Just like traps scattered on a farm, unfair dismissal claims is a complicated and daring area of employment laws. Like a trap, most times, uncareful employers often get spooked. Every employer knows that there are laws which regulated the dismissal of an employee. Failure to follow these laws and you might end up in a conciliation meeting or if this fails to reach agreement you may need to visit the courthouse early. What could be more daunting than visiting the courthouse or employment tribunal would be paying fines embodying compensation to the aggrieved employee.
An obscure fact that every employer needs to come to terms with is that there are consequences for their actions. By that, I mean negative consequences. You cannot just dismiss an employee unfairly and give them a tap on the back, no! there are consequences.
Lets look at what this can mean for the employee – although we get that at times you may just want to be rid of under-performing employees or those displaying unacceptable behavior we wanted to at least point these out.
Emotional consequence. For every unfair dismissal, the employees end up losing their job and their means of sustenance. The process of going through an unfair dismissal may tell on their emotional health. Their stress level might increases, chest pains, insomnia and panic attack may all begin to surface. They might start to experience a series of mood swings and anger that they normally would not have shown, until they become emotionally wrecked. And they will blame you for it. This is why you should (or at least try) to get it right.
Also, payout for unfair dismissal could attract psychological consequences. If you think only people who hit their head in an accident get post-traumatic stress disorder, then you may be surprised. Since the unfair dismissal was a traumatic experience, asking if it could lead to a disorder would be considered “begging the question” Mental health is more than mental illness, it can be the absence of the mental strength to move on. After an unfair dismissal, the aggrieved employee may begin to demonstrate psychological symptoms such as anxiety, irritability, cognitive difficulty, and depression.
The emotional, psychological, and behavioral fallout from unfair dismissal should be a factor worth noting by employer’s or business owner. At least if a dismissal is the only available outcome then follow a fair and just employee termination procedure. Terminating based on unsubstantiated discretion is setting yourself up for a claim.
Fair reasons for dismissal include
Capacity – if the employee lacks the ability, or is incapable, of completing the job
Performance – if the employee’s performance is below what is required for the job, or if they are not meeting the standards outlined in their employment contract
Misconduct – if the employee’s behavior is below workplace standards, or if they take part in serious misconduct
Redundancy – if the job which the employee was previously completing is no longer necessary for the business, or technology has made their role unnecessary
Some simple steps include – Telling the employee in writing about the allegations against them, give them the opportunity to respond to the allegations and also allow them to have a support person present at any meetings. Workplace operate under a structure of fairness and equal opportunity, it is therefore not only ethically right but right that if you intend to dismiss that the employee has a chance to defend themselves.
So what does the above mean for you as an employer –
When an employment tribunal is addressing the case of unfair dismissal, they would consider the potential consequences the dismissal will have on the employee and this will ultimately affect their ruling. From experience, it does not always end well for the business owner or employer.
This is why employers should be careful and clear on employee dismissal decisions. What may seem civil and decent to you might mean something different in the face of the law. Pay attention to workplace culture, examine the fact sheets (get your free fact sheet here) and dismissal regulations. Instead of leaving yourself open to legalities and costly compensations, stay sensible and avoid turning a fair dismissal into an unfair one.
Lets look at what the Commission look at with Unfair Dismissal as set out on Fair Work Commissions website – calculating Compensation for Unfair Dismissal
Outcomes for unfair dismissal
There are 3 possible outcomes that the Commission can order if a person has been unfairly dismissed. These are:
- to order that a person gets their job back (reinstatement)
- to order the payment of money (compensation), or
- to make no order.
Let’s look at the Compensation in some detail
What does the Commission look at? The Fair Work Act 2009 sets out a series of issues that the Commission must take into consideration when deciding if compensation should be ordered.
Step 1 – Calculate the Remuneration. The commission looks at how much longer the employee would have been employed if they were not dismissed. This is done to determine how much they would have earned. This becomes the starting point of a compensation order (if any). The length of service if also looked at any the work history and any performance and behavior issues.
Step 2 – Deductions – Consideration is given to any money the employee has earned since the dismissal has occurred – this is normally subtracted from the amount in step 1. While income support payments are not generally included , workers compensation payments generally are.
The viability of the employer is also considered – the employer must present evidence regarding their financial position.
Other relevant matters are also taken into account. This can include possible economic loss or gain of the former employee – including sickness, accident, unemployment, earning capacity etc
Misconduct that contributed to the dismissal is taken into account. This can include misconduct after dismissal. Misconduct may involve – a breach of the workplace health and safety act, negligent culpability, threats of violence, or swearing at management.
Step 3 – Efforts to reduce loss – Has the former employee taken deliberate, positive steps to lessen the effect of the dismissal has had on them such as finding a new job.
What is reasonable depends on the circumstances of the case.
A person is not required to take unreasonable steps to reduce their loss such as:
- spending money, or
- selling their possessions (such as sporting goods, cars, boats, etc).
Offers or re-employment – A person who has made an application for unfair dismissal cannot claim that their dismissal has caused them a loss if they have refused to start a new job with the same employer.
Step 4 – Compensation Cap – The compensation cap is the lower amount between:
- half of the employee’s annual wage, and
- $72,700 (as at 1 July 2018).
Note: The compensation cap is updated each year from 1 July. The compensation cap for dismissals taking effect between 1 July 2017 and 30 June 2018 was $71,000.
Calculating the total amount of compensation
The total amount of compensation that the Commission can order is the lower amount between:
- the amount calculated in Step 1, removing any deductions from Steps 2 & 3, and
- the compensation cap calculated above.
What do I need to do?
The Commission will calculate how much money the employee would have earned if they had not been dismissed.
Employee – Provide proof of what you were earning.
Employer – Providing copies of the times and wages record and any formal warnings or other relevant documents.
Wages or income
The Commission will consider any money which the employee has earnt since the dismissal occurred.
Viability of employer
The Commission will look at what effect an order for compensation may have on the viability of the employer.
The Commission will also look at ‘any other matters that it considers relevant’.
If the Commission finds that an employee’s misconduct contributed to their dismissal, the Commission must reduce the amount of compensation by an appropriate amount.
Employee – Provide proof of what you have earnt since you were dismissed.
Employer – Provide proof of the financial situation of the company.
Efforts to reduce loss
The Commission will consider what steps a person has taken to reduce their loss.
Employee – Provide proof of what of what steps you have taken to reduce the impact of the dismissal.
The Commission will compare the amount of compensation calculated to the compensation cap.
The smallest amount is what can be ordered.
Fresh HR Insights are experts in the dismissal process. If you have any questions about the reason for dismissal or how to go about dismissing an employee for either conduct or capability, then call us on 0452 471 960 or book a FREE 30-minute general consultation HERE