Unfair dismissal and the high income threshold; earnings

What are “earnings” for the high income threshold”. The answer is in this extract from a recent Fair Work Commssion decision.

“Legislation

[19] As observed, one of the criteria for a person to be protected from unfair dismissal, if not covered by an industrial instrument, is that the sum of the their annual rate of earnings, and such other amounts (if any) worked out in relation to the them in accordance with the regulations, is less than the high income threshold.

[20] It has been accepted by the Commission that the term ‘earnings’ derives its meaning, in part, from s 332 of the Act. 3 The Act, at s 332, defines ‘earnings’ as follows:

(1) [Meaning of earnings]

An employee’s earnings include:

(a) the employee’s wages; and

(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and

(c) the agreed money value of non-monetary benefits; and

(d) amounts or benefits prescribed by the regulations.

(2) [Excluded amounts]

However, an employee’s earnings does not include the following:

(a) payments the amount of which cannot be determined in advance;

(b) reimbursements;

(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;

(d) amounts prescribed by the regulations.

(3) [Meaning of non-monetary benefits]

Non-monetary benefits are benefits other than an entitlement to a payment of money:

(a) to which the employee is entitled in return for the performance of work; and

(b) for which a reasonable money valued has been agreed by the employee and the employer but does not include a benefit prescribed by the regulations.

(4) [Extent to which subsection applied to superannuation contributions]

This subsection applies to contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:

(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;

(b) the employer is required to contribute to the fund for the employee’s benefit in relation to a defined benefit interest (within the meaning of section 291-175 of the Income Tax Assessment Act 1997) of the employee;

(c) the employer is required to contribute to the fund for the employee’s benefit under a law of the Commonwealth, a State or a Territory.

[21] Whilst no regulations have been made for the purposes of s 332(1)(d) or s 332(2)(d) of the Act, regulation 3.05(6) of the Fair Work Regulations 2009 (Cth) (Regulations) has been
made in respect of s 382(b)(iii) of the Act. Regulation 3.05(6) provides:

If:

(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person’s employer; and

(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332(3) of the Act; and

(c) the FWC is satisfied, having regard to the circumstances, that:

(i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and

(ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and

(iii) the FWC can estimate a real or notional money value of the benefit;

the real or notional money value of the benefit estimated by the FWC is an amount for subparagraph 382(b)(iii) of the Act.

[22] In the decision of Sam Technology Engineers Pty Ltd v Bernadou (Sam Technology), the Full Bench concluded that the definition of ‘earnings’ in s 332 is non-exhaustive and as such, ‘earnings’ should be given its ordinary meaning. 4 In the course of its reasoning, the Full Bench qualified that the meaning of ‘earnings’ was subject to the payments and benefits referred to in s 332(1) being included in the meaning of ‘earnings’ and the payment and benefits referred to in s 332(2) being excluded from its meaning.

[23] The Full Bench in Sam Technology further explained that parliament had made a conscious choice to use an employee’s ‘earnings’, rather than their ‘base rate of pay’ or ‘full rate of pay, to define the cut-off point at which an employee is excluded from protection against unfair dismissal in circumstance where they are not covered by a modern award, or an enterprise agreement does not apply to their employment. 5 The Full Bench clarified that an employee’s ‘earnings’ are higher than the employee’s ‘base rate of pay’ but are narrower in scope than the ‘full rate of pay’ of the employee, because ‘earnings do not include the…payment of amounts which cannot be determined in advance’ such as incentive based payments, bonuses and overtime (unless the overtime is guaranteed).6

[24] While the Full Bench in Sam Technology considered the word ‘earnings’ in the context of determining whether a car allowance fell within its scope, its reasoning remains relevant here. Drawing upon what Lord Davey expressed in Midland Railway Co v Sharpe, 7 the Full Bench in Sam Technology stated:

Now what does a man earn? He earns the sum which is the fruit of his labour; whatever he receives by way of remuneration for the services he gives, or as Lord Macnaghten said in Abram Coal Co v Southern [1903] AC 306, a man’s ‘earnings’ are ‘the full sum for which the man is engaged to work’. 8

[25] The Full Bench observed that Lord Davey’s definition of ‘earnings’ had been applied in a number of Australian cases. It reiterated that in the context of s 382(b)(iii), ‘earnings’ are what an ‘employee receives for the work done by the employee in the course of their employment, rather than an amount paid to an employee to meet an expense incurred by the employee in undertaking such work…’. 9

Consideration

[26] It is clear from s 332 that the word ‘earnings’ is limited to those components of s 332(1) and excludes those payment and benefits referred to in s 332(2). Further, the ordinary meaning of ‘earnings’ is to be adopted and from that meaning it can be concluded that earnings are the fruit of labour, that is, they are whatever is received by way of remuneration for the services provided.

[27] As observed, the Applicant’s rate of pay, as set out in his Conditions of Assignment, was $1100.00 per day or, according to the Respondent, an annual rate of $286,000.00 per annum if the Applicant worked five days a week for 52 weeks of the year.

[28] The Applicant’s actual gross earnings in the period of his assignment from his commencement date on 5 August 2021 until the assignment ceased on 22 June 2022 was $245,575.00. The Respondent noted that the length of this assignment was less than a full year and the period of the assignment was wholly within the 2021/22 financial year.

[29] The Applicant’s case rests on the proposition that as a casual employee he did not have a guarantee of annual earnings and therefore was not subject to the high income threshold exempting him from the unfair dismissal provisions in the Act.

