Fair Work Commission raises the high-income threshold for unfair dismissal actions

With more employees now eligible to lodge claims, HC looks into the details and ramifications of the increase.

Fair Work Commission raises the high-income threshold for unfair dismissal actions
Fair Work Commission has increased the high-income thresholds for unfair dismissal applications, meaning more employees are eligible to make claims.

As of July 1, the maximum salary an employee can be paid and still be allowed to make an unfair dismissal application, has increased to $138,900 per annum (from $133,000). The new maximum compensation limit in unfair dismissal cases is now $69,450, up from last year’s $68,350.

Under unfair dismissal laws, an employee who is not covered by a modern award or enterprise agreement and whose annual rate of earnings exceeds the “high income threshold”, is ineligible to claim unfair dismissal.

However, high-income employees who are covered by a modern award can agree to avoid or modify the award. For these employees, the employer must provide a written undertaking guaranteeing annual earnings at least equal to the “high income threshold” (now $138,900 per annum), but the employees remain “covered” by the award and may access unfair dismissal provisions.

If an unfair dismissal claimant is not covered by an award or enterprise agreement, and earns greater than the high income threshold at the time of dismissal, then the employer may have a defence, but such a defence must be argued before the Fair Work Commission (FWC).
The high-income threshold formula does not include reimbursements such as allowances for meals or living away from home, or statutory superannuation contributions.
Turnbull Hill Lawyers, a NSW law firm specialising in business law, advises that the formula for deciding an employee’s salary includes the employee's wages, amounts applied on the employee's behalf such as salary sacrifice and the agreed value of fringe benefits such as a car. The high-income threshold formula does not include reimbursements such as allowances for meals or living away from home. It also does not include statutory superannuation contributions.

If the employee's situation includes bonuses, overtime and salary sacrifices, it becomes complicated, the firm warns. In the 2011 case of Lesley Mallows v Touch Base Asia Pacific Pty Ltd t/a Touch Base Asia Pacific, the Fair Work Commission considered whether overtime and bonuses – that pushed an employee’s total remuneration over the high-income threshold – therefore excluded the employee from making an unfair dismissal claim.

The Commission found that overtime and performance-based bonuses could not be included as part of the overall calculation of income because they could not be determined in advance. In this particular case, the bonuses were based on whether the employee reached their targets.

So in effect, an employer could have a high-income employee, who falls below the threshold and can therefore claim unfair dismissal.

Turnbull Hill Lawyers says that in unfair dismissal claims, the first thing to consider is whether the employee's claim is outside the unfair dismissal jurisdiction, and this exemption could be due to more than just the high income threshold: it could include the employee not having served the "minimum employment period" (6 or 12 months depending on employers size), or the employee's contract being for a fixed term or fixed task.

Employers should be mindful that employees who earn over the threshold and are unable to lodge an unfair dismissal claim may still have other legal avenues to challenge their dismissal. These avenues include a 'Breach of Contract' claim, anti-discrimination laws and the general protections provisions of the Fair Work Act.

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