Understanding the calculation of compensation in Industrial Tribunal decisions

A case study on Julio Azzopardi vs Solar Engineering Limited.

Court: Court of Appeal (Inferior Jurisdiction)

Judge: Hon. Lawrence Mintoff

Date: 16th October 2024

Case Number: Inferior Appeal Number 17/2024 LM

Timeline of cases:

1. 19th April 2023 – Industrial Tribunal gave its original decision regarding the unfair dismissal of Azzopardi. The Tribunal was not convinced that the decision of the Company to terminate the appellant’s employment was based on reasons that would justify dismissal. The Tribunal decided that the termination of the appellant’s employment was not justified, awarding Azzopardi compensation in the amount of nine thousand Euro (€9,000).
2. 28th February 2024 – An appeal was filed by the company Solar Engineering Ltd (submitted on 18th of March, 2024), where the Court of Appeal (Inferior jurisdiction) accepted the appeal and sent the case back to the Industrial Tribunal so that further explanation regarding compensation would be provided under article 81(2)(a) of the Employment and Industrial Relations Act (EIRA) (Cap.452) and article 12 of Industrial Tribunal Procedure Rules (S.L. 452.18 of the laws of Malta) [quoted hereunder].
3. 13th March 2024 – The Industrial Tribunal ruled in favour of Azzopardi, granting him compensation of nine thousand Euro (€9,000)—broken down into seven thousand five hundred Euro (€7,500) for the unfair dismissal and an additional one thousand five hundred Euro (€1,500) for real damages incurred during a one (1) month period of unemployment.
4. 16th October 2024 – The Court of Appeal (Inferior jurisdiction) case was filed by the appellant company as explained hereunder.

Namely, the Company contested:

• the compensation amount, claiming it lacked detailed motivation; and
• that the Tribunal failed to provide a breakdown for the nine thousand Euro (€9,000) awarded, nor an adequate explanation for the seven thousand five hundred Euro (€7,500) portion attributed to unfair dismissal; and
• that the one thousand five hundred Euro (€1,500) granted for one (1) month of lost wages during unemployment was incorrectly calculated. They asserted that Azzopardi should provide concrete proof of damages, including specific evidence of his last payment from the company and the start date of his subsequent employment; and
• that the Tribunal had an obligation to base calculations on Azzopardi’s net income, excluding tax and social security contributions, as they do not constitute actual disposable income.

Applicable laws

Art. 81 (2) (a) EIRA : “Where on a complaint made under article 75, the Tribunal finds that the grounds for the complaint are well-founded –(a) in  cases  of  unfair  dismissal,  if  there  is  no  specific request  for  reinstatement  or  re-engagement  or  the Tribunal  decides  not  to  make  an  order  for reinstatement  or  re-engagement  as  aforesaid,  the Tribunal shall make an award of compensation, to be paid by the employer to the complainant, in respect of the dismissal: Provided that, in determining the amount of such compensation,   the   Tribunal   shall   take   into consideration the real damages and losses incurred by the  worker  who  was  unjustly  dismissed,  as  well  as other circumstances, including the worker’s age and skills as may affect the employment potential of the said worker”

Art.12 of S.L. 452.18 – “Decisions  and  awards  of  the  Tribunal  shall  be  in  writing and shall not specify in detail the reason for such decision or award, but may make reference to the main evidence heard. The Tribunal, however, shall make it quite clear from its decision or award that all the relevant arguments put forward by both sides shall have been taken into consideration.”

