Calculating compensation

Posted on March 6th, 2018

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If you have been unfairly dismissed and the Fair Work Commission (‘FWC’) considers that reinstatement would be inappropriate, the FWC may make an order for compensation.

Under the Fair Work Act, there is a legislative cap on the amount of compensation that can be ordered. Where compensation is payable, it is capped at the lesser of 6 months’ pay immediately before dismissal or the equivalent of exactly half the current high income threshold. As of 1 July 2017, the unfair dismissal high income threshold was $142,000.00 meaning the maximum compensation that can be awarded is $71,000.00. 

The key case for determining the amount of compensation to be ordered for unfair dismissal is Sprigg v Pauls Licenced Festival Supermarkets (1988) IR 21. This case sets out the five steps to be undertaken by the FWC when deciding the appropriate amount of compensation to be awarded for unfair dismissal. The five steps are as follows:

  • Estimate the remuneration the employee would have received if the employer had not terminated the employment
  • Deduct from the amount in (1), any income earned since termination
  • Discount the remaining amount for contingencies, such as changes to earning capacity. This step requires the FWC to exercise a broad discretion and to consider both favourable and unfavourable contingencies.
  • Calculate the impact of taxation
  • Apply the legislative cap.

Katie ThompsonKatie Thompson is a Solicitor at Mullane & Lindsay Solicitors and practises in the Commercial dispute resolution and litigation team. If you require any assistance in this area please contact Katie Thompson to arrange a consultation or contact our Newcastle or Sydney office. 

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