Compensation is one of the options we may order if a dismissal was unfair. We must consider all the criteria in section 392 of the Fair Work Act 2009 to calculate the amount. This is a complex process.
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To work out how much compensation an employer must pay, we look at:
- the employee's earnings ('remuneration')
- any deductions we need to make
- the employee's efforts to reduce their loss
- the legal limit ('compensation cap').
Note: we cannot order compensation for shock, distress, hurt or humiliation.
The total amount of compensation we can order is the lower of these 2 amounts:
- the amount the employee would likely have earned, had they not been unfairly dismissed, after we remove any deductions
- the compensation cap.
To find out when we consider compensation and the average amounts we order, see Compensation for unfair dismissal.
Note: We ask employees and employers to provide relevant information in their submissions before the conference or hearing.
We work out how long we think the employee would have remained working for the employer if they were not dismissed. To help, we also look at:
- how long the employee worked for the employer
- the employee’s work history
- any performance or behaviour issues.
The employee may be on leave without pay or not receiving full pay at the time of their dismissal. In this case, their earnings are the amount they would normally have received.
Next, we assess any wages or income the employee earned since the dismissal. We generally subtract this from the remuneration.
How the law defines ‘wages or income’
‘Wages or income’ includes workers’ compensation payments. We deduct this amount.
‘Wages or income’ does not include income support payments, such as Newstart Allowance. We do not deduct this amount.
We can consider income earned between the date we order the employer to pay compensation and the date the employer pays the employee.
We may reduce the amount of compensation when we consider contingencies and misconduct.
Contingencies have a positive or negative economic impact on the employee, such as:
- a job that pays less, or higher costs to travel to work
- sickness, accident, unemployment and industrial disputes
- possible benefits, such as starting a job with a higher salary.
The employee’s misconduct may contribute to their dismissal or may happen after the dismissal. 'Misconduct' could be behaviour such as:
- threats of violence
- swearing at management
- a breach of workplace health and safety
- negligent culpability.
The employee’s efforts to reduce loss
When we consider compensation, we look at the efforts the employee has made to:
- reduce their loss
- reduce the effect of the dismissal.
Their effort needs to be ‘reasonable’ but this depends on the circumstances of the case. If they make no effort, we may see this as a reason for a deduction.
A reasonable effort is for an employee to take deliberate, positive steps to find a new job.
It is not reasonable to expect an employee to reduce their loss by:
- spending money to retrain
- selling their possessions.
Offers of re-employment
The employee cannot claim a loss if they refuse a new job with the same employer at the same rate of pay. However, they may be able to claim a loss if the employer offers them a new job and:
- the job has the same rate of pay but with lesser status
- the employee has lost trust and confidence in the employer or the workplace.
If the employee accepts the offer, they keep their continuity of service*.
The legal limit of compensation
We cannot order an employer to pay more than the limit (the ‘compensation cap').
The compensation cap is the lower of these 2 amounts:
- the amount the employee would normally have received from the employer in the six months before the dismissal
- $79,250 for 2020-21, which changes on 1 July each year.
For examples of compensation that is within or above the cap, see Compensation for unfair dismissal.