How does one arrive at an Unfair Dismissal payout?

When considering lodging an Unfair Dismissal claim (also known as an F2 Claim) there are two different situations when financial compensation, or a payout, will occur. One can occur at the initial conciliation meeting that every claim goes through in order to try and find a mutual resolution. This process is a voluntary negotiation process where a Fair Work Conciliator acts as an impartial third party that facilitates the conversation. What Determines an Unfair Dismissal Payout? can be quite complex so please read on.

However, they do not decide on the final financial outcome. Any financial compensation is mutually agreed upon by the employer (Respondent) and employee (Applicant). There are certain factors that will indicate the likelihood of an employer agreeing to pay a settlement, and whether they will agree to pay a high settlement. Including (but not limited to) length of employment, size of the business, how the dismissal occurred, salary of the employee. Or whether the employers tried to negotiate a settlement earlier.

Section 387 of the Fair work Act determines what you will get

In the circumstances where the employee was unfairly dismissed (usually on the advice of lawyers or other representation or paid agents) but neither party can agree on a mutual settlement then the claim can proceed to an arbitration hearing. In this circumstance a Fair Work Commission (FWC) member (the equivalent of a judge) will hear the facts, the evidence and legal argument. Then make a binding decision on whether there was an unfair dismissal. Without a degree of harshness, unjust, or unreasonableness then there cannot be an unfair dismissal. Section 387 of the Fair Work Act 2009 (Cth) (the ‘Act’) outlines the questions and criteria that FWC must answer in order to determine that a dismissal was unfair.

Process is important in assessing compensation

This includes whether the employee was notified of the reason they were dismissed, if they were given an opportunity to respond, or if they were denied a support person, to name a few. If there is an unfair dismissal then the member will consider relevant factors to make an appropriate order that ensures the respondent will pay the applicant. This is done to remedy the dismissal and provide financial support for the wages lost. Furthermore, the settlement sum can help until the applicant has found another job (or in some cases until they are reinstated in their previous role).

Regardless of how far along a claim is taken, financial compensation is capped at 26 weeks’ worth of wages. Therefore, the difference between receiving $20,000 and $200,000 will initially be determined by the employee’s salary when the Unfair Dismissal (F2 Claim) was lodged. However, several other factors and considerations will affect how many weeks are allocated for the employer to pay, and thus the final financial figure. The factors that indicate whether an employer will agree to a settlement at conciliation, and the factors a FWC member considered at arbitration are relatively similar. This article will go through some of those factors and explain (with examples) how each factor may affect the final payout.

How the employee was dismissed

The first consideration will always be how the employee was dismissed. Theoretically, the more harsh, unjust, and unreasonable a dismissal was then the greater the payout will be. S 387 of the Act identifies what needs to be provided to the employee, and if it was not provided then the dismissal is inherently unfair. However, additional events may have occurred outside the prewritten list of requirements that would act as an aggravating factor. Resulting in a harsher, more unjust, or more unreasonable dismissal.

For example, an employee may have been told of their termination from a company-wide post on their website. Not only did the employer not comply with their requirement to notify the employee of the reason they were dismissed. Or provide an opportunity for the employee to respond, but the way the employee was terminated would have been humiliating and insulting. While there is no provision that states an employee’s termination must be confidential, the fact that the employee was singled out and publicly dismissed would amount to a harsh termination and a major consideration.

Harsh dismissals

Furthermore, more blatantly harsh terminations are easier to recognise than more nuanced dismissals. Therefore, in a conciliation hearing an employer is more likely to recognise their mistakes and agree to a payout than a more traditional dismissal. If the claim was heard in arbitration, a member with their experience would be able to distinguish the gravity of aggravating factors and whether that may affect the employee during their dismissal.

Some common occurrences that create a harsh, unjust, or unreasonable dismissal is when an employee is terminated via an email or phone call and not given the respect of organising a meeting. If vexatious allegations are put on an employee that clearly are not serious enough constitute a reasonable termination. Or if an employer tries to bully or harass an employee to leave, but when it fails, termination is the final option.

It is important to consider that any termination has the opportunity to be harsh, unjust, or unreasonable, when provided in the right context. However, simply not being happy that you have been terminated is not enough reason to bring forward an unfair dismissal claim. Therefore, gaining advice from employment law professionals is always advised.

The reason for dismissal

An employer cannot dismiss an employee for any reason. There is a simple understanding that terminating an employee does require solid reasoning and evidence. Provided they are not within their probation period. If the reason for dismissal is something easily fixable, teachable, or preventable in the future, then termination is typically not appropriate. This could be over instances such as arriving to work late once, or because of an emergency, or natural disaster etc,. Not answering a phone call. Or not knowing how to do something because of a lack of training.

This is why most businesses will develop a warning system so that mistakes or poor performance is easily quantifiable. Note, there is a common misconception of having to receive 3 warnings before an employee can be terminated. There is no legal obligation that an employee has to receive 3 warnings. However, the warnings should reflect the severity of the misconduct. For example, an employee swearing may receive 5 warnings, compared to an employee only receiving 1 warning for inappropriate sexual behaviour. If an employee were to be dismissed over a minor issue then the dismissal was severely unjust and can result in a higher payout.

