An employee has been prevented from pursuing an unfair dismissal claim after the Fair Work Commission (FWC) found that his earnings exceeded the high-income threshold despite taking more than a year of unpaid sick leave before his employment was terminated.

Implications for employers

When considering the treatment of overtime payments in the calculation of an employee’s annual earnings under the Fair Work Act 2009 (Cth) (FW Act), it is the very nature of the overtime payments themselves that must be taken into account. The relevant consideration to be had is whether an employee would be expected to work the overtime hours in the absence of any exceptional circumstances, especially those which are outside the employer’s control.

Background

Peter Cross, a former employee of Bechtel Australia Pty Ltd, made an application under section 394 of the FW Act for an unfair dismissal remedy in relation to his previous employment. The company contended that this application should be dismissed on the basis that Mr Cross was not a person protected from unfair dismissal under section 382 of the FW Act because his annual rate of earnings exceeded the high-income threshold.

Mr Cross commenced employment as the HSE Training Coordinator at Bechtel’s Queensland Curtis LNG Project on 11 March 2012. He went on unpaid leave on 29 July 2013 due to medical reasons, and on 5 November 2014 his employment with the company was terminated.

The primary question for the Commission to determine was whether Mr Cross’ annual rate of earnings at the time of his dismissal exceeded the high-income threshold, which was $133,000 in the period relevant to the application.

The term “earnings” is defined in section 332 of the FW Act. The legislative note to this section specifically excludes overtime payments from the calculation of an employee’s earnings unless the overtime payment is guaranteed and the amount can be determined in advance.

Mr Cross was contractually obliged to work 58 hours per week, with his base salary (for 40 ordinary hours) set at $115,500, plus 18 hours of overtime paid at $55.53 per hour. These 18 hours of overtime were part of what was called an “Extended Work Week”. He was also entitled to a project allowance of 5% of his base salary, which amounted to $5,775 per year. If each of these elements were taken into account in the calculation of his earnings, Mr Cross’ annual income for the relevant period was $167,478.48, which far exceeds the unfair dismissal income cap at the time.

The key contention between the parties was in relation to the whether the overtime payments could be characterised as guaranteed overtime for the purposes of section 332 of the FW Act. If this was the case, Mr Cross’s earnings would exceed the high-income threshold and prevent him from bringing the application under section 394 of the FW Act.

Mr Cross argued that the 18 hours of overtime per week was not guaranteed, because in certain circumstances these hours might not be available to him. He gave the example of severe weather conditions which could interrupt work, and also noted that he had not been entitled to receive any overtime payments during his extended period of unpaid leave.

Decision

The Commission rejected the arguments of Mr Cross, maintaining that the fact that overtime may not be available to employees due to events of force majeure (such as inclement weather conditions) which are outside the employer’s control is not indicative of whether or not overtime is guaranteed. Similarly, the fact that overtime was not paid during his extended period of unpaid leave was also not determinative of this question.

The Commission stated that the correct test for determining the annual rate of earnings for the purposes of section 332 is to determine the rate of earnings at the time of termination of employment, not the actual earnings up to that time. The relevant consideration was therefore whether Mr Cross would have been expected to work a 58 hour week if he had been otherwise fit, excluding any extraordinary circumstances.

The evidence showed that Mr Cross was required to regularly work 58 hours a week, as he had done prior to going on sick leave, and these 58 hour weeks were clearly capable of being determined in advance. As a result, the Commission found that the 18 hours of overtime was guaranteed and should being included in the calculation of Mr Cross’ annual rate of earnings. This finding alone was sufficient to take Mr Cross over the high income threshold and prevent him from using the protection from unfair dismissal afforded by section 382 of the FW Act.

Mr Peter Cross v Bechtel Construction (Australia) Pty Ltd [2015] FWC 3639