Facts of the case in brief

1. In the initial claim to the Tribunal, Azzopardi explained that he had been employed with the appellant company on an indefinite contract since August of 2009 as a sales executive, with his employment terminated on the 25th of March, 2014. He argued that this dismissal was not for a valid cause/reason and requested that the Tribunal declare his termination unjust.
2. The company responded, claiming Azzopardi’s dismissal was justified on several grounds, including alleged falsification of company records, poor management of company finances, unauthorized waste disposal on company premises, lack of diligence in performing his duties, and disloyalty towards the company and its directors.
3. In a prior decision of the 19th of April 2023, the Tribunal ruled that Azzopardi’s dismissal was not legally justified, awarding him compensation of nine thousand Euro (€9,000). The appellant company subsequently appealed.
4. In the Appeal, the Court instructed the Tribunal to provide additional reasoning on the compensation
5. For this reason, the Tribunal was tasked with explaining in detail the reasoning for the awarded compensation, stating:
   • For unfair dismissal, the Tribunal deemed the respondent’s termination as a form of severe disciplinary action and set compensation at seven thousand five hundred Euro (€7,500).
   • For real damages, the Tribunal added one thousand five hundred Euro (€1,500), reflecting the respondent’s one-month unemployment before securing a new position.
6. The appellant Company appealed once again as they were not satisfied with the reasoning of the Tribunal regarding the determination of compensation. They claimed that the second decision by the Court of Appeal was worse than what was originally provided by the Industrial Tribunal.

The Appeal Described

Azzopardi explained that he was employed by the appellant on an indefinite contract from August 2009 to 2014, when his employment was terminated without justifiable reason—a fact confirmed by both the Tribunal’s decision in 2023, and by the Court’s ruling in 2024. Azzopardi emphasized that the current dispute pertains only to the amount of compensation awarded for his unfair dismissal, not the legitimacy of the dismissal itself.

In the appeal, the appellant company argued and insisted that the Tribunal’s award of €7,500 for unfair dismissal compensation lacked clarity in its calculation method. They argued that the Tribunal should have detailed the criteria used to reach this sum, considering only legally admissible losses attributable to the dismissal.

Furthermore, regarding the €1,500 awarded for Azzopardi’s unemployment period, the appellant emphasized that any amount given for actual damages should be strictly based on verifiable financial impact. The company contended that Azzopardi should have presented documentation proving his monthly income just before the dismissal and evidence of the specific period he remained unemployed. The appellant asserted that without such information, the amount granted for “real damages” was speculative. Documentation such as an FS3 form or payslips should have therefore been provided.

Moreover, it also stated that any calculation of further loss should be made based on the net income of the appellant, as tax and social security contributions are not current income received by an employee, and therefore should not be considered in such calculations. The appellant company also mentioned that the basic salary that the Tribunal worked on was exaggerated, not supported by evidence, and in any case, social security contributions and tax should have been deducted from it, along with commissions for sales that the appellant did not earn because it was not working, yet it was still being paid.

It argued that the Tribunal failed to consider this case properly, and although sub-regulation 12 of Subsidiary Legislation 452.18 did not require detailed motivation from the Tribunal, the reasoning provided by the Tribunal in its decision seriously lacked what the law required and was deficient in clarity. It stated that the motivation of compensation overall serves to help the parties better understand what led the Tribunal to its decision, without much conjecture about what its intent might have been, but it also provides for the possibility of an appeal where a party felt dissatisfied with the decision regarding the compensation payment that was to be made. It claimed that therefore the appealed decision could not be considered to meet the acceptable standard of motivation required by law.

Here, the appellant referred to several decisions of our Courts that address the Tribunal’s obligation to adequately motivate its decision on compensation. The appellant company stated that the appealed decision is excessively vague, unclear, and did not explain the reasons why the Tribunal determined such a substantial amount of compensation. In fact, it raises doubts about whether the amount awarded was arbitrary and not supported by evidence in the records.

The appellant company asserted that the law is clear about what the Tribunal must consider when liquidating compensation, and when the Tribunal exercises its discretion, it must clearly and understandably explain how and why it liquidated the sum it ordered the principal to pay. It stated that although the Tribunal has certain discretion entrusted to it by law, this does not mean that the Tribunal can arbitrarily liquidate the compensation, and this discretion must be exercised with caution and in a reasonable manner that makes sense in the specific circumstances of the case.

