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Unfair dismissal rights and remedies – reinstatement, redeployment and compensation

12 April 2012


Unfair dismissal rights and remedies – reinstatement, redeployment and compensation

Kathryn Dent, Director

Recent Fair Work Australia (“FWA”) decisions highlight what criteria have been influential in its granting of remedies and specifically, when reinstatement (rather than compensation) will be appropriate, what “other matters” may be factored into compensation and when redeployment will not be reasonable.

The principles gleaned from these decisions are not only relevant at a final hearing in defence of an unfair dismissal claim but they are also relevant in considering whether a proposed termination will be defensible and if not, the potential ramifications for the employer.

Remedies available

If FWA finds that a person:

  • was protected from unfair dismissal (as defined in section 382 of the Fair Work Act 2009 (Cth) (“FW Act”);
  • has made an unfair dismissal application (section 384 of the FW Act); and
  • has been unfairly dismissed (sections 385-388 of the FW Act)

then FWA may grant that person a remedy either of reinstatement (section 391) or compensation (section 392) (as well as other ancillary orders including restoring lost pay and maintaining continuity of service).

When the FW Act commenced, one of the greatest concerns harboured by employers about the unfair dismissal regime was that reinstatement was to be the “primary remedy”. This is reflected in the wording of section 390(3) which provides that compensation “must” only be ordered if FWA considers reinstatement “inappropriate”. While the inappropriateness of reinstatement generally led to a compensation order previously under the Workplace Relations Act 1996 (Cth) (“WR Act”), the WR Act was not as direct in requiring the Australian Industrial Relations Commission to dismiss reinstatement as an option before other remedies were considered.

Reinstatement

It has been our experience that businesses which have made the difficult decision to terminate employment do so generally as a last resort and for reasons they genuinely believe to be legitimate, whether that reason is due to misconduct, poor performance or the operational requirements of the business. After the angst that such a decision invariably causes to all involved, the concern an employer may have about reinstatement is well-founded. Reinstatement is a remedy granted by a third party external to the employment relationship at the conclusion of adversarial action and involves the reunion of a relationship which by its very nature requires a high degree of trust and confidence between the parties.

For this reason, if your organisation is subject to an unfair dismissal claim which goes to hearing, then it is incumbent on you as an employer, if you wish to avoid the employee being reinstated should their claim be successful, to lead evidence which will convince FWA that reinstatement is inappropriate. Such evidence should also include the inappropriateness of reinstatement to your “associated entities” given that the FW Act expressly allows reinstatement to organisations that were not the original employer.

Reinstatement has been held in several recent cases to be appropriate when:

  • there was no deliberate dishonesty nor a breakdown in the trust and confidence between the parties (where the employee was accused of falsifying the cause of his injury);
  • the employment relationship could be sustained (the employee acknowledged he had made a shocking mistake over the sale of a federal government asset and had an unblemished 24 year record);
  • an employer could not demonstrate reinstatement was impracticable (where the employee was dismissed for poor performance);
  • there was a plausible basis for the conduct (altering a medical certificate) which led to the dismissal;
  • there was no valid reason for termination of employment (that is the employee was exonerated) and there was no evidentiary support that the employer would act unprofessionally or unfairly towards the reinstated employee;
  • an employer could not prove that the dismissed employee was involved in the incident (involving others) for which he was dismissed;
  • an employee was found to have been unfairly dismissed over comments made on Facebook in circumstances where the employer did not have a social media policy;
  • an employee was found to have been unfairly dismissed after filming traffic accidents with his mobile phone while driving despite knowing it was wrong (the unfairness related to harshness of dismissal given the employee’s record as FWA accepted the reason for termination was valid); and
  • an employee was terminated after a fight was set up with his supervisor, the employee’s behaviour was out of character, he would be welcomed back and his supervisor was no longer in the workplace (as he had also been dismissed and had reached an out of court settlement).

Reinstatement was held to be inappropriate:

  • in relation to an employee (held to be unfairly) dismissed for making a “throat slitting gesture” to a co-worker (and five weeks’ compensation was ordered instead, that amount having been discounted on account of misconduct); and
  • due to an employee’s misconduct in failing to pay for goods he took from the retailer employer despite paying for the value of the goods at a later date.

