Megan Smith v Fearon Howard Real Estate Pty Ltd T/A Ray White (Balmain)

[2021] FWC 4263

[2021] FWC 4263

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Megan Smith
v
Fearon Howard Real Estate Pty Ltd T/A Ray White (Balmain)
(U2020/8238)

DEPUTY PRESIDENT DEAN CANBERRA, 23 JULY 2021

Application for an unfair dismissal remedy – reconsideration of compensation

[1] Ms Smith was employed by Fearon Howard Real Estate Pty Ltd T/A Ray White Balmain (Ray White Balmain) and its predecessor from 10 October 2017. She was dismissed on 26 May 2020 and subsequently made an application pursuant to s.394 of the Fair Work Act 2009 seeking relief for her alleged unfair dismissal.

[2] In a decision dated 11 November 2020 (the first decision) 1, I found that the dismissal of Ms Smith was unfair and ordered compensation of $10,000 as a remedy.

[3] Ms Smith appealed the first decision. On 5 February 2021 a Full Bench granted the appeal insofar as it related to the determination of compensation (the appeal decision). The application was referred to me to redetermine the amount of compensation, which is the purpose of this decision.

[4] The effect of the appeal decision is that the question of compensation is determined afresh. Directions were issued requiring the parties to file and serve evidence and submissions, specifically addressing the requirements of s.392. Ms Smith filed submissions and a number of documents, including pay records for the 6 month period following her dismissal. Ms Smith also gave evidence orally and was cross examined. Ray White Balmain filed submissions and a witness statement of Ms Fearon. Ms Fearon was also cross examined.

[5] For the reasons that follow, I have decided not to award Ms Smith any compensation.

Determining an amount of compensation

[6] Section 392(2) of the Act requires all the circumstances of the case to be taken into account when determining an amount to be paid as compensation including:

(a) the effect of the order on the viability of Ray White Balmain;

(b) the length of Ms Smith’s service;

(c) the remuneration that Ms Smith would have received, or would have been likely to receive, if she had not been dismissed;

(d) the efforts of Ms Smith (if any) to mitigate the loss suffered by her because of the dismissal;

(e) the amount of any remuneration earned by Ms Smith from employment or other work during the period between the dismissal and the making of the order for compensation;

(f) the amount of any income reasonably likely to be so earned by Ms Smith during the period between the making of the order for compensation and the actual compensation; and

(g) any other matter that the Commission considers relevant.

[7] In determining an amount to be paid as compensation, “[t]he well-established approach to the assessment of compensation under s.392 of the FW Act … is to apply the “Sprigg formula” derived from the Australian Industrial Relations Commission Full Bench decision in Sprigg v Paul’s Licensed Festival Supermarket (Sprigg).²

The case for Ms Smith

[8] Ms Smith made the following submissions in relation to s392(2):

a. In relation to sub section (a) and (b), she had nothing to add to the findings made in the first decision;

b. In relation to subsection (c), she had nothing to add to the findings on her anticipated period of employment had she not been dismissed, that being six months. She submitted her total earnings in her final six months of employment totalled a gross figure of $74,553.59 including taxation and superannuation. She submitted that the amount ordered of $10,000 as approximately equivalent of four weeks’ remuneration was significantly less than four weeks’ remuneration because her average weekly remuneration was $2,867.44.

c. In relation to subsection (d), Ms Smith had nothing further to add to the findings in the first decision;

d. In relation to subsection (e), she submitted that she had now provided evidence of her actual earnings in the six month period after her dismissal, which was $20,755.50.

e. In relation to subsection (f), Ms Smith referred to a decision of a Full Bench in Bowden v Ottrey Homes Cobram and District Retirement Villages (Bowden) 3. She submitted that the reasonable starting figure for compensation is six months remuneration based on her earnings in the six months prior to her dismissal, then deduct monies earned during the ‘anticipated period of employment’, ie also six months.

[9] In relation to section 392(3) and (4), Ms Smith had nothing to add to the findings made in the first decision. She also made brief reference to the requirements of s392(6).