[30] In Dirkis v Staffing and Office Solutions Pty Ltd (Dirkis), 10 the appellant asserted that as his weekly hours were not fixed, his annual rate of earnings could not be determined ‘in advance’ (s 332(2)(a)) by the use of the 40 hours a week multiplier, and the better guide to his income was to look at the pattern of hours worked to establish his rate of earnings, being approximately 27 hours a week, or $140,600.00 per year. The appellant noted that clause 45 of the agreement he was covered by provided that exact work hours were to be agreed between his manager and himself.

[31] In reaching its decision, the Full Bench in Dirkis referred to the decision of Zappia v Universal Music Australia Pty Ltd (Zappia) 11 where the Full Bench of Fair Work Australia had considered the term ‘annual rate of earnings’. The Full Bench in Dirkis extracted the following passages. The first passage was paragraph [9] of his Honour’s reasons at first instance in Zappia and the second, the conclusion of the Full Bench on appeal:

…His Honour dealt with the annual rate of earnings aspect thus:

[9] …The most natural way of construing the expression annual rate of earnings in s.382 is by reference to the annual rate of earnings at the time of the applicant’s dismissal. If Parliament had wished to refer to the average amount earned over the previous 12 months it could easily have done so. I note, for example, that in setting the compensation cap in relation to unfair dismissal, s.392 specifically refers to the amount that the employee received (or was entitled to) during the 26 week period immediately before the dismissal.”

[46] The Full Bench went on to conclude:

“…In our view his Honour was clearly correct. Section 382 of the Act relevantly provides that a person is protected from unfair dismissal at a time if, at that time, the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold. It is clear that the time at which the annual rate of earnings must be ascertained is at the time of the termination of the person’s employment. What needs to be ascertained is the annual rate of earnings at that time, not the annual earnings to that time (the amount earned in the 12 months to that time).

(original emphasis) 12

[32] At paragraph [49] of Dirkis, the Full Bench confirmed, by reference to Zappia, that what was required to be ascertained was the annual rate of earnings at the time of the termination of employment. To determine this, the Full Bench considered the appellant’s letter of appointment noting that it was clear as to the rate of pay and the standard working week, and it followed that the Commissioner’s finding as to that rate was correct and unexceptional. 13 At first instance, the Commissioner calculated remuneration based on an hourly rate of $10.00 for a 40-hour week, annualised:

…I am cognisant of the evidence that even though the applicant was advised that the standard working week would be 40 hours there was other evidence indicating that the applicant did not, over the course of his placement at DVA, necessarily or routinely work 40 hours a week and, for example, took periods of unpaid leave (I reiterate, it is unclear to me the basis upon which the applicant contended some of those absences were annual leave, personal/carer’s leave or long service leave). Nonetheless, as at the date of dismissal, had the applicant worked what was described as the “standard working week” and received his rate entitlement of $100.00 an hour, that took him beyond the high income threshold when annualised. 14

[33] At paragraph [94] of the decision at first instance, the Commissioner observed that the contention that the applicant (appellant) may have worked fewer hours than the standard of 40 hours a week or what working pattern he might have performed if he had not been dismissed was beside the point. The Commissioner concluded that such matters were irrelevant to ascertaining the annual rate of earnings as at the date of dismissal.

[34] Turning first to the Applicant’s contention that because he was employed on a casual basis with no guarantee of work provided, his annual rate of earnings cannot be determined in advance. The Applicant noted that s 332(2) of the Act provides that a person’s earnings do not include payments the amount of which cannot be determined in advance. 15

[35] Whilst on the one hand, the Applicant purports that the nature of his employment relationship meant that he had no guarantee of work for the purpose of ascertaining his annual rate of earnings, on the other, it is implicit from his application that he asks this Commission to find that he was a regular casual employee who held a reasonable expectation of continuing employment on a regular and systematic basis.

[36] The Applicant’s argument is somewhat perplexing. It is well understood that employees employed on a casual basis are not necessarily excluded from the protections afforded by Part 3-2 of the Act, that is the protection against unfair dismissal. The protection arises in circumstances where the casual employee is found to have worked as a regular casual employee and that the same employee had a reasonable expectation of continuing employment on a regular and systematic basis. If the work performed by the Applicant was regular and he held the requisite expectation, it is difficult to conceive why it is he says that his annual rate of earnings could not be determined in advance.

[37] Casual employment may consist of engagement under hourly or daily fixed term contracts and be used for the performance of short-term and/or intermittent work on an ‘on-call’ basis. It may also consist of longer-term contracts or an ongoing contract of indefinite duration (terminable in either case on short notice) and be used for the performance of long-term work with regular, rostered hours.

[38] Having heard from the Applicant and in light of the submissions and direct evidence provided, I am persuaded it is the latter arrangement that the Applicant was engaged in – long-term casual work with regular, rostered hours.

[39] At the time when the Applicant purports to have ceased employment with the Respondent, the Applicant was not on assignment. The evidence suggests that having departed IB Operations, he had been unsuccessful at attaining a spot with BHP and had been overseas for a period. His last assignment had been at IB Operations where he was working a roster of two weeks on and one week off. I am content to base the Applicant’s annual rate of earnings on the conditions provided in that assignment – noting of course what the Full Bench expressed in Dirkis regarding periods of absence. Over the course of a year, it is more likely than not that on a 2:1 roster cycle there would be 17.3 cycles. It follows that approximately 34 weeks would be weeks of work and 17 weeks would be ‘R&R’. Therefore, 238 days would be working days, which would attract earnings of approximately $261,800.00.

Conclusion

[40] The Applicant’s earnings exceeded the high income threshold and therefore the jurisdictional objection must be upheld. As the Applicant is not a person protected from unfair dismissal, his application is dismissed. Accordingly, an Order 16 to this effect issues concurrently with this decision.”

Burns v Ready Workforce (A Division of Chandler Macleod Group Limited) Pty Ltd  (2023) FWC 116 delivered 24 January 2023 per Beaumont DP