Wednesday, 10 July 2024

Federal Court Sheds Light on ‘guaranteed period’ for Guaranteed Annual Earnings Clauses

Under the Fair Work Act 2009 (Cth) (FW Act), an employer must not contravene the terms of a modern award. However, a modern award does not apply to an employee if they are considered to be a high-income employee, meaning that they had a ‘guarantee of annual earnings for a guaranteed period’ and their annual rate of earnings exceeds the high-income threshold, which is currently $175,000 per annum (excluding superannuation).

In a recent decision, the Federal Court has provided clarity in respect of how a ‘guaranteed period’ can be stipulated in a guarantee of annual earnings clause, in order for it to comply with the high-income employee provisions of the whether the FW Act. And in doing so, this case has also shed light on the application and coverage of modern awards for employees with a guarantee of annual earnings in their contract.

The Case

The applicant, Mr Roebuck, was employed by SCA Property Group (SCA) as a Regional Leasing Manager until he was made redundant on July 29, 2021. In making his claim, Mr Roebuck asserted that his employment was covered by the Real Estate Industry Award 2020 (Award), and that his former employer had contravened the Award by making misrepresentations about his redundancy.

SCA contended that Mr Roebuck was not covered by the Award because his role duties and responsibilities were for a role more senior than any classification of an employee covered by the Award. SCA also asserted that, even if the Award did cover Mr Roebuck, it did not apply to him as he was a high-income employee within the meaning of the FW Act, with his employment contract containing an evergreen or rolling guarantee of annual earnings, on the basis that he was expressly being paid an annual salary of a set amount ($219,217) for every 12 months of work undertaken.

On the other hand, Mr Roebuck asserted that in order to be a ‘high income employee’ for the purposes of the FW Act, there must be a fixed period specified in his employment contract for any guarantee of annual earnings. Mr Roebuck claimed under the requirements of the FW Act, a rolling or evergreen undertaking was not permitted whereby the guarantee of annual earnings would renew for periods of 12 months throughout the life of the employment relationship. Mr Roebuck submitted that the annual earnings must be renegotiated and undertakings given at the end of each period, in order for it to be recognised as under the high-income employee provisions of the FW Act.

In making its decision, the Federal Court’s confirmed the following:

  1. Award Coverage: Mr Roebuck’s employment did indeed fall under the Award on the basis that his role duties and responsibilities aligned with those contained within the classification structure contained within the Award. This was confirmed after close analysis of the duties and responsibilities of Mr Roebuck’s role and the classification requirements contained within the Award. The Court said it could not be inferred (as argued by SCA) that Mr Roebuck was too senior to be engaged in any Award classification work because there was such a disparity between his salary and the minimum rates in the Award.
  2. Guarantee of annual earnings: Separate to the question of whether Mr Roebuck was covered by the Award (which the Court said he was), the Court also held that the guarantee of annual earnings clause contained in his employment contract was one that contained ‘a guarantee of annual earnings for the guaranteed period’ in accordance with the high-income employee requirements contained in the FW Act. The Court found that Mr Roebuck’s employment contract contained an identifiable guarantee period for the high-income guarantee, being an agreement to pay him the specified annualised salary for each year that he worked. In doing so, the Court confirmed that although, for the purposes of the high-income guarantee provisions of the FW Act, there must be an ‘identifiable period’ (whereby the start and end date of the ‘period’ must be capable of identification at the time relevant to determining whether an employee is a high income employee), there is nothing under the FW Act prohibiting an employer from giving multiple or rolling undertakings to pay annual earnings exceeding the high income threshold in order to meet the high-income guarantee provisions of the FW Act.

As such, the Court held that Mr Roebuck was a high-income employee, with the employment contract containing a promise by SCA to pay Mr Roebuck $219,178 for each year of his employment commencing on 1 January 2021 and therefore, contained an ‘identifiable guarantee period’.

Implications for Employers

Employers should ensure that their employment agreements, particularly those involving guarantees of annual earnings above the high-income threshold, comply with the FW Act to potentially exclude Award application. Employers should understand the impacts of an annual guaranteed income clause and ensure it contains a fixed or identifiable period in order for the employee to be considered a ‘high income employee’ for the purposes of the FW Act.

Further, this decision also underscores the importance of carefully examining job duties and responsibilities and how they may align with Award classification requirements, when determining whether an employee is covered by an Award. Employers should not assume that an above award salary and other benefits indicates that an employee is not award covered.

For any enquiries regarding how modern awards might apply to your employees, as well as the drafting of any high-income guarantee clauses for employment contracts, please contact HR Legal.

Reference: Roebuck v Shopping Centres Australasia Property Group Re Limited [2024] FCA 503


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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