The Full Bench decision in Brett Haigh v Bradken Resources Pty Ltd T/A Bradken [2014] FWCFB 236 has clarified how the Fair Work Commission (FWC) calculates compensation payable to persons that it finds were unfairly dismissed.

Where the FWC finds that a person’s dismissal was unfair it has the ability to award  reinstatement, re-employment or compensation.  Compensation is capped at the lesser of the employee’s earnings in the 26 weeks prior to dismissal, or 50% of the high income threshold (currently $129,300p.a).

The FWC can only order compensation if it decides that reinstatement is inappropriate.  Unsurprisingly, the FWC makes compensation orders more often that it orders reinstatement: in 2012-2013, reinstatement was ordered in only 14% of cases where the FWC determined that the person had been unfairly dismissed.  This is often because the FWC considers that there has been a loss in trust and confidence between the employer and former employee.

If the FWC makes an order for the payment of compensation, a number of factors must be considered. These are set out in section 392 of the Fair Work Act 2009 (Cth) (FW Act). However, as a practical matter, the following steps will generally be followed in reaching the amounts of compensation to be awarded (taking account of those facts to be considered under the FW Act :

1. Determine how much the person would have earned if they had not been dismissed (nb, all the circumstances are to be considered, including the reason why the dismissal was unfair);
2. Deduct the person’s actual earnings (that is, mitigation) since the dismissal;
3. Consider a deduction for “contingencies”. Contingencies are circumstances that might affect earnings during the period that an employee might have expected to work but for the dismissal;
4. Consider the impact of taxation  (nb, the FWC will normally determine a gross amount);
5. Consider reducing the sum if it would affect the business’ viability;
6. Consider reducing or increasing the sum based on the person’s length of service;
7. Consider a deduction if the person did not adequately mitigate their loss;
8. Consider a deduction for the person’s misconduct; and
9. Apply the compensation cap, if relevant.

Employers who find themselves unlucky enough to be on the wrong end of unfair dismissal proceedings should consider the above factors in responding to an employee’s claim. For example, an employer should be in a position to put on evidence about issues that may have affected the employee’s ongoing employment in any event. An employer should also seek information about an employee’s earnings after their dismissal as a matter of course.