Worker argues performance bonuses shouldn't count toward income limit for unfair dismissal
The Fair Work Commission (FWC) recently dealt with a jurisdictional challenge regarding whether a worker's earnings exceeded the high-income threshold, potentially barring him from pursuing an unfair dismissal claim.
The case centred on whether discretionary retention payments should be included in calculating annual earnings for unfair dismissal protection purposes.
The worker argued that retention payments tied to performance criteria and subject to employer discretion should not count towards his annual earnings.
He maintained that despite completing the required conditions, the non-guaranteed nature of these payments meant they fell outside the definition of earnings under the Fair Work Act 2009.
His base salary and allowances totalled $172,248 annually, sitting below the $175,000 high-income threshold.
However, the employer contended that retention payments worth over $23,000 should be included in the earnings calculation, which would push the worker's total remuneration above the threshold and potentially deny him access to unfair dismissal protections.
On 4 April 2025, a project manager applied to the FWC for an unfair dismissal remedy after being dismissed from his employment with an engineering services company.
The worker had started employment on 8 November 2022 in the position of project manager – nitrogen services, completing projects across the east coast of Australia.
The worker was employed for approximately two and a half years before his dismissal on 18 March 2025.
The employer objected to the application on several grounds, including that the worker's earnings were above the high-income threshold, that he was not covered by a modern award or enterprise agreement, and that the termination was by way of genuine redundancy.
The matter was ultimately determined on the papers to save costs after both parties agreed to this approach.
Both parties accepted that no modern award or enterprise agreement applied to the worker's employment due to the nature and seniority of the position.
Under section 382 of the Fair Work Act 2009, workers earning above the high-income threshold are only protected from unfair dismissal if covered by a modern award or enterprise agreement.
This meant the worker's protection depended entirely on whether his earnings fell below the $175,000 threshold for the 2024-2025 financial year.
The worker's base salary was $168,096 per year (excluding superannuation), which increased to $172,248 annually when including mobile phone, site and meal allowances.
Both parties agreed on these figures, placing the worker's undisputed earnings below the high-income threshold.
However, the employer argued that additional retention payments of $23,077.31 should be included, bringing total remuneration to $191,533.36.
The retention payments were structured under a formal retention payment letter issued to the worker during his employment.
The retention letter stated: "You will be eligible to receive a retention payment ('Retention Payment') if a) you remain actively employed by [the company] until the end of your Retention Period and b) you maintain or exceed your current levels of performance and proficiency in the skills required to complete your job activities."
The payment schedule was divided into three instalments totalling £12,000, with payments spread across different timeframes.
The retention letter specified: "If you satisfy the eligibility criteria set forth above, you will receive a cash Retention Payment equal to £12000 (twelve thousand British Pounds)." The instalments were payable following specific dates, with the largest payment due after one year from the agreement's effective date.
The retention payment structure included extensive performance objectives outlined in the retention letter.
These requirements included maintaining personal performance levels, demonstrating company values and leadership competencies, and conducting himself in accordance with company policies.
The worker also needed to "abide by the [company's] code of Business Conduct at all times" and "fully engage and support the delivery of the 2024 budget."
The employer argued that the retention payment parameters were within the worker's control and represented ordinary employment requirements.
The employer maintained that the eligibility criteria did not include any materially new obligations, nor did they impose any heightened or exceptional performance benchmarks beyond what would normally be expected for ongoing employment.
Crucially, the retention letter reserved the employer's right to modify arrangements throughout the retention period. The document stated:
"Further specific performance objectives may be provided to you through the central program management office, and objective setting sessions held between the senior leadership team of the Company, the Board, and their appointed advisors. These objectives will be confirmed no later than 30th April 2024 and may be amended from time to time."
Section 332 of the Fair Work Act 2009 defines what constitutes "earnings" for high-income threshold calculations. The legislation includes wages, amounts applied on behalf of the employee, and agreed money value of non-monetary benefits.
However, subsection 332(2)(a) specifically excludes "payments the amount of which cannot be determined in advance" from the earnings calculation.
The employer cited the explanatory memorandum of the Fair Work Bill 2008, which stated: "An employee's earnings do not include payments for which an [amount] is not ascertainable in advance (such as variable performance bonuses). This means that payments made, but which were not anticipated or agreed to in advance will not be included."
The legislative note provides examples including "commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed)."
The FWC needed to determine whether the retention payments fell within this exclusion, despite having a predetermined formula and payment schedule.
The FWC found that the retention payment fell within the exclusion under section 332(2)(a). The commission determined:
"It is apparent from the submissions filed, that the payment of the Retention Payment was contingent on [the worker] maintaining or exceeding levels of performance and proficiency in the skills required to complete his job activities."
The commission noted: "It appears from the documentation, his success or failure in that regard would ultimately be determined, to some extent, at the discretion of [the employer]."
The commission emphasised the employer's reserved right to modify requirements: "It is clear from the language attached to the Retention Payment that [the employer] reserved the right to modify the arrangements that may be required to be met in order to receive the Retention Payment." This discretionary element proved decisive in the FWC's analysis.
The FWC concluded: "In the circumstances, despite there being a formula for the Retention Payment, it is not a payment the amount of which can be determined in advance, because the amount payable is contingent on certain things happening which are not certain."
The commission ruled: "On the basis of the submissions, it is clear that when the Retention Payment is excluded, [the worker's] earnings do not exceed the high-income threshold." The jurisdictional objection was dismissed, allowing the unfair dismissal application to proceed.
