Australia’s New Unfair Dismissal Threshold: Your Essential Guide

If you employ staff in Australia, understanding unfair dismissal rules isn’t optional - it’s essential. From 1 July 2024, the high-income threshold for unfair dismissal jumped, which changes who can bring a claim and the maximum compensation the Fair Work Commission (FWC) can award.

In this guide, we’ll break down what changed, who is eligible to make an unfair dismissal application, and the practical steps you can take to reduce risk when ending employment. We’ll keep it clear, actionable and focused on what you need to do as an employer.

What Changed On 1 July 2024?

Each financial year, the high-income threshold under the Fair Work Act updates. From 1 July 2024, the threshold increased to $175,000. This matters because employees who are not covered by a modern award or enterprise agreement, and who earn more than the threshold, generally cannot bring an unfair dismissal claim (they may still have other claims - more on that below).

• High-Income Threshold (2024-25): $175,000.
• Compensation Cap: The lower of six months’ pay or half the high-income threshold. For 2024-25, that’s a maximum of $87,500.

Put simply, the “new threshold” changes the pool of employees who can access the unfair dismissal regime and increases the top-end compensation cap for eligible employees.

What Counts Toward the Threshold?

The FWC looks at an employee’s “earnings,” not just base salary. Typically this includes wages, agreed benefits and certain allowances. It usually excludes compulsory superannuation, reimbursements and non-guaranteed payments. If you have incentive plans, allowances or salary packaging arrangements, make sure you understand how they are treated when assessing eligibility.

Who Is Eligible To Claim Unfair Dismissal In Australia?

Not every employee can file an unfair dismissal claim. The Fair Work Act sets out several gateways. An employee generally needs to show:

• They were dismissed (not a genuine resignation).
• The dismissal was “harsh, unjust or unreasonable.”
• They met the minimum employment period.
• They are covered by a modern award or enterprise agreement, or earn less than the high-income threshold.

Minimum Employment Period

• Small Business Employers (fewer than 15 employees): 12 months’ service.
• Other Employers: 6 months’ service.

Counting employees can be technical (e.g. associated entities may be included). It’s worth checking your headcount carefully before relying on the 12-month rule.

Modern Awards and Enterprise Agreements

If an employee is covered by one of Australia’s modern awards or an enterprise agreement, they are within the unfair dismissal system regardless of how much they earn. If they’re not covered and they earn more than the threshold, they usually cannot bring an unfair dismissal claim (though they may still access general protections or contract claims).

Small Business Fair Dismissal Code

Small business employers have an additional shield: if you strictly follow the Small Business Fair Dismissal Code, the dismissal is deemed fair. The Code requires steps like warning (for performance issues), allowing a chance to respond and keeping records. If you’re a small business, build the Code’s checklist into your process and file notes.

Casuals, Contractors and Fixed-Term Employees

• Casuals: To access unfair dismissal, a casual must be employed on a regular and systematic basis with a reasonable expectation of ongoing work. Ad-hoc casuals generally won’t qualify.
• Contractors: Genuine independent contractors are not employees and cannot bring unfair dismissal claims. However, “sham contracting” risks are real - if a contractor is in substance an employee, claims can follow.
• Fixed-Term: When a genuine fixed-term contract naturally expires, that’s typically not a dismissal. Early termination of a fixed term can still be reviewed.

How Do I Work Out If Someone Is Above The Threshold?

When a termination is on the table, check eligibility upfront. A quick triage saves time and guides your process.

Step 1: Confirm Award/Agreement Coverage

Check whether the role is covered by a modern award or an enterprise agreement. Award coverage can exist even for high earners if the role falls within an award classification.

Step 2: Calculate “Earnings” Against $175,000

Review the contract and remuneration structure. Add base salary and other guaranteed earnings (e.g. guaranteed allowances, salary packaging) and exclude compulsory superannuation and genuine reimbursements. If total earnings are under $175,000 and there’s no award/agreement gap, the employee is generally eligible (subject to other criteria).

Step 3: Check Minimum Employment Period

Confirm whether you’re a small business employer and whether the employee has met the applicable 6 or 12-month minimum service.

Step 4: Identify the Real Reason for Termination

Procedural fairness matters. If it’s conduct or capacity, you’ll usually need to warn (unless serious misconduct), invite a response and consider alternatives. If it’s a restructure, verify that it’s a genuine redundancy (the job is no longer required and redeployment was considered) - otherwise a claim may still arise.

Practical Steps To Reduce Unfair Dismissal Risk

Whether your employee sits above or below the threshold, good process drastically reduces your risk. Here’s a practical playbook you can adapt to your workplace.

1) Keep Employment Contracts Current

Clear terms minimise disputes about role, pay components, notice periods and misconduct. Ensure each role has a tailored Employment Contract and that contracts align with any award or enterprise agreement terms.