[10] In response to the submissions made by Ray White Balmain, Ms Smith noted the following events that happened after she was unfairly dismissed:

a. She was offered her job back on a commission only basis, which would have granted her the full benefit of JobKeeper with no requirement to pay it back through a debit/credit arrangement;

b. Shortly after she was dismissed, she was advised by Mr Howard, the co-owner of Ray White Balmain, that Ms Fearon would no longer be directly managing staff; and

c. Shortly after she was dismissed, she was advised by Mr Howard that a conflict resolution specialist had been engaged to help management and staff work through issues.

[11] She submitted that it was reasonable to think that these measures would have changed the working environment for the better. In her evidence in chief said the following exchange took place:

“Mr Luton: Shortly after you were dismissed were you advised by one of the principals that they would look at changing the management structure of the business?

Ms Smith Yes.

Mr Luton: And what was the change?

Ms Smith: Karl suggested that they - or said, sorry, that they were looking at getting in a dispute resolution person, also employing an accountant who had a strong business background who could help with running of the business, and that he knew that Rebecca shouldn't be managing staff and was looking to make changes to make sure that she wouldn't be managing staff in the future.

Mr Luton: Thank you.  Had you not been unfairly dismissed on 26 May - sorry, let me just rephrase this question.  Had you not been dismissed on 26 May given what you've just explained to us about proposed changes to the management structure of the business what do you think the effect of that would have been on your relationship with the principals?

Ms Smith: I think we could have worked through it.  Given that after I was fired and Karl offered me to go commission only, which would get over the hurdle of them passing on JobKeeper, I could have worked through that, and not only that knowing that he was willing to put structures in place that would give a better management of the business gave me confidence that changes were going to be made and that I could continue working there.” 4

[12] Ms Smith rejected the assertion by Ray White Balmain that she would have been unable to obtain listings, make sales or earn commission had she remained at Ray White Balmain, because there was no evidence to support the contention that she was underperforming and her sales for the six months after her dismissal were essentially the same as the six months prior.

[13] In response to Ray White Balmain’s argument that she should be denied compensation because she turned down an offer of re-employment, Ms Smith referred to a decision of a Full Bench in Biviano v Suji Kim Collection 5 in which she said it was held that:

“[47] Even when re-employment is offered on substantially the same terms it is not necessarily the case that it would be unreasonable for an applicant to refuse such and offer. For example, where the applicant no longer trusts his or her former employer it would not be reasonable to expect the applicant to mitigate his loss by accepting an offer of re-employment.

…

[52] Even where re-employment is offered on substantially the same terms and status it will not be unreasonable to refuse in circumstances where the employee no longer trusts his or her former employer or where there is friction between the two parties”

[14] She submitted that the manner in which she was unfairly dismissed caused an irrevocable breakdown of the relationship between her and Ms Fearon and as such it was not unreasonable for her to turn down the offer of re-employment. Furthermore, the reason given by Ms Fearon for her dismissal was “irreconcilable differences”.

[15] Ms Smith was extensively cross examined. The particularly relevant parts of the evidence she gave in cross examination are as follows:

a. She became entitled to commission on her sales at the time contracts for sale were exchanged, even if she was not employed at that time;

b. Ms Smith was entitled to receive commissions totalling $78,534 for properties she was involved in selling in the six months after her dismissal 6. In addition, she received JobKeeper payments of $6,000;

c. There were at least 5 occasions that either Mr Howard or Ms Fearon reached out to Ms Smith in the two weeks following her dismissal to see if she would re-join them. This included an offer of employment on a commission only basis, which would have been more advantageous to Ms Smith than her previous employment arrangements because she would receive the full benefit of JobKeeper with no requirement to pay it back through the debit/credit arrangement that previously applied. Further, this would have resolved her concern she had expressed prior to her dismissal about accumulating debits from the lack of sales at the time due to COVID;

d. Ms Smith acknowledged the advice from Mr Howard that Ms Fearon would not be directly managing staff going forward;

e. A conflict resolution specialist was engaged by Ray White Balmain to work through any staff issues; and

f. Ms Smith had asked Ray White Balmain to be ‘stood down’ in the week prior to her dismissal. At the time she had no listings so she asked to be stood down to stop debits from accruing, and she was seriously concerned about the impact of the debit system on her remuneration.

The case for Ray White Balmain

[16] Ray White Balmain noted that the central challenge by Ms Smith to the first decision was that JobSeeker payments were erroneously deducted by the Commission when determining the amount of compensation.

