Tough redundancy decisions in the federal bureaucracy left a Canberra public servant with a psychological illness - after his bosses said he could keep his job.

In a twist on conventional unfair dismissal cases, the former public servant left ''severely depressed'' because his department would not make him redundant has lost his bid for workers' compensation.

Luciano Lombardo said the refusal by the Department of Education, Employment and Workplace Relations (DEEWR) to award him a lucrative payout at the age of 61 was ''vindictive'' and unfair.

But the Administrative Appeals Tribunal has found the former public servant had no entitlement to be made redundant and backed the decision by the Commonwealth workplace insurer to refuse Mr Lombardo's depression claim.

Mr Lombardo applied for one of a small number of voluntary redundancies offered in December 2010 as DEEWR and other departments slashed spending. When his application was refused in February 2011, he went to his doctor, who diagnosed severe depression and recommended a ''long break from work''.

Mr Lombardo never returned to his job and was sacked in August last year after refusing to go back to work.

The former public servant, from the department's targeted jobs projects branch, argued that he would be ''working for nothing'' if he stayed until the retirement age of 65 because his pension benefits under the generous Commonwealth Superannuation Scheme paid more than his after-tax wage.

''The benefit I had qualified for was higher than my take-home pay [so] the department is forcing me to effectively work for nothing,'' he told the tribunal.

Medical evidence from four doctors, which was not contested by the insurer Comcare, confirmed that Mr Lombardo was suffering from depression and the tribunal accepted the illness was brought on by the disappointment of not being made redundant.

But the department and Comcare argued that there was no obligation to make Mr Lombardo redundant simply because it was to his financial advantage.

Tribunal senior member Robyn Creyke heard evidence showing the redundancy decisions were made on workload grounds and there were no excess workers in Mr Lombardo's branch.

''Mr Lombardo's claim that he had been discriminated against because the special and particular benefits for him were not taken into account cannot be sustained,'' Professor Creyke wrote.

She found it was understandable that the public servant was disappointed to miss out on the ''financial windfall'' of redundancy but that did not create an entitlement to a payout.

Professor Creyke concluded DEEWR acted reasonably in handling Mr Lombardo's application for redundancy and that the official was not entitled to a workers' compensation payout for depression, even if the illness was caused by the department's decision.