Unfair dismissal compensation: what can actually be ordered
Direct answer: There is no standard unfair dismissal payout. Reinstatement is the primary remedy and compensation is available only where reinstatement is inappropriate. Where compensation is ordered it is based on what the employee would likely have earned had the dismissal not occurred, reduced for earnings since, for any misconduct and for any contribution by the employee, and capped at the lesser of six months of the employee's remuneration or half the high income threshold. No amount can be awarded for shock, distress, humiliation or hurt feelings.
Reinstatement comes first
The Fair Work Act treats reinstatement as the primary remedy. The Commission may order compensation only where it is satisfied that reinstatement is inappropriate in the circumstances and that compensation is appropriate. In practice reinstatement is often found to be inappropriate, usually because the relationship of trust has broken down, but it is not a formality - employees who genuinely want their job back should say so early, and employers should not assume it is off the table.
Where reinstatement is ordered, the Commission can also order that the employee's continuity of service be maintained and that lost remuneration be restored. That combination can be worth more than a compensation order, and is one reason the remedy sought should be a deliberate choice rather than a default.
How compensation is worked out
The calculation is a sequence rather than a formula with an obvious answer, and the steps compound.
| Step | What it does |
|---|---|
| Estimate the remaining employment | The Commission estimates how long the employee would likely have stayed had they not been dismissed, and the remuneration they would have received in that period. This is the single largest driver of the outcome. A long-serving employee with no performance concerns is assessed very differently from someone whose position was precarious anyway. |
| Deduct earnings since | Remuneration earned between the dismissal and the order is deducted, as is income reasonably likely to be earned between the order and the payment. An employee who found comparable work quickly recovers little, however unfair the dismissal was. |
| Consider efforts to mitigate | What the employee did to find other work is expressly relevant. Keeping a record of applications is worth more than it looks. |
| Deduct for misconduct | Where misconduct contributed to the employer's decision to dismiss, the amount is reduced accordingly. |
| Apply contingencies and other factors | The effect of an order on the viability of the employer's business, the employee's length of service, and any other relevant matter are all taken into account. |
| Apply the cap | The total cannot exceed the lesser of six months of the employee's remuneration, or half the high income threshold in force immediately before the dismissal. |
What is expressly excluded
The legislation states that the amount must not include a component for shock, distress or humiliation, or other analogous hurt, caused to the employee by the manner of the dismissal. This surprises almost everyone. Unfair dismissal compensation is economic: it compensates for lost earnings, not for how the dismissal felt or for damage to reputation.
That is not the same as saying the manner of the dismissal is irrelevant. How the dismissal was carried out is central to whether it was unfair at all. It simply does not add money once unfairness is established.
Where the real complaint is discriminatory treatment, adverse action for exercising a workplace right, or bullying, a different pathway may fit better - general protections and discrimination claims are not subject to the same exclusion, and their remedies are different. The choice between pathways is worth making deliberately and early, because the twenty-one day limit applies to a general protections dismissal claim as well.
Why most matters settle at conciliation
Conciliation happens early, is conducted by telephone by a Commission conciliator, is private and is without prejudice. A large majority of unfair dismissal matters resolve there. The reason is not that either side is weak: it is that both are looking at the same arithmetic. The realistic range at conciliation is usually a few weeks of pay plus a statement of service and mutual confidentiality, because both sides are discounting for the cost and risk of the alternative.
Two figures are worth knowing before that call. The first is what the claim is realistically worth if it ran all the way, which is the calculation above, not the cap. The second is what running it would cost in time and fees. Parties who know both negotiate well. Parties anchored to the cap usually do not settle and usually do no better.
Costs and representation
Each party generally bears its own costs in the Commission, with limited exceptions - for example, where a claim is made vexatiously or without reasonable cause, or where a party's unreasonable act causes the other to incur costs. Lawyers and paid agents also need the Commission's permission to appear in a hearing, which is granted where it would help deal with the matter efficiently or where fairness between the parties requires it. Neither of those is a reason to go without advice; both are reasons to get advice on the claim rather than assume representation at every step.
The deed of release
Almost every settlement is documented in a deed of release. It will normally extinguish every claim the employee has against the employer, including claims not yet identified and claims the employee does not know about. It commonly includes confidentiality, non-disparagement and a statement of service. Whether the payment is reasonable cannot be assessed without knowing what is being released - which is why the deed is reviewed before, not after.
The short version
- Reinstatement first; compensation only where reinstatement is inappropriate.
- Compensation is for lost earnings, calculated from what would likely have happened.
- Everything earned since the dismissal comes off the top.
- Nothing is awarded for distress, humiliation or reputation.
- The cap is the lesser of six months of remuneration or half the high income threshold - and most awards are well below it.
- The twenty-one day limit decides whether any of this is available at all.
This guide is general information about the law in Australia and is not legal advice for your situation. The high income threshold and the compensation cap are indexed each year and should be checked as at the date of the dismissal.