Firing an employee after she wrongfully took a $1 bag of chips will cost a Mosgiel rest home nearly $19,000 in compensation, plus thousands more in back pay and legal costs, after the employee successfully sued for wrongful dismissal.

The Employment Relations Authority yesterday ruled Birchleigh Management Services Ltd was "unnecessarily severe" when it dismissed Kaye Gillan in July 2016.

Gillan - a caregiver who had worked for Birchleigh since 2004 - received a favourable performance review in March 2016.

However, on June 17, Gillan took a small packet of potato chips from a cupboard where refreshments for Birchleigh residents were kept.

She tasted them, found they were stale and threw them away.

That snack resulted in Birchleigh management calling Gillan to a meeting, at which she denied dishonest intent but accepted she had taken the chips. Birchleigh - which has strict policies concerning security of residents' property - found Gillan's actions to be serious misconduct and dismissed her.

ERA member Christine Hickey said there was a "significant difference" between Gillan taking a small bag of chips and any risk of her taking a resident's personal possessions or money, or larger quantities of food or rest-home property.

"A fair and reasonable employer could have found that Mrs Gillan was guilty of serious misconduct," the ERA determination said. "However, such an employer could not have concluded, in all the circumstances, that the essential foundation of trust and confidence in Mrs Gillan had been undermined to such a significant degree to warrant her dismissal."

The ERA awarded Gillan $18,750 compensation for wrongful dismissal; she will also receive reimbursement for lost wages - a sum yet to be agreed by parties. Costs were reserved but would be sought.

In the months leading to the incident, Gillan had told Birchleigh she had been bullied at work - claims the ERA did not make a finding on, but which it considered only when relevant to her dismissal.

Gillan yesterday said the stress of the bullying, then her dismissal, severely affected her mental health.

Gillan found a new job as a carer soon after her dismissal. Her new employer knew about her background and was supportive, she said.

Birchleigh said it was considering whether to appeal.