The Fair Work Commission has ordered the department reinstate Phillip Gao, finding it unfairly dismissed him in 2021 for taking photos of information and keeping the images on his devices.

AFP officers strip-searched Mr Gao while executing a search warrant at his home in September 2020, and told him he faced life imprisonment. However it laid no charges and took no other action against the Defence employee after its investigation ended in May the next year.

The Defence Department suspended Mr Gao in September 2020 and later sacked him in September 2021 for taking and storing 39 images of Defence information on his personal devices.

Mr Gao told the department he believed there was an agenda to his dismissal, and that the events leading to it had flowed since he requested an upgrade of his security clearance, the commission said.

He had told Defence that as a mainland Chinese-born Australian, his request for an upgraded security clearance triggered an untoward reaction, according to the commission.

Fair Work commissioner Bernadette O'Neill on Thursday said Mr Gao, who had served for a decade as an army reservist, was affected "in a very deep way" by the AFP search warrant.

"At the time he felt betrayed, disappointed and angry as he knew he wasn't a Chinese spy, and these feelings influenced his initial response to the allegations against him," the commissioner said.

Mr Gao told the Fair Work Commission he was unfairly dismissed, saying it was common practice among Defence staff to transfer information to personal devices to work on, due to the department's slow and dysfunctional internal network.

He said he was unaware the department banned the use and transfer of information to personal laptops, that he was aware of the need to protect classified information, and that he had never breached this obligation.

There was no suggestion during the Fair Work case that Mr Gao disclosed the images stored on his personal devices, which were themselves secured by a password and biometrics.

He said he was never specifically told in training not to take images of the Defence Restricted Network, the basic protective communication network used by the Department of Defence to store information.

The images were overwhelmingly either unclassified or of a low-level official classification, his legal counsel said.

Mr Gao took 39 images over more than three years between May 2017 and September 2020. They included photos of letters of reference relating to Mr Gao, records of a conversation, emails regarding dress standards and Mr Gao's performance, and guidances, policies and spreadsheets for courses he was taking.

Legal counsel for Mr Gao told the Fair Work Commission that an objective review of the images revealed that nearly all were not sensitive, were not photographed from defence's network, and could not reasonably be asserted as having compromised the security of the information.

The Defence Department said Mr Gao lacked remorse and recognition of his responsibilities, and that his non-compliance with the policies justified dismissal because it could not be satisfied he would not repeat the conduct.

His misconduct went beyond a loss of trust to perform his role and posed a risk to Defence's ability to protect its digital information and intelligence, the department told the commission.

Defence said his failure to comply with lawful and reasonable directions to comply with information security policies, and to act with care and diligence in connection with APS employment contrary to his obligation under the public service act, were valid reasons for his dismissal.

The department also said Mr Gao should have checked the rules.

Commissioner O'Neill handed down a decision on Thursday saying the department's finding that Mr Gao had breached parts of the public service act was not soundly based. She also said he had shown remorse and acknowledged he had not complied with Defence's security policies.

"Having considered all the material, I find that [Mr Gao] did engage in some, but not all the conduct for which he was dismissed," Commissioner O'Neill said.

"I find that the conduct he did engage in did not, in all the circumstances, justify termination of his employment."

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Mr Gao's failure to follow directions to comply with information security policies and the department's ICT Manual was neither substantial or wilful, nor it was intentional nor deliberate, Commissioner O'Neill said.

She said there was no valid reason to dismiss Mr Gao, and even if there was, the dismissal was harsh.

The commissioner also took into account Mr Gao's suspension from his duties as a reservist.

Commissioner O'Neill ordered the Defence Department to reinstate Mr Gao to either his previous role, or another equivalent and appropriate executive level 2 role in Defence.

She also made an order that Mr Gao be paid for the period from his dismissal to the date of his reinstatement, less any money he earnt in the intervening period. The commissioner said the department should also deduct $2346, or 2 per cent of his annual salary, in consideration of Mr Gao's conduct that did breach Defence policies.

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