Fair Work Commission

Overview

See Fair Work Act 2009 ss.392(2)(c), 392(2)(e) and ss.392(5)‒(6)

The formula set out in Sprigg v Paul's Licensed Festival Supermarket^[1] (the Sprigg formula) is commonly used in working out the appropriate amount of compensation. The Sprigg formula has been refined with use.

The Sprigg formula was decided under previous legislation but it has continued to be applied under the Fair Work Act.^[2]

If, when applied, the Sprigg formula 'yields an amount which appears either clearly excessive or clearly inadequate' then the Fair Work Commission should reassess the assumptions made in reaching that amount.^[3] Compensation should be appropriate having regard to all of the circumstances of the case.^[4]

How is remuneration estimated in step 1?

The assessment of remuneration lost is a necessary element in determining an amount to be ordered in lieu of reinstatement.^[6] Such an assessment is often difficult, but it must be done.^[7]

In circumstances where the Commission forms the view that the employee would have stayed in the former job for a number of years then remuneration that would have been received over that period is calculated. This may include long service leave and potential bonuses.^[8]

What is deducted as remuneration in step 2?

Remuneration earned in other employment.

Social security payments are not generally considered to be 'remuneration'.^[9] Whether an employee who has received social security payments is obliged to repay those benefits is a matter between the employee and social security and is not a relevant consideration.^[10]

Workers' compensation payments are generally considered to be 'remuneration' and will be deducted.^[11]

What are the contingencies referred to in step 3?

In Ellawala v Australian Postal Corporation^[12] the Commission made the following points in relation to contingencies:

• Step 3 involves the deduction of an amount from the total remuneration for situations that may have arisen and which 'might have brought about some change in the earning capacity or earnings'.^[13]
• A 25% discount for contingencies was applied in Sprigg.^[14] This amount was decided on the basis of the facts of that case.^[15] It is not a statement of an amount that is generally appropriate.^[16]
• In assessing the impact of contingencies it is necessary for the Commission to exercise broad discretion and this involves considering both favourable and unfavourable contingencies.^[17]
• Contingencies only apply to the anticipated period of employment.^[18]

Case example

What are the taxation considerations in step 4?

The compensation amount is reduced by the tax the employee would have paid if they had received the amount as wages, this gives the net amount.^[19]

The net amount is then increased by the amount of tax liability on the compensation as ordered. This is usually taxed as an employment termination payment.^[20]

What is the compensation cap in step 5?

The compensation cap is set in s.392(5) of the Fair Work Act. The amount ordered to be paid by the Commission must not exceed the lesser of:

• the total amount of remuneration either received by the person, or to which the person is entitled, for any period of employment with the employer during the 26 weeks immediately before the dismissal, and
• half the amount of the high income threshold immediately before the dismissal.^[21]

From 1 July 2019, the high income threshold was $148,700 per annum and from 1 July 2020 it is $153,600. Therefore, the compensation cap is:

• $74,350 for a dismissal that occurred on or after 1 July 2019 and before 1 July 2020, and
• $76,800 for a dismissal that occurred on or after 1 July 2020.

References

^[1] Sprigg v Paul's Licensed Festival Supermarket, Print R0235 (AIRCFB, Munro J, Duncan DP, Jones C, 24 December 1998) [(1998) 88 IR 21].

^[2] See Wright v Cheadle Hume Pty Ltd T/A Macedon Spa [2010] FWA 675 (Lewin C, 10 February 2010).

^[3] Smith v Moore Paragon Australia Ltd (2004) 130 IR 446 [32].

^[4] ibid. See also Haigh v Bradken Resources Pty Ltd (2014) 240 IR 366 [12]

^[5] Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000) at para. 31.

^[6] Sprigg v Paul's Licensed Festival Supermarket, Print R0235 (AIRCFB, Munro J, Duncan DP, Jones C, 24 December 1998) [(1998) 88 IR 21], 32.

^[7] Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000) at para. 33.

^[8] Shorten v Australian Meat Holdings (1996) 70 IR 360, 376; citing Slifka v J W Sanders Pty Ltd (1996) 67 IR 316, 327.

^[9] Sprigg v Paul's Licensed Festival Supermarket, Print R0235 (AIRCFB, Munro J, Duncan DP, Jones C, 24 December 1998) [(1998) 88 IR 21], 29.

^[10] Jarvis v Crystal Pictures Pty Ltd [2010] FWA 3674 (Cloghan C, 25 May 2010) at para. 74.

^[11] Sprigg v Paul's Licensed Festival Supermarket, Print R0235 (AIRCFB, Munro J, Duncan DP, Jones C, 24 December 1998) [(1998) 88 IR 21], 29.

^[12] Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000).

^[13] Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000) at para. 36.

^[14] Sprigg v Paul's Licensed Festival Supermarket, Print R0235 (AIRCFB, Munro J, Duncan DP, Jones C, 24 December 1998) [(1998) 88 IR 21].

^[15] ibid., [41].

^[16] ibid.

^[17] Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000) at para. 39.

^[18] Enhance Systems Pty Ltd v Cox, PR910779 (AIRCFB, Williams SDP, Acton SDP, Gay C, 31 October 2001) at para. 39; citing Ellawala v Australian Postal Corporation, Print S5109 (AIRCFB, Ross VP, Williams SDP, Gay C, 17 April 2000) at para. 43.

^[19] Shorten v Australian Meat Holdings Pty Ltd (1996) 70 IR 360, 378.

^[20] ibid. It should be noted that tax legislation now refers to 'eligible' termination payments.

^[21] The high income threshold is referred to in the Fair Work Act at s.382(b)(iii), and is discussed in more detail in this Benchbook.