The high-income threshold, currently $162,000.00, is indexed annually and limits an employee’s eligibility to make an unfair dismissal claim where no award or agreement applies to their employment.
Many employers also believe that awards do not apply to employees earning over the high-income threshold, however this is not the case unless the employer has provided a written “guarantee of annual earnings” that has been properly accepted by the employee.
Decision of Federal Court
In a recent case of Peabody Energy before the Federal Court of Australia, the employer claimed that the employment contract that set out the employee’s annual salary effectively provided the employee with guaranteed annual earnings, arguing that therefore the employee was not entitled to benefits contained in the applicable award (in this case – payout of sick leave upon redundancy).
The court rejected this argument and found that the terms of the contract did not meet the requirements under the Fair Work Act 2009 for a guarantee of annual earnings and the employee was entitled to the benefits contained in the Award.
What is Guarantee of Annual Earnings
The requirements for a guarantee of annual earnings are:
- The employee is covered by a modern award or agreement
- The employee earns no less than the high-income threshold
- The employer provides an undertaking in writing to pay the employee an amount for performance of work over a period of 12 months or more
- The employee accepts the undertaking and agrees with the amount of earnings
- The employer’s undertaking and the employee’s agreement are given before the start of the period to which it applies and within 14 days after the date of commencement of employment (or the date the parties agree to the arrangement)
- The employee is not covered by an enterprise agreement
In the Peabody Energy case, the Court was not satisfied that the salary provision in the employment contract was for a “an amount of earnings for a fixed or determinate and readily identifiable period,” nor was there an identifiable end date. Further, the Court found that, simply by entering into an employment contract, the requirement that the employee accepts the undertaking and agrees with the amount was not met.
The take-away from this case in our view is that, in order to have a compliant and effective Guarantee of annual earnings that excludes the terms and condition of the applicable award, there should be a separate written undertaking setting out the salary, the start and end date of the undertaking and the effect that the applicable award will not apply to the employment for the period. The undertaking should be signed by the employee to indicate acceptance.
It is important to note that, while a Guarantee of annual earnings will exclude the terms and conditions of the applicable award, the Guarantee does not apply in the case of unfair dismal claims and the employee will otherwise remain eligible to make an unfair dismissal claim.
Lessons for Employers
If an award employee earns above the high-income threshold ensure you have a valid Guarantee of annual earnings in place
If you would like to discuss these or other workplace issues, please contact Andrew Bland or call 02 9412 3077.
 Association of Professional Engineers, Scientists and Managers Australia v Peabody Energy Australia Coal Pty Ltd  FCA 945