2) Set Expectations Early With Policies

Document the rules on performance, conduct, bullying, leave and IT use. Consistent policies support fair process and show the FWC you took reasonable steps to manage risk. Many employers bundle policies into a staff handbook for ease of use.

3) Use a Procedural Roadmap

• Identify the concern (capacity/performance vs misconduct).
• Gather facts (documents, witness notes, prior warnings).
• Invite the employee to respond (with reasonable notice and a support person).
• Consider the response and decide next steps proportionately.
• Confirm outcomes in writing with reasons.

For performance or misconduct matters, it’s common to issue a formal Show Cause Letter and allow a reasonable period for a response before making a decision.

4) Distinguish Redundancy From Performance

Redundancy is about the job, not the person. If the role is no longer required due to operational change and redeployment isn’t reasonable, redundancy may be genuine. If the issue is performance or conduct, follow a disciplinary pathway instead. If you anticipate a restructure, get early Redundancy Advice to confirm obligations, consultation steps and payments.

5) Manage Probation Cleanly

Probation is your window to assess role fit. If things aren’t working, act before probation ends and follow a fair, proportionate process. Our guide to termination during probation outlines the typical steps and risks to watch.

6) Consider Garden Leave For Senior Roles

If you’re concerned about access to clients, confidential information or team disruption, consider placing the employee on garden leave during notice. This keeps them out of the business while preserving your contractual rights.

Handling Termination: Process, Notice And Documentation

Ending employment is a legal process as much as a people process. Getting the basics right helps you avoid claims and maintain fairness.

Notice and Final Pay

Check the contract, award or National Employment Standards for the correct notice period. If you’d prefer an immediate exit, you can usually make a Payment In Lieu of Notice (unless it’s summary dismissal for serious misconduct, where notice isn’t required). Pay all entitlements on time - accrued annual leave, any applicable redundancy pay and other amounts owing.

Procedural Fairness

The FWC looks at both substance and process. Provide written invitations to meetings, specify the issues, give reasonable time to respond, allow a support person, and genuinely consider the employee’s explanation before deciding. Keep notes. These steps are central to a fair process.

Documentation To Prepare

• Invitation to meeting and allegations (or performance concerns) in writing.
• Evidence pack (incident reports, performance data, witness statements where relevant).
• Meeting notes, employee response and your consideration.
• Outcome letter stating reasons, notice arrangements and entitlements.

If you operate under an award or enterprise agreement, check whether consultation or specific steps are mandated before termination.

Genuine Redundancy Checklist

• Business reasons documented (restructure, technology, downturn, outsourcing).
• Consultation obligations completed under any applicable award or agreement.
• Reasonable redeployment considered across the business and associated entities.
• Correct redundancy payments and notice calculated and paid.

Other Risks To Keep In Mind

• General Protections: Employees can bring claims alleging adverse action for exercising workplace rights (e.g. taking sick leave or making a complaint). This applies regardless of income level.
• Discrimination: Termination decisions must not be based on protected attributes (e.g. age, race, disability, sex).
• Health and Safety: If there are capacity issues connected to injury or illness, ensure you’ve handled medical information lawfully and considered reasonable adjustments before making decisions.

FAQs About The New High-Income Threshold

Does the new threshold automatically exclude high earners from unfair dismissal?

No. If a high earner is covered by a modern award or enterprise agreement, they can still bring an unfair dismissal claim. The threshold mainly affects employees who are not under an award or agreement.

What about senior executives with bonuses and share plans?

It depends on whether those amounts are guaranteed and form part of “earnings.” The details matter. Review the remuneration structure in the Employment Contract and consider how the FWC would treat each component.

If someone is above the threshold, can they still sue?

Yes - but not usually for unfair dismissal. They may have general protections, discrimination or contract claims. This is why process discipline and careful documentation still matter for every termination.

Can I end employment during probation without risk?

Probation reduces risk but doesn’t eliminate it. Follow a fair process, pay entitlements, and avoid prohibited reasons (e.g. exercising a workplace right). If unsure, revisit the steps in our probation termination guide.

Key Takeaways

• The high-income threshold increased to $175,000 from 1 July 2024, and the unfair dismissal compensation cap is now $87,500 (or six months’ pay, whichever is lower).
• Eligibility depends on more than salary - award or enterprise agreement coverage, minimum employment period and procedural fairness all matter.
• Award-covered high earners can still bring unfair dismissal claims, so do not rely on salary alone when assessing risk.
• Use strong foundations: robust Employment Contracts, clear policies and a fair, well-documented process.
• For restructures, confirm genuine redundancy and complete any required consultation before ending employment; get early Redundancy Advice if you’re unsure.
• Manage exits professionally: correct notice or Payment In Lieu of Notice, accurate final pay and clear written reasons will reduce disputes.

If you’d like a consultation on managing unfair dismissal risk or setting up your dismissal processes, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.