Serious misconduct

However, there is a distinct difference when the employee was dismissed over a valid reason, but the business did not terminate the employee fairly. This can arise when an employee was terminated due to serious misconduct and the business did not believe they had to adhere to their legal obligations when dismissing an employee when considering the severity of the matter. For example, an employee is terminated effective immediately due to being accused of sexual harassment.

While they did commit a serious misconduct, they still owed procedural fairness. In this case the employee would still be awarded a payout as the dismissal was technically unfair. However, the sum would be significantly lower than if the employee had not been found guilty of sexual harassment or other serious misconduct. In a conciliation process it is far less likely that the company will agree on a settlement. Note, that in cases where an employee is violent and there is serious and immediate danger then it is typically not required to comply with all dismissal obligations under s 387.

Length of employment

Firstly, length of employment is important as it has the ability to prohibit employees from lodging an Unfair Dismissal claim. For businesses with fewer than 15 employees no employee can lodge an Unfair Dismissal claim with less than 1 years’ worth of continuous service. If there are 15 employees or more, then they only need 6 months of continuous service.

Secondly, length of service provides leniency and certain expectations on how employees should be treated. Businesses will always value the employees who have built careers and decades worth of service. Therefore, there is an expectation that employees with the longest length of employment will be the most respected, but also hold more seniority. Therefore, if their employment has ended via a termination then there is an inherent amount of respect that is owed to reflect the years of service they have provided.

Furthermore, depending on the circumstances, there is typically greater leniency regarding mistakes or warnings in the workplace for a more senior position. Compared to a junior that is more easily replaceable. Objectively, receiving 5 warnings over the span of 10 years is significantly better than receiving 5 warnings within 1 year. Therefore, an employee who has been unfairly fired with a tenure of 20 years can be considered harsher then an unfair dismissal for an employee with 2 or 3 years tenure, depending on the facts.

Long service matters

Moreover, an employee who has long service and had built their career with a company is more likely to have friends within the business who want to offer a settlement payout with no other reason but to pay respect to the employee. Rather than further burning that bridge. Of course, this is dependent on the size of the business. Overall, a longer length of service almost always will help in receiving a larger payout.

Size of the Company

Through our experience we have found that size of the company is an important indicator of whether a company is more or less willing to settle on a payout. Larger companies are more likely to settle as they typically have more finances reserves for litigation situations. Furthermore, larger companies will have less reason to risk an arbitration hearing if they have the ability to throw money at an issue and settle the dispute earlier. Especially large international companies who won’t have the infrastructure to keep an eye on every single employee or understand the intricacies of the dispute.

Thus, they may decide it is not worth their efforts. Compared to smaller companies who may not have the financial capabilities to payout the employee, or pay for legal advice. Therefore, they will be less likely to be willing to go to a voluntary conciliation. Even at an arbitration hearing, a FWC member will consider if a small business would have the financial capabilities of a settlement. Aside from financial capabilities, a smaller company is also less likely to have a designated HR department that would typically carry out rigerious dismissal obligations.

Therefore, a smaller company may receive more leniency if they did not follow all their obligations to the perfect extent. So if an employee is considering lodging an Unfair Dismissal claim but the company only has 3 employees and is run by a mum and dad due then there is significantly less chance for a payout, or large payout, than against a large company.

Age

Sometimes age can play a factor when considering financial burdens. This is typically relevant for older and more vulnerable employees. There is a consideration for older employees that it may be harder for them to find future employment when they are competing against a younger workforce. Younger employees are more likely to stay with a business for longer in order to build experience and a career. Which is highly valuable from a training standpoint.

Additionally, older employees usually have more senior roles, where it could be harder to find an equivalent vacant role in another business. Therefore, to counteract the financial burden of trying to find another job, sometimes older employees who have been unfairly dismissed have an opportunity to receive a larger payout.

Salary

Salary is important to consider more from the employee’s point of view. First, if an employee earns more than $167,500 annual salary (as of 2023/2024 financial year) then they are barred from applying for an unfair dismissal claim. That is the maximum they are allowed to earn.

Secondly, an employee will have to calculate what 4, 8, or 15, etc, weeks would equal and decide for themselves whether they would be happy with that figure, or worth their time. To receive the entire 26 weeks’ worth of pay is an unrealistic goal at a voluntary conciliation. Even to go to arbitration will most likely cost some kind of legal fees, even just for advice. Which are further expenses that require consideration. Other expenses include the fee to lodge a complaint ($77 Aud) or the time taken away to run the claim life cycle that could be put towards finding another job. 

Conclusion to: What Determines an Unfair Dismissal Payout?

Just from the limited factors and considerations that were discussed it is incredibly difficult to predict how much a claim will settle for. The biggest caveat is the fact that conciliation is a voluntary negotiation process. Regardless of what a claim ‘should go for’, it is all about how much the employer is willing to settle. Some, if not most, will arrive at conciliation with a predetermined number they have decided is their maximum. The best that can be provided is the factors that work with or against an employee’s favor. Therefore, if unsure it is always recommended to ask advice from employment law professionals.

We are A Whole New Approach, we are not lawyers but Australia’s leading workplace advisors and commentators. Anything to do with the workplace give us a call. We will either help you or point you in the right direction. Forced to resign, casual employee issues, adverse action are amongst the matters that we advise and represent employees.

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