06 September 2022
Many employers make the mistake of thinking modern awards do not apply to employees who earn above the ‘high income threshold’ (currently $162,000). This is a common misconception. In fact, modern awards do not apply to ‘high income employees’, within the meaning of s 329 of the Fair Work Act 2009 (FW Act). To be a high income employee, employees must meet a range of criteria. This includes earning above the high income threshold, as well being the subject of a ‘guarantee of annual earnings’ for a ‘guaranteed period’.
This issue was dealt with recently by the Federal Court in Association of Professional Engineers, Scientists and Managers Australia v Peabody Energy Australia Coal Pty Ltd  FCA 945. Following the closure of a coal mine, the employer made a number of positions redundant. The Association of Professional Engineers, Scientists and Managers Australia (APESMA) represented the employees, and argued the Black Coal Mining Industry Award 2010 (Award) applied to their employment. APESMA claimed the employees were entitled to be paid out their accrued untaken personal/carer’s leave when the company made them redundant, pursuant to clause 13.4(b) of the Award.
The employer argued the Award did not apply to the employees because they earned above the high income threshold. It also argued they were ‘high income employees’, because the terms of the employees’ employment contracts detailed the employees’ annual salary. The Court considered whether or not the fact the parties had agreed to an annual salary on the terms set out in their employment contracts constituted a ‘guarantee of annual earnings’ for the ‘guaranteed period’ under ss 330 and 331 of the FW Act.
Section 330 of the FW Act provides that a guarantee of annual earnings is a written undertaking given by an employer to pay the employee an amount of earnings in relation to their work, during a period of 12 months or more. The employee must be covered by an operative modern award and must accept the undertaking and amount of earnings, for the agreement to be considered a ‘guarantee of annual earnings’.
The employer claimed the employment contracts constituted undertakings given to each employee, and the employees agreed to accept the undertakings by accepting the terms of their respective contracts.
The Court said that s 330(1)(c) provided “perhaps the strongest indication” that a guarantee of annual earnings must be something more than an agreement to pay an employee an annual salary. Section 330(1)(c) provides that an undertaking to pay an employee an amount of earnings can only be a guarantee of annual earnings if the employee “agrees to accept the undertaking, and agrees with the amount of the earnings”. The fact an employee simply agrees to the amount of the earnings – as the employees did when they signed their employment agreements – is not sufficient. It could not be said that the employees had accepted any undertakings.
The FW Act has protections in place to ensure the undertaking, i.e. the guarantee, must be readily recognisable, enforceable and voluntarily accepted – the employee must be notified that a consequence of accepting the guarantee is that the modern award will no longer apply to them. The Court observed that a guarantee of annual earnings must therefore be more than a mere contractual promise to pay a specified salary.
The Court also noted that a guarantee of annual earnings must be given for a ‘guaranteed period’, pursuant to s 331 of the FW Act, that is, a fixed period (generally of 12 months or more). In the present case, the employees’ annual salaries were agreed for an indefinite period, or until the agreements were varied or terminated.
Ultimately, the employees were not high income employees, within the meaning of s 329 of the FW Act, because they did not have a ‘guarantee of annual earnings’, as defined in s 330(1) of the FW Act. The Award applied at the time the employees’ employment ended by reason of redundancy and they were therefore entitled to be paid out their personal/carer’s leave.
Modern awards may apply to employees even if they earn above the high income threshold. To preclude award coverage, employers must ensure a valid guarantee of annual earnings is in place. If employers fail to do so, the terms of the modern award will continue to apply – this could result in continuing obligations in respect of paid entitlements, consultation obligations and more.
A guarantee of annual earnings should:
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Authors: Charles Power & Ella Clements
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.