Terminating high-income employees – national system employers
There is often confusion regarding whether high income employees have the protection of unfair dismissal laws. The subsequent introduction of the Fair Work Act 2009 (FW Act) along with case law illustrates that some high-income employees have the protection of unfair dismissal.
Who is a high-income employee?
Under the FW Act, a high-income employee earns in excess of the high-income threshold. The method of calculating the high-income threshold is prescribed in the Fair Work Regulations 2009 (Regulations) with the amount being indexed annually. From July 1, 2018 it is $145,400.
An employee’s earnings are defined as including:
- the employee’s wages
- the amounts applied or dealt with in any way on the employee’s behalf or as the employee directs
- the agreed money value of non-monetary benefits
- amounts or benefits prescribed by the regulations.
An employee’s earnings, for the purposes of the high-income threshold do not include:
- payments the amount of which cannot be determined in advance e.g. commissions, bonuses, overtime (unless the overtime is guaranteed)
- reimbursements (e.g. per diem payments)
- contributions to a superannuation fund to the extent that they are required in accordance with legislation
- amounts prescribed by the regulations.
Who has access to unfair dismissal?
Section 382(b) of the FW Act provides that an employee is protected from unfair dismissal if the minimum employment period has been completed, and one or more of the following apply:
- a modern award covers the person
- an enterprise agreement applies to the person in relation to the employment
- the sum of the person’s annual rate of earnings, and such other amounts worked out in relation to the person in accordance with the Regulations is less than the high-income threshold.
The minimum employment period is:
- if the employer is not a small business employer – six months ending at the earlier of the following times:
- the time when the person is given notice of the dismissal;
- immediately before the dismissal; or
- if the employer is a small business employer – one year ending at that time.
While this suggests an employee earning over the high-income threshold may not have access to unfair dismissal remedies, recent case law suggests otherwise and a closer examination of the criteria is required.
When does a modern award cover the employee?
It is important to note that high income employees who are covered by a modern award retain access to unfair dismissal protections regardless of their income level. The term “cover” does not mean that the modern award must actually apply to the employee.
The FW Act allows employers and high-income employees to opt out of modern award terms by providing the employee with a written guarantee of annual earnings that is above the high-income threshold. Despite the guarantee the modern award still covers but does not apply to the employee. In this scenario the high-income employee is still entitled to access unfair dismissal remedies under the FW Act.
Determining whether a high-income earner has the protection of unfair dismissal laws is complex and requires an individual assessment of the specific circumstances of that employee.
How do we terminate a high-income employee?
It is best practice when terminating an employee, and particularly where an employee has access to unfair dismissal, that an employer has a valid reason for the termination and has followed a fair procedure in carrying out the termination. Such reasons may include:
- serious misconduct
- poor performance or conduct
Further information regarding unfair dismissal members should refer to the CCI Information Sheet Unfair Dismissals – National System.
For further advice regarding terminating an employee, whether they are high income employee or otherwise, please call the CCI Employee Relations Advice Centre on (08) 9365 7660 or email email@example.com.