Also, the burden of proof for damages rests with the appellant, through documents showing that monthly income was negatively affected, and/or that the conditions of the new employment as a sales executive with another company were less advantageous than the conditions it had with the appellant company as a salesperson. It stated that such evidence is completely lacking. It said that where there is evidence that the employee has suffered damages, they have the right to claim compensation for the loss incurred, but in the present case, such evidence is entirely absent, and the appellant did not provide proof that it suffered real and authentic loss. It stated that the law stipulates that the Tribunal must consider the actual damages, the loss suffered by the employee who has been dismissed, and how the dismissal affected the appellant’s employment potential. It explained that these are criteria that should have been considered by the Tribunal when determining the compensation.

Azzopardi, in his defence, stated that his termination was confirmed as unjust by both the Tribunal and the Court of Appeal. Therefore, he asserted that compensation was justified under Maltese law, specifically addressing unfair dismissal compensation. He argued that the award, particularly the seven thousand five hundred Euro (€7,500) sum, was within reasonable bounds considering his years of service and his career disruption.

In this respect, Azzopardi furthermore claimed that the appellant company was incorrect in claiming that he was employed as a sales executive with SSCS Industrial Cleaning Services Limited, because it has been proven that he actually worked as a salesperson and not as a sales executive, with conditions inferior to those he had with the appellant company. He also claimed that he provided evidence that with the appellant company he had a salary of one thousand five hundred Euro (€1,500) per month, and that his income has now decreased by €500 per month. He stated that the Tribunal also considered that allegations were made to tarnish his reputation, including that he stole from the company, or that he abused the relationship he had with the sister of the company director, or that there was some misappropriation or abuse in the punching system of work hours. He said that these were allegations that turned out to be untrue. He added that another proven fact is that Anthony Saliba, as a director of the company, approached the new principal of the appellant and told him not to employ him.

He said that the appellant company did not present any argument as to why the quantum of the compensation should be changed, and it is established in our jurisprudence that the Tribunal has broad discretion when it comes to liquidating the compensation that is to be paid. He also stated that such discretion is exercised in good faith based on a fair appreciation of the model of the ‘bonus paterfamilias’, thereby taking into account all factual circumstances as reconciled with the correct exercise of its powers. The appellant said that another principle established in jurisprudence is that the motivation for compensation does not need to be explained at length.

Concerning the one thousand five hundred Euro (€1,500) allocated for his unemployment period, Azzopardi argued that this amount appropriately reflected the financial challenges he faced before finding new employment. He maintained that requiring further documentation or specific financial breakdown was excessive, as he had clearly communicated the month-long unemployment duration to the Tribunal.

Court’s Analysis and Decision

The Court focused on whether the Tribunal had provided adequate reasoning for the awarded sums. The Court highlighted the importance of both transparency and specificity in calculating compensation, particularly in unfair dismissal cases where sums must be based on the employee’s actual losses and the severity of the employer’s breach.

The Court agreed with the appellant’s position that the Tribunal should have provided a detailed calculation or methodology justifying the seven thousand five hundred Euro (€7,500) awarded for unfair dismissal. It emphasized that awards for unfair dismissal should be derived from tangible impacts on the employee’s career and financial stability, ideally considering factors such as years of service and potential income lost due to the dismissal.

Regarding the €1,500 for “real damages,” the Court found merit in the appellant’s demand for documentary evidence to support this amount. While acknowledging the period of unemployment, the Court noted that compensation for real damages necessitates precise documentation, especially when claimed damages pertain to loss of income. The Court agreed that it was reasonable to expect proof of Azzopardi’s monthly earnings and the duration of his unemployment, which would have allowed the Tribunal to reach a more accurate figure.

The Court concluded that the Tribunal’s compensation lacked both clear motivation and supporting evidence for the sums awarded. It stated that any award in such cases should be both legally justified and thoroughly documented to reflect actual damages sustained by the employee.

Therefore, the Court upheld the appellant’s appeal, overturning the Tribunal’s decision on the 13th of March 2024 on the grounds that the compensation lacked sufficient breakdown and evidentiary support. The Court directed the case back to the Tribunal once again, instructing it to reassess the awarded amounts based on clear evidence of Azzopardi’s financial losses and appropriate justification for each component of the compensation.