Understanding how the fair work commission calculates compensation for an unfair dismissal is handy to know. When you’re weighing up whether to dismiss someone it’s good to consider how much they could be awarded if they make a claim.

Is it better to deal with a disruptive employee? Or is it better to deal with a potential unfair dismissal claim?

Ofcourse, it is also handy to consider the three steps to avoid an unfair dismissal claim in the first place.

Reinstating a redundant employee

The first thing to keep in mind is that the Commission can only award compensation if it considers reinstatement to be inappropriate. However, it’s not common for the Commission to order reinstatement and the remedy in most cases is compensation.

The maximum compensation amount that can be awarded is the lower of:

➡ the employee’s total remuneration in the 26 weeks before the dismissal

➡ half of the high income threshold at the time of dismissal, which is currently $83,750

However, less than 0.4% of applicants receive the maximum amount. The median compensation amount is between 5 – 7 weeks’ pay.

What can compensation be awarded for?

An order for compensation is primarily designed to compensate someone for income they lose as a result of being dismissed.

The Commission can’t order compensation for shock, distress, hurt or humiliation caused by the dismissal.

Calculating unfair dismissal compensation

The first thing the Commission considers is how long the employee would likely have remained employed had they not been dismissed. Often it will be indefinite, but sometimes not. For instance, if there were performance or behavioural issues that would have resulted in dismissal, or the employee was going to resign anyway, these could limit the amount of compensation payable.

The Commission will deduct any income the employee has earned since the dismissal. If they find another job on equal or better pay, they would only get compensation up to the point that they start the new job. If they start a new job on less pay, they could get compensation for the pay difference for a period of time.

The Commission must also take into account efforts by the person to find a new job. The person needs to make reasonable efforts, which means deliberate, positive steps to find a new job. If they don’t, their compensation could be reduced accordingly.

If the employee has been receiving workers compensation those payments will be deducted. However, income support payments, like Newstart Allowance, won’t be.

If misconduct by the employee contributed to the decision to dismiss them, the Commission must reduce the compensation amount by an appropriate amount on account of the misconduct.

Conclusion

Compensation awarded in unfair dismissal claims has its limits, so the amounts don’t tend to be high. Always be fair. But it can be better to deal with an unfair dismissal claim than an employee who is creating internal issues.

Also, keep in mind that general protections claims work differently. There is no compensation cap and the types of compensation available are much wider.