Workplace Relations and Safety Minister Brooke van Velden has announced that high-earning employees will have 12 months to re-negotiate their employment agreements before the income threshold takes effect.

The Cabinet Economic Policy Committee has agreed in principle that the proposed high income threshold for unjustified dismissal claims will apply to existing employment agreements. However, employees earning above $180,000 per annum will have a 12-month grace period to negotiate “opting out” of this threshold with their employer.

Minister van Velden has stated that the policy will allow employers to “give workers a go” in more senior positions, without facing a challenging dismissal process if the appointment proves unsuitable. Employees will also have the option to bargain for their own terms and conditions related to dismissal.

How the transition period will work

Although the full details of the transitional arrangements are still uncertain, it appears that:

• Employees on existing employment agreements will retain the right to raise a personal grievance related to dismissal for 12 months following the high-income threshold taking effect.
• Provided the dismissal occurs within the 12-month transition window, the 90 day limitation period for raising an unjustified dismissal claim will still apply (even if this ends after the expiry of the transition period).
• An employee will no longer be on an existing employment agreement if they switch to a new employer or take on a new role with the same employer (unless the role change occurs by way of restructure).
• If the employer and employee agree to new terms and conditions in the employment agreement (that are not related to the threshold), for example, a change to hours of work or work location, the transition period will still apply.
• If an existing employee negotiates contractual exit arrangements within the transition period, the transition period will no longer apply.
• Unless the employer and employee agree to opt back in to the unjustified dismissal framework, the default position is that the high-income threshold will apply to the employee following the transition period, preventing them from raising a personal grievance in relation to any dismissal that may occur after that transition period.
• What does this mean for employers?

Employers can expect a busy 12 months after the amendment is introduced, as they work through their approach to employees who fall above the high-income threshold. It will be a matter for negotiation as to whether employers allow such employees to opt back in to the unjustified dismissal framework, or to negotiate customised dismissal procedures.

No-fault termination clauses are already common for very senior roles and it is likely that we will see more of these clauses negotiated as a result of the new regime. It will also be interesting to see whether any employees start to push back on pay rises to ensure that they retain their current unjustified dismissal protections.

It should be noted that the income threshold of $180,000 per annum only applies to a regular base salary and excludes other income such as incentive payments and benefits like vehicle use.

You can find out more on the proposed amendment, and our view on its practicality, in our previous article: Government announces income threshold for unjustified dismissal claims, exempting high earners

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