You may be at risk of receiving a claim for unfair dismissal if an employee believes that they have been unfairly treated in the dismissal process. This would involve making an application to the Fair Work Commission (FWC) to investigate and award any applicable resolutions or compensation. Receiving a claim for unfair dismissal can be an extremely stressful and time-consuming process. However, the high income threshold may operate to limit an employee’s eligibility to make a claim in certain circumstances. This article will discuss what the high income threshold is and explain how it is relevant 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 will have taken place where an employee’s dismissal was:

  • harsh, unjust or unreasonable;
  • not a case of genuine redundancy; and
  • inconsistent with the Small Business Fair Dismissal Code, where it was carried out by a small business with fewer than 15 employees.

The FWC is responsible for assessing whether a dismissal has been unfair according to these criteria.

When considering appropriate resolutions for a successful claim, the FWC will first consider 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 newfound unemployment. 

An unfair dismissal claim can only garner a maximum compensation of 26 week’s wages. However, this amount is capped at half of the high income threshold at the time of the dismissal. This amount is currently $74,350.

For example, a senior equity analyst might earn $4000 a week. If they bring a successful unfair dismissal claim, they will not be entitled to the full $104,000 as 26 weeks worth of wages. Rather, the FWC can only order the maximum threshold of $74,350.

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

When Can an Employee Claim Unfair Dismissal?

Any employee who comes under national workplace relations laws will have unfair dismissal protection. This includes all those employed:

  • in Victoria, the Northern Territory (NT) and the Australian Capital Territory (ACT);
  • 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.

For example, an employee does not have the right to make an unfair dismissal claim if they: 

  • earn over $148,700;
  • have worked at a business for seven months; and
  • are not covered by a modern award or enterprise agreement.

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

What Is the High Income Threshold?

As of 1 July 2019, the high income threshold was increased to $148,700 per year. To calculate an employee’s earnings, the FWC must include:

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

This will exclude any:

  • commissions;
  • performance-based bonuses;
  • overtime;
  • reimbursements; and
  • compulsory superannuation contributions.

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

What Other Types of 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. They are not precluded from making a claim relating to:

Your business should be wary of your obligations and assess whether you may be at risk of receiving any of these claims.

Key Takeaways

It is important that you are aware of the high income threshold, as it operates to limit your employees’ eligibility to make a claim for unfair dismissal. This means that 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, it is important to remember that employees earning over the high income threshold may still be able to bring a claim for unfair dismissal if they work under a modern award or enterprise agreement. Additionally, any employee precluded from bringing an unfair dismissal claim may still have other legal avenues available to challenge their treatment. If you would like legal advice concerning an unfair dismissal claim, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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