Unfair Dismissal Maximum Compensation Explained

The preferred method of resolving an unfair dismissal claim, under the unfair dismissal provisions of the Fair Work Act 2009, is the reinstatement of the employee (which includes back-pay) to the position they were previously in or into a new position that is deemed to be similar to the previous one. Similarity is defined by hours, responsibilities and pay.

However, in most unfair dismissal claims reinstatement just isn’t practical or realistic. The only alternative to reinstatement is compensation.

How is unfair dismissal compensation calculated?

Where compensation is payable, it is capped at the lesser of six months pay or the equivalent of exactly half the current unfair dismissal high income threshold, which, as of July 1 2017, is $142,000.

This means the maximum amount of compensation that can be awarded is $71,000.

This amount of compensation could have a serious impact on the cash flow of the average Australian small-to-medium business. The cost for the employee to lodge the claim is also insignificant in comparison to the amount of compensation they could receive if the claim is successful.

The good news for business owners is that unfair dismissal claims can settle at conciliation and, when this occurs, it is often for less than $8,000.

However, you need to prepare yourself to be able to enter into constructive discussions at the conciliation not only with your former employee’s lawyer, but also the Fair Work Commission (FWC) Conciliator.

A well considered and prepared response to the application for unfair dismissal can prove invaluable during the conciliation.