Compensation

As noted above, compensation will be ordered if a dismissal is found to be unfair and reinstatement is inappropriate. The FW Act, as the WR Act did before it, sets out criteria for determining compensation which includes length of service and the effect of the order on the viability of the business. Two additions the FW Act introduced to the criteria are the amount of remuneration earned between dismissal and the compensation order and the amount of income “reasonably likely to be so earned” between the making of the compensation order and the payment.

In the list of criteria FWA may consider is the broad discretion, used rarely but significantly and recently in the Wong v Nytro Pty Ltd trading as Nitro Gym [2012] FWA 1927 case, “any other matter” it “considers relevant”. Significantly in the Wong v Nytro case, the employer did not attend the hearing and so it may be presumed that there was little, if any, evidence on their behalf, regarding the appropriateness of the childcare component to the compensation. This case behoves employers to assess their exposure to a compensation order and to factor in other types of amounts in the formulation of offers of settlement other than just a pure economic loss. While on one interpretation this decision is unlikely to impact on the decision of an employer as to whether or not it should terminate employment, on another interpretation as well as being relevant to compensation, this may also impact on the harshness of the termination which is one of the factors a court considers in its ultimate decision as to whether the termination is unfair. That is, the fact that the dismissal required the employee to incur significant other expenditure might cause the dismissal to be harsh.

It should also be noted that compensation can be reduced where the employee is guilty of misconduct (which has occurred in at least two of the above-mentioned cases) but compensation cannot include a component for shock, distress or humiliation.

In relation to the amount of compensation, FWA can only order compensation up to the value of six months’ remuneration or if the employee earned in excess of the high income threshold (currently $118,100 per annum), then half that amount (currently $59,050). FWA may permit payment by installments.

Redundancies and redeployment

The FW Act significantly narrowed the exemption from unfair dismissal on the grounds of genuine redundancy, previously known under the WR Act as “genuine operational reasons”. See our December edition of Strateg-Eyes: Workplace Perspective for our article on “Legal issues in redundancy and retrenchment”.

It is now more difficult for employers to justify dismissal on this basis as the FW Act requires them to consider redeployment within their own and associated entities’ organisations or risk the employee being able to challenge the dismissal as unfair (in addition to the other legislative requirements which must be proven before a redundancy can be considered “genuine”). Given that the redeployment obligation is new, we are only now seeing the evolution of case law to guide us as to what is “reasonable redeployment”. From recent cases, we can ascertain that reasonable redeployment has not been undertaken where:

  • the employer assumed that a lower paid position or less senior position was not going to be acceptable to an employee;
  • the employer advertised a vacancy and required the dismissed employee to compete with others; or
  • the employer required the employee to apply for redeployment.

However, if the employee does not have the skills and competence to perform immediately at the required standard or after a reasonable period of retraining then redeployment may not be reasonable.

Preparing for remedies

If one of your ex-employees brings an unfair dismissal action, consider the following preparatory steps in relation to potential remedies:

  • If reinstatement is inappropriate because the reasons which led to the termination go to the heart of the employment relationship, then you should separately address in any evidence why these reasons make reinstatement inappropriate.
  • If reinstatement is inappropriate because the position is no longer available either within your organisation or one of your associated entity’s organisations, and there are no other positions on equally favourable terms and conditions at either organisation, then you need to provide evidence to demonstrate this.
  • In defending a claim for compensation come prepared with calculations, that is, you should know the ex-employee’s gross weekly wage, what period they were out of work (you might need to request this information during the litigation process) and if there is any ancillary claim (such as childcare). Be prepared with evidence to demonstrate that the cause of the claimed expense(s) was not the termination of employment.
  • Consider the ability of your business to make any compensation payment ordered by FWA or whether you wish to make an application for payment by installments.
  • If you wish to defend a genuine redundancy, have evidence of the attempts at redeployment or the fact that redeployment was not possible. That evidence should include the consultation you had with the ex-employee about these redeployment options as well as redeployment with associated entities.

 

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