Home Pandemic-related pay cuts may bring employees into unfair dismissal jurisdiction

UpdatesAug 07, 2020

Pandemic-related pay cuts may bring employees into unfair dismissal jurisdiction

The ongoing financial strain caused by the COVID-19 pandemic has seen businesses implement a number of salary reductions to remain financially viable.

3 mins read

An employee who has served the requisite minimum employment period and is not covered by a modern award or enterprise agreement cannot access the Fair Work Act 2009 (Cth) (FW Act) unfair dismissal laws if their remuneration is beyond the high-income threshold.

For the 2020–21 financial year, the high-income threshold is $153,600. To be eligible for an unfair dismissal claim, an employee’s income must fall below this amount. The employee must also have served either 6 months’ continuous employment, or 12 months’ continuous employment if the employer has fewer than 15 employees.  

The ongoing financial strain caused by the COVID-19 pandemic has seen businesses implement a number of salary reductions to remain financially viable.

A recent decision in the Fair Work Commission (FWC) – Carolyn Stringer v 1 Step Communications Pty Ltd (2020) – concluded that reducing an employee’s salary below the high-income threshold may make a once ineligible employee, eligible, to lodge an unfair dismissal claim.

Case background

An employee received a salary of $150,700 (above the 2019–20 threshold of $148,700). The salary was reduced by 15% to $128,095.14, bringing her within the unfair dismissal jurisdiction.

On employment termination, the employee’s annual salary was restored to $150,699.95 for the purpose of payment of her final pay.

The employer argued it restored the employee’s salary to ensure she received her accrued entitlements at the higher rate she enjoyed before her salary reduction. Therefore, the employer contended the employee fell above the high-income threshold at the time of her dismissal, making her ineligible to bring an unfair dismissal claim.

Decision

The FWC rejected the employer’s arguments, noting they were “fragile”.

In his decision, Deputy President Masson considered the authority of Zappia v Universal Music Australia Pty Ltd, which held that ascertaining the annual rate of earnings occurs at the time of termination of employment.

The FWC held: “[It does] not accept the [employer’s] submission that the [employee’s] final payslip provides a sound basis on which to ascertain the [employee’s] annual rate of earnings. That is because it is also necessary to have regard to the circumstances leading up to the [employee’s] dismissal and in particular the [employer’s] conduct in restoring the [employee’s] salary to $150,699.95 on the 21 May 2020…

“The better view based on the conduct of the [employer] is that the [employee’s] annual rate of earnings at the time of her dismissal was $128,095.14. To find otherwise would allow for the manipulation of the [employee’s] salary by the [employer] with the effect of denying the [employee] a right to challenge her dismissal.’

The FWC also noted that had the employee remained employed, her salary would have remained at the lower rate of $128,095.14. No other employee, whose salary had been reduced, had received a return to full salary.

This decision confirms that the high-income threshold is calculated on the employee’s annual rate of earnings, rather than an average of earnings over the previous 12-month period.

Copied