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When dismissing an employee, you must follow a fair and reasonable procedure. Otherwise, you risk receiving an unfair dismissal claim if an employee believes that unfair treatment occurred during the dismissal process. This process involves making an application to the Fair Work Commission (FWC) to investigate and provide any relevant resolutions or any necessary compensation. Receiving a claim for unfair dismissal can be extremely stressful and time-consuming. However, the high income threshold limits an employee’s ability to make a claim in certain circumstances. This article will explain the high income threshold and its relevance to your business.

What is Unfair Dismissal?

The law protects employees against unfair dismissal and provides an avenue to seek suitable resolutions. An unfair dismissal occurs where an employee’s dismissal was:

  • harsh, unjust or unreasonable;
  • not a case of genuine redundancy; and
  • if you are a small business (fewer than 15 employees), the dismissal was inconsistent with the Small Business Fair Dismissal Code.

The FWC assesses whether a dismissal has been unfair according to these criteria.

When considering appropriate resolutions for a successful claim, the FWC will first consider the reinstatement of an employee’s position. However, reinstatement may not be appropriate in many cases because of the tarnished relationship between you and the employee. Therefore, the FWC might order you to pay monetary compensation to the employee as reparation for their unemployment.

An unfair dismissal claim can only garner maximum compensation of 26 weeks worth of wages. However, this amount is capped at half of the high-income threshold at the time of the dismissal. This amount is:

  • $76,800 for a dismissal that occurred on or after 1 July 2020 and before 1 July 2021; or 
  • $79,250 for a dismissal that occurred on or after 1 July 2021.

For example, a senior equity analyst might earn $4000 a week. Therefore, if they bring a successful unfair dismissal claim, they will not be entitled to the full 26 weeks of wages of$104,000. Instead, the FWC can only order the maximum threshold of $79,250.

This threshold limits your exposure to financial penalties if one of your employees makes an unfair dismissal claim.

When Can an Employee Claim Unfair Dismissal?

Employees who fall under national workplace relations laws will have unfair dismissal protection. This protection includes all those employed:

  • in Victoria, the Northern Territory and the Australian Capital Territory;
  • by private enterprises in NSW, Queensland and South Australia;
  • by local government in Tasmania; and
  • in a foreign, trading or financial corporation in Western Australia.

The above list is not exhaustive, so you should always check whether your employees are covered. Additionally, they will only be eligible to make an application for unfair dismissal if they have completed the minimum period of employment and they:

An employee will have completed the minimum period of employment if they have worked for you for: 

  • at least six months; or
  • at least 12 months if you are a small business.

If you think an employee does not have the right to bring a claim for unfair dismissal, you can raise an objection with the FWC on these grounds.

Further, an employee must make an application for an unfair dismissal claim within 21 days of dismissal. 

What is the High-Income Threshold?

As of 1 July 2021, the high-income threshold increased to $158,500 per year. When calculating an employee’s earnings, the FWC must include:

  • the employee’s wage or salary;
  • amounts dealt with on the employee’s behalf (such as salary sacrifice); and
  • the dollar value of non-monetary benefits.

This calculation excludes any:

  • commission;
  • performance-based bonuses;
  • overtime (except guaranteed overtime);
  • reimbursements; and
  • compulsory superannuation contributions.

Determining an employee’s annual rate of earnings requires a careful review of the employee’s benefits on a case-by-case basis. In addition, the high-income threshold also increases as of 1 July each year. Therefore, it is crucial for employers to be aware of the current salary cap and accurately calculate their employee’s annual rate of earnings.

Claims Are Available to High-Income Earners

You should be mindful that an employee who earns an income over the threshold may still have other legal avenues to challenge their dismissal. These options include the following: 

1. General Protections

The Fair Work Act also outlines a number of other general protections. These protections differ from an unfair dismissal claim in that employees must demonstrate the reason for their dismissal. For example, under general protections, you cannot dismiss an employee for exercising their workplace rights, for discriminatory reasons or for engaging in industrial action. 

Like unfair dismissal claims, employees must make dismissal claims under general protections within 21 days. 

2. Discrimination

All employees are protected from dismissal based on discrimination. Therefore, you cannot dismiss employees because of race, religion, gender, sexual orientation, or disability. 

Depending on what state your employee lodges the complaint, employees can make up dismissal claims for discriminatory purposes for six months or one year following the dismissal.

3. Contractual Obligations

You should also look to your employee’s contract to ensure their dismissal is within the appropriate amount of notice. It is common for high-income earning employees to have long notice periods. As such, you should consider this before dismissing an employee. 

Key Takeaways

You must be aware of the high-income threshold, as it limits your employees’ eligibility to make a claim for unfair dismissal. Therefore, you may have greater flexibility when carrying out the dismissal process because you can act without fear of a claim being brought against you. However, high earning employees still have other avenues to dispute their dismissal, such as under:

  • the modern award;
  • their enterprise agreement;
  • general protections;
  • discrimination laws; or
  • their employment contract.

If you need assistance with an unfair dismissal claim, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is unfair dismissal?

The law protects employees against unfair dismissal and provides an avenue to seek suitable resolutions. An unfair dismissal will have taken place where an employee’s dismissal was harsh, unjust, or unreasonable, not a case of genuine redundancy, and where it was carried out by a small business (being fewer) than 15 employees), inconsistent with the Small Business Fair Dismissal Code.

What is the unfair dismissal high-income threshold?

Employees can only make an unfair dismissal claim when they earn less than the high-income threshold. Currently, this threshold is $158,500 per annum. Despite this, you should be mindful that an employee who earns an income over the threshold may still have other legal avenues to challenge their dismissal.

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