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Snapshot

  • The Federal Court was recently asked to consider what constitutes a guarantee of annual earnings so as to exclude high income employees from award coverage.
  • The Fair Work Act 2009 (Cth) sets out the requirements for an effective guarantee of annual earnings.
  • The Court held that a written employment contract that prescribes a salary above the high income threshold is not, of itself, a guarantee of annual earnings for the purposes of the Act; something more is required.

On 17 August 2022, the Federal Court handed down a decision on what constitutes a guarantee of annual earnings so as to exclude high income employees from award coverage. The Court held that a written employment contract that prescribes a salary above the high income threshold is not, of itself, a guarantee of annual earnings so as to exclude award coverage (APESMA v Peabody Energy Australia Coal Pty Ltd [2022] FCA 945 (‘Peabody’)). Rather, there needs to be a written undertaking that is clearly identified and meets the requirements set out in the Fair Work Act 2009 (Cth) (‘FW Act’).

Relevant Fair Work Act provisions

Section 47(2) of the FW Act provides that a modern award does not apply to an employee who is a ‘high income employee’.  A high income employee is an employee who has a ‘guarantee of annual earnings’ that exceeds the ‘high income threshold’ at the relevant time (s 329).

The high income threshold is prescribed by the Fair Work Regulations 2009 and is indexed. From 1 July 2022, it is $162,000 per annum.

Section 330 of the FW Act sets out what is required of a guarantee of annual earnings. It provides:

‘1. An undertaking given by an employer to an employee is a guarantee of annual earnings if:

…

(b) the undertaking is an undertaking in writing to pay the employee an amount of earnings in relation to the performance of work during a period of 12 months or more; and

(c) the employee agrees to accept the undertaking, and agrees with the amount of the earnings…’

In addition, for an undertaking to amount to a guarantee of annual earnings, the undertaking and the employee’s agreement to it must be given within 14 days of the employee commencing employment or within 14 days of a variation of the employee’s terms of employment.

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