Defending an unfair dismissal can be a costly and time-consuming exercise, and knowing what to check in terms of eligibility can save a lot of time and money, writes Gordon Williams

There are a few interesting quirks about the unfair dismissal regime, and some of the most important relate to eligibility to make a claim. It’s important to understand these, as they could provide you with a basis to prevent a claim proceeding (saving a lot of time and money along the way).

One of the most important eligibility criteria is the high income threshold. However, before we get to that, a quick reminder about a few of the others.

You probably know that to make a claim an employee must have served the minimum employment period – which is six months for most employers and 12 months for small business employers (i.e. those with fewer than 15 employees). However, periods of unauthorised absence and most types of unpaid leave will not count towards this period. This can be important for those employees who appear to have only just clocked up six months’ service, where a few days’ unpaid leave could make all the difference. So carefully check your leave records.

Also, remember that you assess whether the employee has completed the six-month employment period at the earlier of the termination date or the date the employee received notice of termination.

If the employee has completed the minimum employment period, they will be eligible to make an unfair dismissal claim if they:

  • earn less than the high income threshold, or
  • are covered by a modern award or an enterprise agreement – regardless of how much they earn.

It is usually clear if an employee is covered by an enterprise agreement, but it can be more difficult to tell which employees are award covered. This is a particular issue for those employees working in the finance or IT industry or in engineering or sales roles, among others (for example, where the Banking, Finance and Insurance Award, the Professional Employees’ Award or Commercial Sales Award might apply).

“Defending an unfair dismissal can be a costly and time-consuming exercise”

If an employee is award/agreement free, they can only make an unfair dismissal claim if their annual rate of earnings is less than the high income threshold. From 1 July 2016, the high income threshold increased to $138,900. What counts as earnings for these purposes is not always clear but can be of immense importance, as it could prevent an employee from making an unfair dismissal claim.

The Fair Work Act 2009 states that an employee’s earnings include:

  • wages
  • amounts applied or dealt with on the employee’s behalf or as the employee directs (e.g. salary sacrifice amounts)
  • the agreed money value of non-monetary benefits – i.e. benefits other than payments of money the employee is entitled to in return for the performance of work.

Earnings do not include:

  • payments the amount of which cannot be determined in advance
  • reimbursement for employee expenses
  • statutory superannuation contributions.

The Fair Work Commission will consider what type of benefits can be included for these purposes – and what value should be given to them. Here are some recent examples of inclusions:

  • life insurance premiums paid by the employer (where the employee was the beneficiary of the policy even though the policy was in the name of the employer) – valued at $6290
  • the value of the private use of employer-supplied motor vehicles to an employee and his wife – valued at $20,645. It is well established that private use of a company vehicle should be counted as part of an employee’s earnings – but the valuations can vary considerably
  • the private use of an employer-supplied iPhone and iPad – valued at $1222 and $234, respectively
  • health insurance premiums paid by the employer – valued at $2936.

“It is usually clear if an employee is covered by an enterprise agreement, but it can be more difficult to tell which employees are award covered”

Conversely, the Commission decided the following should not be counted as part of an employee’s earnings:

  • commission payments which cannot be determined with any certainty in advance (the same applies to performance bonuses)
  • per diem payments reimbursing an employee for work-related expenses such as meals, cabs and other subsistence costs
  • payments to reimburse an employee for using a private vehicle for work purposes
    payments for office and overhead expenses.

Recently, the Commission also decided that where an employee is paid in foreign currency, the exchange rate at the date of dismissal is to be used to work out if the employee’s earnings are above the cap.

Clearly, defending an unfair dismissal can be a costly and time-consuming exercise. Knowing what to check in terms of eligibility can certainly save a lot of time and money and should be the first thing you consider when a claim hits your desk.

Action items for HR

  • Familiarise yourself with the unfair dismissal eligibility criteria.
  • Unpaid leave may not count towards the minimum employment period – so check leave records carefully.
  • Determine whether the employee is award/agreement free.
  • Carefully consider whether benefits other than salary tip the employee over the high earning threshold.

Image source: iStock

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