[17] Ray White Balmain submitted that a Full Bench of the Commission has recently explained the general approach that should be taken with respect to the calculation of compensation in relation to unfair dismissal in the case of Thurston v Bunbury Medical Imaging 7, stating:

“[31] In assessing compensation, it is necessary to take into account all the circumstances of the case, including the specific matters identified in s.392(2)(a) to (g), and to consider the other relevant requirements of s.392.

[32] The well-established approach to the assessment of compensation under s.392 is to apply the ‘Sprigg Formula’, derived from the Australian Industrial Relations Commission Full Bench decision in Sprigg v Paul Licensed Festival Supermarket. This approach was articulated in the context of the current legislative framework in Bowden v Ottrey Homes Cobram and District Retirement Villages (Bowden). Under that approach, the first step to be taken in assessing compensation is to consider s.392(2)(c), that is, to determine what the applicant would have received, or would have been likely to receive, if the person had not been dismissed (the Anticipated Period of Employment). In Bowden this was described in the following way:

‘[33] The first step in this process - the assessment of remuneration lost - is a necessary element in determining an amount to be ordered in lieu of reinstatement. Such an assessment is often difficult, but it must be done. As the Full Bench observed in Sprigg:

“... we acknowledge that there is a speculative element involved in all such assessments. We believe it is a necessary step by virtue of the requirement of s.170CH(7)(c). We accept that assessment of relative likelihoods is integral to most assessments of compensation or damages in courts of law.”

[34] Lost remuneration is usually calculated by estimating how long the employee would have remained in the relevant employment but for the termination of their employment. We refer to this period as the “anticipated period of employment” ...’

[33] Once the first step of determining the Anticipated Period of Employment has been undertaken, various adjustments are made in accordance with s.392 and the formula for matters including monies earned since dismissal, contingencies, any reduction on account of the employee’s misconduct and the application of the cap of six months’ pay. This approach is however subject to the overarching requirement to ensure that the level of compensation is in an amount that is considered appropriate having regard to all the circumstances of the case.” (citations omitted)

[18] Ms Fearon gave evidence. She said that Ms Smith had been unhappy at work for some months before her dismissal. On the day she was dismissed, Ms Smith had attended the office “very annoyed and disgruntled”. Ms Fearon said that in the heat of the moment she went and asked Ms Smith to leave because she didn’t need anymore stress. She gave evidence she was under enormous pressure at the time because of the impact of COVID on the business. Within 24 hours Mr Howard, Ms Fearon’s business partner, had offered Ms Smith her job back, and there were multiple attempts made over the next few weeks to have her return to work.

[19] Ray White Balmain submitted that no compensation should be awarded to Ms Smith because there was a genuine opportunity to take up the offer of re-employment. Ms Fearon and Mr Howard did their best to try to make amends with Ms Smith, including offering her employment on a commission only basis and engaging a conflict resolution specialist. This was to make it as attractive as possible for her to return.

[20] Ray White Balmain highlighted the evidence of Ms Smith that she had had a good relationship with both Ms Fearon and Mr Howard prior to her dismissal. It was on the day of the dismissal that a situation arose as a result of the ongoing issue about JobKeeper payments and its relationship with the debit/credit payment system. Ms Fearon was under significant pressure because of the effect of COVID on her business, and as a result, ‘snapped and asked her to pack her bags and go’. It was submitted that this was the extent of the evidence given by Ms Smith that there was friction in their relationship, and this type of friction, while understandable in the circumstances, should have been able to be quickly remedied.

[21] Ray White Balmain submitted that “if one was to put the shoe on the other foot, and Ms Smith was to have resigned in the heat of the moment, as it were, and then said the next day, "Look, I'll come back", the employer would probably be expected to reasonably consider that and it might even be thought that a failure to consider that type of resignation would almost be a dismissal of itself”. Ray White Balmain also submitted that her failure to try to remedy the situation should not be something she benefits from. Had she accepted the offer to return to work, she would not have suffered any financial loss, and in fact she would have been paid more because she was offered a commission only role, and her concerns about the debit/credit payments would have been resolved.

