Blog

You earn too much: the high income threshold for unfair dismissal claims

29/10/2020

Unfair dismissal protection is a well-known component of employment law in Australia and is often the most obvious way for an aggrieved employee to obtain relief following a dismissal. However, the limits on this protection are less well-known and, in particular, the high income threshold can often catch employees by surprise.

When unfair dismissal laws were introduced a provision was included that meant over a certain income there was no automatic access to unfair dismissal protection. The threshold itself is indexed annually and is currently $153,600.

This means that for employees who earn over $150,000 there is no automatic right to bring an unfair dismissal claim. The threshold is not discretionary – the commission cannot grant exemptions – and may lead to a claim being dismissed on jurisdictional grounds.

What amounts are included?

The salary used to determine eligibility includes salary but not superannuation, and includes any certain payments the employee can expect to receive. This means car allowances are included, but not the ‘work’ component, but incentives and bonuses are not, even if they form a large part of a package.

Ultimately this is a legal questions and there are a number of cases which have dealt with different components of salary so if you are uncertain you should seek legal advice.

What are the exceptions?

The only exception to the high income threshold is for employees covered by a modern award or enterprise. As modern awards and enterprise agreements are more likely to cover lower income employees this doesn’t mean everyone is covered however in some industries this can provide a broad protection.

For example, a lot of construction and mining employees who earn over $150,000, are covered by enterprise agreements, and modern awards in the banking or IT may cover senior employees meaning they are protected from unfair dismissal.

However, even if a higher-income award is covered by an award or enterprise agreement the compensation cap is calculated with reference to the high income threshold rather than the actual salary, so compensation is capped at around $75,000. This means higher income employees often seek reinstatement because the same caps do not apply on an order for back pay.

Are there no protections for high income employees?

For higher incomes employees who are not covered by a modern award or enterprise agreement and therefore not entitled to unfair dismissal protection it cannot be said there is no protection.

First, and most obviously, is a higher-income employee’s better bargaining position when it comes to entering into an employment agreement. While a lower income employee may need the safety net provided by unfair dismissal an employee with a higher income may have more ability to negotiate for a longer notice period or other terms protecting them from dismissal.

Second, there are the legal protections that exist outside of the unfair dismissal jurisdiction. This includes general protections and discrimination claims which can generally made regardless of income, contractual claims (e.g. reasonable notice) which are not as valuable for lower income employees, and other statutory claims such as under the Australian Consumer Law.

However, for higher income employees it may be more prudent to take action before a dismissal takes place in order to prevent any damage to reputation. This action could involve simply securing alternate employment or engaging a lawyer to negotiate a favourable departure agreement.