Unfair Dismissals and High-Income Threshold

Employers and employees need to know where they stand regarding unfair dismissal claims. In this article, we outline what the Fair Work Commission (FWC) will consider in determining whether an unfair dismissal has taken place, as well as the high-income threshold limits that apply in compensation caps and the eligibility for applications.

Unfair Dismissal – A Quick Summary

What is Unfair Dismissal?

In Australia, it is illegal to dismiss an employee without reasonable cause. An unfair dismissal will allow an employee to seek legal recourse. An employer may terminate a staff member’s employment in three circumstances:

1. Underperformance
2. Serious misconduct; or
3. Redundancy

The FWC assesses unfair dismissal claims and it will likely find this to have occurred where:

• The employee was dismissed; and
• The dismissal was harsh, unjust, or unreasonable; and
• The dismissal was not a case of genuine redundancy; and
• If the employee was employed by a small business (less than 15 employees), the dismissal was inconsistent with the Small Business Fair Dismissal Code.

When can an Employee Claim Unfair Dismissal?

Jurisdiction

The FWC is limited by law to deciding unfair dismissal claims that are within its jurisdiction. Any employee that comes under national workplace relations laws will generally have recourse to unfair dismissal protection:

Requirements

Employees intending to lodge an unfair dismissal claim must ensure that:

• They are an employee who has been dismissed;
• The application is lodged within 21 days of the dismissal becoming effective;
• They are covered by the national workplace relations system;
• They meet eligibility criteria, including having worked for the minimum employment period.
  • An employee will have satisfied this if they have worked for an employer for:
    • At least six months; or
    • At least 12 months if it is a small business.

Furthermore, employees will only be eligible to apply to the FWC for unfair dismissal if:

• They earn less than the high-income threshold of $158,500 a year; or
• They are covered by a modern award or enterprise agreement.

If an employer believes that an employee does not have the right to bring a claim for unfair dismissal, an objection can be raised with the FWC.

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If a successful claim for unfair dismissal is made, the FWC will consider what will be the most appropriate form of compensation. The FWC will make one of three orders:

• Order that a person gets their job back (reinstatement);
• Order for the payment of money (compensation); or
• No order.

Reinstatement may be found to not be the most appropriate form of compensation, given that unfair dismissals may give rise to a strained relationship between the employee and employer. It is more likely the FWC may make an order for the employer to pay monetary compensation to the employee as redress for their unemployment.

Compensation cap for unfair dismissal

There is a cap on how much the FWC can order in monetary compensation. This will be the lesser amount of either:

• Half of the employee’s annual wage; or
• $79,250 (as of 1 July 2021). This amount is half of the high-income threshold at the time of the dismissal.

In considering an unfair dismissal claim the FWC will not award compensation for shock, distress, hurt or humiliation.

What is the High-Income Threshold?

As of 1 July 2020, the high-income threshold was increased to $158,500 a year. The FWC will calculate an employee’s earnings by including:

• The employee’s wage or salary (including guaranteed overtime);
• Amounts dealt with on the employee’s behalf;
• The dollar value of non-monetary benefits, such as vehicles or private use of company-provided devices (such as iPhones or iPads); and
• Life insurance policies are paid for by the employer.

The following is not counted as earnings in determining an employee’s income:

• Performance-based bonuses or incentives;
• Overtime (except guaranteed overtime);
• Commissions;
• Reimbursements;
• Compulsory contributions to a superannuation fund.

Calculating an employee’s annual earnings requires a careful and accurate review on an individual basis. Given that the high-income threshold is subject to change each year, employers must take note of this and provide an accurate calculation of their employee’s yearly earnings.

What Other Legal Avenues are available to High-Income Earners for unfair dismissal?

Even if an employee earns an income above the high-income threshold and is therefore barred from making an unfair dismissal claim with the FWC, high-income earners may still be able to rely on other legal avenues to challenge their dismissal.

Discrimination

It is illegal in Australia to take adverse action against an employee, including termination, on any of the following grounds:

• Race
• Colour
• Sex
• Sexual orientation
• Age
• Physical or mental disability
• Marital status
• Family or carer’s responsibilities
• Pregnancy
• Religion
• Political opinion
• Nationality or social origin

If an employee feels that their employment has been terminated based on any of these grounds, this may constitute an illegal dismissal, and they may be entitled to file an application with the FWC within 21 days. The FWC will determine whether the dismissal occurred on discriminatory grounds and may make an order for a remedy or compensation if the claim is successful.

Breach of contract

An employee may also be able to bring a claim that they were wrongfully dismissed if the employer terminated their employment contract in breach. For example, the contract may outline notice periods or processes that must be followed before employment is terminated. If the employer terminates the employment without having regard to this, this would be in breach of contract.

General protections

The Fair Work General Protections are a series of rights that employees are entitled to by their employment in an Australian workplace. These general protections are intended to:

• Protect workplace rights;
• Provide protection from discrimination;
• Protect freedom of association; and
• Provide relief for individuals who have experienced unfair treatment in the workplace.

In this way, an employer must not take adverse action against an employee given that they can rely on these general protections. Adverse actions include termination of employment.

Key Takeaways

• Unfair dismissal claims can only be filed by employees if they meet all the requirements and earn less than the high-income threshold.
• There is a cap on how much the FWC can award in monetary compensation for unfair dismissals.
• Even if an employee cannot claim unfair dismissal, they are not necessarily barred from seeking recourse from other legal avenues.

If you need advice about unfair dismissal or how to determine income, we can help. Contact Lord Commercial Lawyers on 9600 0162 or email us at info@lordlaw.com.au or fill out the form on this page.

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