[22] In the alternative, it submitted, Ms Smith’s earnings were significant over the six month period following her dismissal. It was uncontested that the amount of remuneration she was entitled to receive resulting from her sales was $78,534. In addition, she was paid $6,000 in JobKeeper payments. This totals $84,534 in remuneration earned. It contended that if a comparison is made between what Ms Smith had earned in the six months prior to her dismissal and the six months post her dismissal, she earned more in the six months post her dismissal.

[23] Ray White submitted that monies earned is different to monies paid. Accordingly, if monies are earned but not yet paid, they are still considered earnings.

Consideration

[24] For the record, while it was noted in the first decision that Ms Smith received JobSeeker payments, no deduction was made for this when determining the compensation quantum.

[25] As set out earlier, the purpose of this decision is to reconsider the matter of compensation only. I now turn to each of the considerations required of s392(2).

Viability (s392(a))

[26] Ray White Balmain gave evidence that as a small business, it had been dramatically affected by COVID-19, to the extent it became eligible for JobKeeper. It submitted this weighed in favour of awarding nil or less compensation. There is no doubt that COVID-19 had a significant effect on the business, but there is no detailed financial evidence as to the effect any order for compensation would have on the viability of the business. Accordingly, I find this is a neutral consideration.

Length of service (s392(b))

[27] Ms Smith’s employment with Ray White Balmain from 11 October 2017 to 26 May 2020 is a relatively short period and I consider it does not support reducing or increasing the amount of compensation ordered. Ms Smith or Ray White Balmain did not take issue with this finding in the first decision, and there is no basis for reaching a different view now.

Remuneration received, or likely to be received (s392(2)(c))

[28] In the first decision, I found that “while the evidence in this regard is limited, I consider that it is likely that Ms Smith’s employment would not have continued for a lengthy period if the friction that had developed between Ms Smith and Ms Fearon was not resolved. While there is clearly an element of speculation in determining specifically how long Ms Smith would have remained employed, I consider it would not have been longer than six months”.

[29] When calculating the remuneration that Ms Smith would have received or would have been likely to receive if she had not been dismissed, the intention is to put her in the financial position she would have been in but for the unfair dismissal.

[30] Ms Smith accepted the finding in the first decision that her anticipated period of employment had she not been dismissed was no longer than six months. She contended that the amount of remuneration she would have received or would have been likely to receive during that period was comparable to her earnings in the six months prior to her dismissal.

[31] Ray White Balmain contended that had it not dismissed Ms Smith, she would have resigned shortly anyway, and provided several reasons for this submission. It submitted that the income she was likely to receive from Ray White Balmain was $862.50 per week until 1 November 2020 when her weekly salary would have increased to $877.60 per week as a result of the Safety Net Review.

[32] I am satisfied and find that Ms Smith’s employment would not have lasted any longer than six months, and that she would likely have received a similar level of remuneration as she received in the six months prior to her dismissal. While she had no listings at the time of her dismissal, the evidence now is clear that she made (or had involvement in) a number of sales while with her new employer, a competitor of Ray White Balmain, resulting in a similar level of remuneration for the six month period post her dismissal.

Mitigation efforts (s392(d))

[33] Ms Smith was successful in obtaining alternative employment shortly after her dismissal with a competitor of her former employer, McGrath Balmain. During the six month period following her dismissal, Ms Smith earned (as opposed to ‘was paid’) more than what she had earned in the six month period prior to her dismissal. In this regard, she fully mitigated her loss.

Remuneration earned and income likely to be earned (s392(2)(e) and (f))

[34] Ms Smith said her actual earnings were $20,755.50 in the six months following her dismissal, arising from her new employment with another real estate agency. This amount was what she had been paid during that time, rather than what she had earned.

[35] Ms Smith was extensively cross examined as to what properties she was involved in selling in the six months following her dismissal, and the commissions payable on those sales.

[36] I accept and find that commission payments earned but not yet paid to Ms Smith should be included when determining compensation. Clearly, the Act requires a consideration of what is earned, not what is paid. Ms Smith conceded that she became entitled to commission payments on her sales at the time the contracts for the sale were exchanged, even if she was not employed at the time. She further conceded she was entitled to receive commission payments totalling $78,534 for properties she was involved in selling in the six months following her dismissal.

[37] I am satisfied and find that Ms Smith earned $78,534 in the six months following her dismissal in commission payments. In addition, she earned $6,000 in JobKeeper payments, totalling $84,534.

