismissal, the appellant would only have remained in employment for a further 8 weeks, at which time he would be summarily terminated. Implicit in the Commissioner’s finding is that the conduct which led to his dismissal (and which the Commissioner found did not constitute a valid reason for termination) would not only be repeated within a relatively short period of time but would in fact be repeated in a more serious form such as to constitute serious misconduct. While the task of determining an anticipated period of employment can be difficult, it must be done. In the context of this case it seems to us that the Commission would require cogent evidence to conclude that a person such as the appellant, who was dismissed without a valid reason, would only have worked another 8 weeks at which time he would have been summarily dismissed. The Commissioner’s s.392(2)(c) finding constitutes a significant error of fact, within the meaning of s400(2) of the Act.’

(i) Given the applicant had been appointed Store Manager on a full-time basis, I consider she would have had a reasonable expectation of at least another 12 months’ work. There are no performance issues which would give cause to think otherwise. It is common ground that the amount is $48,000, or $923 per week.

(ii) The applicant was successful in obtaining alternative casual employment on 8 March 2018 and continues to look for full time alternative employment. I am satisfied she has made a real and genuine effort to mitigate the losses suffered by her dismissal.

(iii) The applicant provided evidence of the remuneration she has earned since her dismissal. Since 8 March 2018, she has had casual night shift/shift work at a local service station. She earns an average of approximately $1,193 per fortnight ($597 per week (nearest dollar)). This is $326 per week less than she received as a Store Manager. I have no reason to doubt this evidence. For present purposes I am assessing a contingency that the applicant will earn $25,671 in the 12 month period following her dismissal; representing 43 weeks (8 March 2018 to 2 January 2019) earning $597 per week.

The applicant received no notice of termination and no payment in lieu of notice (presumably with the respondent relying on summary dismissal, without notice). Had the applicant been dismissed for poor performance (which she was not), she would have received 4 weeks pay in lieu of notice under the terms of her Contract of Employment. I have taken that matter into account. I make no deductions for other contingencies, including the fact she may have had a lesser salary before being promoted to Store Manager (about which I have no evidence).

Given I have found that there was no misconduct of the applicant, no deduction in compensation is made on that score (s.392(3)).

The order I intend to make contains no component by way of compensation for shock, distress, humiliation or other analogous hurt (s.392(4)).

Compensation assessment

The compensation cap in relation to the applicant is the lesser of the amount equivalent to the remuneration earned by her in the 26 weeks immediately before her dismissal (s.392(6)) and half the high income threshold immediately before the dismissal. The high income threshold is not relevant. Remuneration earnt in the 26 weeks’ before dismissal is $24,000. As mentioned, I have determined that the applicant would have remained in employment for a further period of 12 months from 2 January 2018 equating to $48,000. She has earnt, or will earn $25,671 during that period in alternative casual employment.

According to the Sprigg formula, the amount of nominal compensation is $48,000 – $25,671 which equals $22,329. This amount is below the cap of assessment the applicant earnt in the 26 weeks prior to her dismissal. Accordingly, I propose to order an amount of compensation of $22,329.

CONCLUSION

For the aforementioned reasons, I am satisfied the dismissal of the applicant by the respondent on 2 January 2018 was ‘harsh, unjust and unreasonable’, within the meaning of s.387 of the Act. Finally, s.381(2) of the Act is a significant and overreaching object of Part 3-2. It is expressed in these terms:

381 Object of this Part

(1) The object of this Part is:

(a) to establish a framework for dealing with unfair dismissal that balances:

(i) the needs of business (including small business); and

(ii) the needs of employees; and

(c) to establish procedures for dealing with unfair dismissal that

(i) are quick, flexible and informal; and

(ii) address the needs of employers and employees; and

(d) to provide remedies if a dismissal is found to be unfair, with an emphasis on reinstatement.

(2) The procedures and remedies referred to in paragraphs (1)(b) and (c), and the manner of deciding on and working out such remedies, are intended to ensure that a “fair go all round” is accorded to both the employer and employee concerned.

Note: The expression “fair go all round” was used by Sheldon J in in re Loty and Holloway v Australian Workers’ Union [1971] AR (NSW) 95.’

In this case, I am satisfied reinstatement is inappropriate and compensation in an amount of $22,329, is appropriate having regard to all the circumstances of this case. I am satisfied that the remedy I have determined will ensure a ‘fair go all round’ is accorded to both the applicant and the respondent. The amount so ordered is subject to any deductions of appropriate taxation according to law. The amount of compensation is to be paid to the applicant within 21 days of today. Orders giving effect to my conclusions will be published contemporaneously with this decision.”

McGlashan v The Entrance Discount Variety Pty Ltd (2018) FWC 3284 delivered 29 June 2018  Sams DP