1 July marks increase to high income threshold for unfair dismissal: Employment Law Update

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. From 1 July, the high-income threshold will increase from $138,900 to $142,000 per annum.

Furthermore, where compensation is payable in an unfair dismissal claim, the amount is capped at the lesser of six months of the employee’s pay or exactly half of the current unfair dismissal cap. From July 1, the new maximum compensation limit in unfair dismissal cases is now $69,450, up from last year’s $68,350.

What is unfair dismissal?

Unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or unreasonable manner. There are several conditions for applying for unfair dismissal, such as:

  • Employees have to be employed for at least 6 months before they can apply for unfair dismissal. It is important to note that employees working for a small business have to be employed for at least 12 months.
  • If there was a change of business ownership, service with the first employer may count as service with the second employer when calculating the minimum employment period.
  • Employees have to apply to the Commission within 21 days of the dismissal taking effect.

Your claim is unlikely to succeed if your employer can show that your termination was a ‘genuine redundancy’, or if they are a small business, that they complied with the Small Business Fair Dismissal Code. We recommend speaking to an experienced solicitor in employment law who can advise you on whether your claim is likely to succeed.

Calculating earnings

Case study: Lesley Mallows v Touch Base Asia Pacific Pty Ltd t/a Touch Base Asia Pacific [2011] FWA 1695

If the employee’s situation includes bonuses, overtime and salary sacrifices, determining whether they are included in the high income threshold becomes complicated. 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.

As a result, its possible that an employer could have a high-income employee, who falls below the threshold and can therefrom claim unfair dismissal.

Earnings can include:

When calculating whether an employee earns above the threshold, earnings may include:

  • The employee’s wages;
  • Amounts applied or dealt with in any way on the employee’s behalf or as the employee directs (salary sacrifice arrangement); and
  • The agreed money value of non-monetary benefits.

Earnings generally don’t include:

  • Superannuation;
  • Reimbursements, such as meal allowance, vehicle allowance, travel expense allowance
  • Other entitlements such as bonuses, provision of a mobile phone or company car are not included if they are not guaranteed to be paid and if a value has not been attributed to them in advance; and
  • Payments that cannot be determined in advance, such as commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).

Impact on employers

Employers may wish to review the salary packages of employees who are paid close to the high-income threshold. If they are covered by an award or enterprise agreement and are being paid slightly less than the high income threshold, it may be worth considering whether to increase their salary in order to be better protected in the instance of an unfair dismissal application.

Finally, it is important to remember that employees over the high-income threshold may still be protected by other legal avenues. This may include a ‘Breach of Contract’ claim, anti-discrimination laws and the general protections provisions of the Fair Work Act 2009.  It is therefore vital, whenever making a decision about an employee’s employment, to seek advice as to whether a proposed action is lawful and the proper way of going about that course.

Want to know more about employment law? Please don’t hesitate to contact our experienced Newcastle commercial lawyers at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.