Other relevant matters (s392(g))

[38] Ray White Balmain submitted that it had overpaid Ms Smith $2,912.69, and this was a relevant matter that should be taken into account.

Calculating compensation and applying Sprigg

[39] Ray White Balmain submitted that Ms Smith’s rejection of their offers to return to work should mean that no compensation should be awarded. In the alternative, this should substantially reduce the amount of compensation that ought to be awarded.

[40] The parties’ submissions as to whether it was reasonable for Ms Smith to reject the offer of re-employment are set out earlier. Primarily, the focus of these submissions was whether the dismissal had irreparably damaged the employment relationship. While Ms Smith contended that the dismissal caused an irrevocable breakdown of the relationship between her and Ms Fearon, she also gave evidence that she had had a good working relationship with both Ms Fearon and Mr Howard prior to her dismissal.

[41] I accept the evidence of Ms Fearon that the dismissal was a ‘heat of the moment’ decision and she was under significant pressure due to COVID-19. I am satisfied that Ray White Balmain made multiple genuine attempts to restore the relationship with Ms Smith, which are set out earlier in this decision. I do not accept that the relationship between Ms Fearon and Ms Smith was irrevocably damaged. This is particularly so given there was a good working relationship prior to the dismissal and because of Ms Smith’s own evidence, set out earlier, to the effect that the measures Ray White Balmain sought to put in place for her return to work would have addressed a number of her concerns particularly with regard to the debit/credit system. I find it was unreasonable in all the circumstances for Ms Smith to refuse the offer of re-employment following her dismissal. As a result, I consider that no compensation should be payable to Ms Smith.

[42] However, if I am wrong in this regard, an application of the Sprigg formula results in the same outcome. The approach in Sprigg is as follows:

Step 1: Estimate the remuneration the employee would have received, or have been likely to have received, if the employer had not terminated the employment (remuneration lost).

Step 2: Deduct monies earned since termination. Workers’ compensation payments are deducted but not social security payments. The failure of an applicant to mitigate his or her loss may lead to a reduction in the amount of compensation ordered.

Step 3: Discount the remaining amount for contingencies.

Step 4: Calculate the impact of taxation to ensure that the employee receives the actual amount he or she would have received if they had continued in their employment.

Step 1

[43] Based on an anticipated employment period of six months, Ms Smith contended she would have received monies comparable to her earnings in the six months prior to her dismissal. Accepting this as her best case scenario, she would have likely received $74,554.59 had she remained in employment for that time period.

Step 2

[44] I have found that the remuneration earned by Ms Smith was $84,534 during the six months following her dismissal. This amount is to be deducted from the amount calculated in step 1 above. Clearly, the amount in step 1 is less than the amount in step 2. In other words, the calculation arrives at an amount of less than zero.

Step 3

[45] Contingencies are to be considered in this step. However, there is no point in considering a deduction for contingencies given the amount arrived at by step 2 is zero.

Step 4

[46] Taxation is considered at this step. Tax on zero is zero.

Conclusion

[47] Having applied the formula in Sprigg, I am nevertheless required to ensure that “the level of compensation is an amount that is considered appropriate having regard to all the circumstances of the case”, including my findings that Ms Smith unreasonably refused the re-employment offer made by Ray White Balmain.

[48] I am satisfied that the compensation that I have determined (ie. zero) takes account of all the circumstances of the case as required by s.392.

[49] The effect of this decision is that Ms Smith is not entitled to the $10,000 paid to her because of the first decision. The High Court in Esso Australia Pty Ltd v AWU [2017] HCA 54 observed at paragraph 49 that the Commission has ‘broad powers under s.603 of the Fair Work Act to vary or revoke orders, including power to vary or revoke orders retrospectively’. Accordingly, I note it is open to Ray White Balmain to make a separate application pursuant to s.603(2) of the Act to vary or revoke the order made on 11 November 2020 giving effect to the first decision.

DEPUTY PRESIDENT

Appearances:

J Luton for Megan Smith.
T McDonaldfor Fearon Howard Real Estate Pty Ltd T/A Ray White Balmain.

Hearing details:

2021.
Sydney (By video):
March 16.

Printed by authority of the Commonwealth Government Printer

<PR731841>

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2 (1998) 88 IR 21.

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 4   Transcript PNs499-501.

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