Guarantee of Annual Earnings So as to Exclude Industry Award Coverage
In the recent case of APESMA v Peabody Energy Australia Coal Pty Ltd [2022] FCA 945 (‘Peabody’), the Federal Court was asked to consider what constitutes a guarantee of annual earnings that excludes an employee from award coverage.
According to Fair Work, a guarantee of annual earnings is a written arrangement between an and an employee for the latter to receive the high-income threshold or above, over a period of 12 months or more. The employee will not be entitled to perks from the relevant award.
In Peabody, two employees were being made redundant by the company. Peabody argued that the employees were not entitled to payment of accrued personal leave, which is covered by the industry award. The company backed its argument by stating that the employees had a guarantee of annual earnings above the high-income threshold, and hence did not receive award coverage. The Association of Professional Engineers, Scientists and Managers Australia (‘APESMA’) initiatedproceedings against peabody.
Despite the fact that the employees had written employment agreements prescribing each employee’s salary, which exceeded the high-income threshold at the time, Justice Wigney disagreed, explaining that it involves something more than a mere contractual promise to pay a specific salary.
‘… it cannot be accepted that any such undertakings by Peabody were capable of constituting “guarantee[s] of annual earnings” within the meaning of s 330 of the Fair Work Act. Nor can it be concluded that the employees relevantly accepted any such undertakings, as opposed to agreeing to the amount of the earnings Peabody had agreed to pay’.
Justice Wigney also added that a guarantee of annual earnings must have an end date, and an employer must notify an employee of the nature of a guarantee of financial earnings, namely that an industry award will not apply. Accordingly, as the employment agreements of Peabody’s employees did not mention any ‘undertaking’ or ‘guarantee’ of earnings, nor did they include a guarantee period with an end date, Peabody’s claim that the employees had a guarantee of annual earnings was rejected.
Although the case finding is not surprising, Peabody is useful in clarifying what is required when setting up a guarantee of annual earnings that excludes coverage:
- Notify employees of the nature and consequences of a guarantee of annual earnings and emphasize that the relevant award does not apply;
- Set a guarantee period with a clear end date; and
- Obtain the employee’s express acceptance of the undertaking and agreement regarding the earnings.