Australia: Insurance cover can leave you exposed: earnings and the high income threshold for unfair dismissal

Key Points:

In determining whether an employee is protected by the unfair dismissal regime in the Fair Work Act, you must carefully consider all of the employee's benefits.

In "Trouble Man" the late soul performer Marvin Gaye sang:

"There's only three things that's for sure ‒ taxes, death and trouble"

Death is regarded as one of life's certainties, yet it was a death cover benefit conferred upon an employee that caused trouble by creating uncertainty as to whether he could bring unfair dismissal proceedings.

An employee will have unfair dismissal access if they earn less than the high income threshold (currently $136,700). This may seem, on its face, fairly straightforward. However, whether a particular amount will contribute towards an employee's annual rate of earnings for the purpose of the high income threshold is not always clear.

A recent decision of the Full Bench of the Fair Work Commission in Savannah Nickel Mines Pty Ltd v Crowley [2016] FWCFB 2630 has shed light on this issue and the types of payments that can be included for the purpose of the high income threshold under the Fair Work Act. In that decision, the Full Bench found that life insurance could be included when calculating an employee's annual rate of earnings. It was the first time the Full Bench of the Fair Work Commission considered this specific point.

The first decision: Cribb says No

Mr Crowley made an application for unfair dismissal under the Fair Work Act in Bryan Crowley v Savannah Nickel Mines Pty Ltd [2016] FWC 1335.

Mr Crowley's employer, Savannah Nickel Mines Pty Ltd, objected to his application on the basis that he earned more than the high income threshold, and was also not covered by an award or enterprise agreement.

Mr Crowley was the beneficiary of death cover insurance, which was paid for by Savannah. The primary issue in dispute was whether the death cover insurance premiums could be included when calculating Mr Crowley's annual rate of earnings.

Commissioner Cribb held that, because the death cover insurance plan was taken out in the name of Savannah's parent entity, and was not in the name of Mr Crowley, the death cover premiums were "not an amount applied or dealt with in any way on the employee's behalf". Commissioner Cribb also found that the death cover payments were more akin to the provision of other forms of insurance, such as workers compensation and company-related travel insurance.

The appeal: Death cover pushes income over the threshold

Savannah successfully appealed to the Full Bench, who found that Commissioner Cribb had erred in concluding that the life insurance premium was not an amount applied or dealt with on the employee's behalf:

"The fact that the policy was in the name of the employer is an irrelevant consideration...The only practical effect of the policy being in the name of the company [Savannah], rather than being in the name of Mr Crowley, is that the bills go directly to the company".

The Full Bench concluded that Mr Crowley paid the premium for the life insurance policy for his own benefit, and that this was an amount "applied or dealt with" on his behalf. Accordingly, it was held that the cost of the premium should be taken into account in calculated Mr Crowley's annual rate of earnings.

The inclusion of the life insurance premiums under the death cover policy resulted in Mr Crowley's annual income exceeding the high income threshold, and his unfair dismissal claim was dismissed.

Key lesson: Issues to consider when calculating an employee's annual rate of earnings

An employee's annual earnings will not include payments for an amount that cannot be determined in advance, reimbursements, statutory superannuation contributions and any other amount prescribed by the Fair Work Regulations 2009 (Cth).

Whether other amounts will be included when calculating an employee's annual rate of earnings under the Fair Work Act needs to be determined on a case by case basis.

For example, the following types of payments have been included when calculating an employee's annual rate of earnings for the purposes of the high income threshold:

  • Overtime payments: For example, in Foster v CBI Constructors Pty Ltd [2014] FWCFB 1976, an employee's regular overtime was included in his annual rate of earnings because the employee's regular overtime could be determined in advance.
  • Agreed money value of non-monetary benefits: This has been held to include supplying a fully maintained company motor vehicle, private use of a company mobile phone and private use of a company laptop. For example, in Slain v Horizon Holdings Pty Ltd [2012] FWA 2424 it was held that the private use of a company phone formed part of the employee's annual rate of earnings because the notional money value of the benefit that accrued to the employee from the use of the phone could be determined by reference to a fair estimate of the value of the phone for international calls and a notional value of the domestic calls.
  • Amounts applied or dealt with in any way on the employee's behalf or as the employee directs: For example, in Chen v Frontal Pty Ltd T/A Rico Furniture Company [2012] FWA 10499, it was held that an amount paid to an employee's wife, at the direction of the employee, could be taken into account when assessing the employee's annual rate of earnings. In that case, the employer paid the employee's wife a weekly wage, at the request of the employee. The evidence indicated that the wife did not perform any work for the employer. Senior Deputy President Hamberger concluded that the amount paid to the employee's wife was for the employee's benefit, and could be included when calculating the employee's annual rate of earnings.

The lesson for employers: in determining the risk profile of a decision to terminate employment, or whether to challenge unfair dismissal proceedings that have been commenced, employers may want to look beyond base remuneration to other benefits or entitlements provided to an employee to assess whether they have unfair dismissal protection.

It should be remembered, however, that whether a specific component will be included or not will depend upon the circumstances of the case, in particularly whether the amount was applied or dealt with on behalf of the employee.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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