Dell DW15 docking station audio output set up with mac
If I go to System Preferences -> Sound -> Output and then choose the
  docking stations USB output it only outputs audio to the docking
  station, meaning that there is no sound when the audio jack is
  unplugged from the docking station.


This is expected behavior.  USB audio devices don't "report back" that speakers aren't attached.  As far as your Mac is concerned, the audio device (USB dock) is seen and functioning.