Below not above: Salary reduction brought employee under high income threshold

The COVID-19 (coronavirus) pandemic has significantly impacted the financial stability of many businesses. Employers have had to make difficult decisions and implement different measures to ensure the ongoing viability of their businesses. Some of these measures have included asking employees to agree to temporary reductions in their hours of work or to a reduction in their remuneration.

In a recent decision of the Fair Work Commission (FWC) an employer’s decision to temporarily reduce the remuneration of an employee was relevant in determining whether the employee had access to the unfair dismissal jurisdiction when her employment was terminated.

In our previous blog, “The High Life” we wrote about one of the considerations in determining whether a dismissed employee has access to the unfair dismissal jurisdiction – whether an employee’s annual rate of earnings was less than the high income threshold.

In the case which is the focus of this blog, Stringer v 1 Step Communications Pty Ltd [2020] FWC 3508, the employer lodged a jurisdictional objection to an employee’s unfair dismissal claim on the basis that, at the time of her dismissal, she earned above the high income threshold and was therefore not a person protected from unfair dismissal.

The employee was employed in the position of Corporate Services Manager. On 11 May 2020, the employer advised employees that it had made the decision to reduce the remuneration of employees working in the Communications section by 15%. As a result of this decision, the employee’s salary was reduced from $150,699.95 to $128,095.14.

Less than two weeks after this decision was made, the employee’s employment was terminated. On the date of her dismissal, the employee’s salary was restored to her previous salary ($150,699.95). The employer submitted that it only did so to enable the employee to be paid her entitlements on termination at the higher rate of pay and not to preclude the employee from being protected from unfair dismissal or having access to the jurisdiction.

At the time of the employee’s dismissal, the high-income threshold was $148,700. As it was not disputed that the employee was not covered by a modern award or enterprise agreement, the FWC had to determine the employee’s annual rate of earnings at the time of the employee’s dismissal.

The employer argued that the FWC should only have regard to the employee’s final payslip which showed that the employee’s annual rate of earnings of $150,699.95. However, the FWC did not agree with that submission, stating that it was also necessary to have regard to the circumstances including the reduction and then restoration of the employee’s salary.

The FWC determined that the employee’s annual rate of earnings at the time of her dismissal was the reduced salary. The FWC reached this position on the basis that the salary reduction was to be in place until at least January 2021, no other employee had their salary restored and if the employee remained employed, she would have received the reduced salary.

In reaching this conclusion, the FWC stated: “To find otherwise would allow for the manipulation of the Applicant’s salary by the Respondent with the effect of denying the Applicant a right to challenge her dismissal.”

As the FWC found that the employee earned below the high income threshold, she was protected from unfair dismissal and was able to make an unfair dismissal claim.

The substantive part of the employee’s claim will now be heard by the FWC.

Lessons for employers

The high income threshold is adjusted annually and is currently $153,600 for dismissals after 1 July 2020. Employers are reminded to check the high income threshold and the impact of any arrangements, such as an agreement to temporary reduce salary or hours of work on an employee’s annual rate of earnings when there is a decision made to terminate an employee’s employment.

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog.

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