FWC Full Bench explains unfair dismissal compensation and deductions for misconduct

Section 392(3) of the Fair Work Act 2009 (Cth) provides that, if the Fair Work Commission (FWC) is satisfied that misconduct of a person contributed to the employer’s decision to dismiss the person, the FWC must reduce the amount of compensation it would otherwise order by an appropriate amount on account of the misconduct.

In Butterfly Systems Pty Ltd [2021] FWCFB 18, a full bench of the FWC made a number of helpful observations about compliance with the Small Business Dismissal Code (Code) and provided a working example of how the FWC will approach deductions to an award of compensation for misconduct.

Facts

Mr Sergeev (the Employee) was employed as a Software Developer by Butterfly Systems Pty Ltd (the Employer).

On 24 March 2020, following a disagreement on the phone with the Employer, the Employee submitted a formal request to use one day of his annual leave to take the same day off work via the Employer’s HR system. The formal request was submitted despite being told by the Employer that there was a lot of work to do that day and that he would not be approved to take annual leave. After submitting the formal request, the Employee disconnected from the Employer’s network and ignored a call from the Employer because he considered himself to be on annual leave.

Approximately two hours later on the same day, the Employer sent a text message to the Employee in which it summarily dismissed him from his employment and requested that he return all property of the Employer as soon as possible.

The Employee responded to the text message and stated: ‘OK, I’ll bring in the laptop tomorrow. I am on my annual leave today, stop calling me outside business hours.’

At the time of the dismissal, the Employer was a small business with only eight employees and incorrectly assumed that the Employee’s misconduct amounted to abandonment of employment and constituted serious misconduct for the purposes of the Code.

Decision at first instance

The Employee filed an unfair dismissal application and, at first instance, the FWC held that the Employer did not have a valid reason to summarily dismiss the Employee for taking the unapproved day off and that the Employee’s conduct was not a significant enough to render it serious misconduct pursuant to the Code.

In awarding the Employee $35,000 in compensation, being an amount equal to 16 weeks, the FWC stated:

The unpleasantness and experience of the incident on 24 March 2020, and its consequences for both parties, would likely have not resulted in the [Employee] continuing in employment for any significant period of time. I estimate this period of time to be 16 weeks.

The compensation amount was reduced by 2 weeks because the FWC was prepared to accept that the Employee’s conduct on 24 March 2020 was inappropriate and unacceptable but maintained that it did not amount to misconduct.

Outcome of appeal

On appeal, the first question was whether or not non-compliance with the Code led to the absence of a valid reason for dismissal. The FWC full bench held that it did not and determined there was a valid reason for dismissal on the basis that:

A refusal by an employee to comply with a lawful and reasonable direction will almost always provide a valid reason for dismissal in the sense of being well founded, sound and defensible.

However, the full bench still went on to determine that summary dismissal was disproportionate in the circumstances and that there was a failure to afford procedural fairness resulting in the decision being unfair.

In assessing whether the award of compensation at first instance was appropriate, the full bench noted:

In the circumstance of a finding that further employment would not have been for a significant period of time, it is counterintuitive that the Tribunal Member would then conclude that such period of time would be 16 weeks.

The full bench noted the FWC’s conclusion that there was no misconduct was in error and that the Employee’s misconduct plainly contributed to the Employer’s decision to dismiss him. Therefore, the full bench noted it was necessary for there to be a consideration of the ‘appropriate amount’ by which the compensation must be reduced on account of that misconduct.

The full bench reduced the award of compensation from 16 weeks to 4 weeks, which included a 20% deduction for the Employee’s misconduct. The compensation was therefore reduced from $35,000 at first instance to $7,384.62 on appeal.

Learnings

The decision provides a useful summary of the proper process for determining compensation in circumstances where it is necessary for there to be a consideration of the appropriate amount by which an award of compensation must be reduced on account of misconduct.