When Do Unfair Dismissal Laws Apply to CEOs?

When Do Unfair Dismissal Laws Apply to CEOs?

Since the enactment of the Fair Work Act (‘the Act’) in 2009, it has been widely understood that senior executives such as Chief Executive Officers (CEOs) are generally not able to take advantage of the Act’s unfair dismissal provisions because of the requirement that those bringing such an action fall under a high-income threshold.

This threshold, indexed in July each year, is presently set at $153,600 per annum, meaning many senior managers in the private sector are unable to bring an unfair dismissal action in the Fair Work Commission (‘FWC’) unless the terms of their employment are governed by an enterprise agreement or a modern award.

Most senior executives are not covered by an award and so can not take advantage of unfair dismissal laws, but this is not exclusively the case. CEOs in certain industries including government agencies, education services, and social, community and disability services may be covered by awards that maintain their ability to bring an action for unfair dismissal. We’ll take a look at a few examples in this article.

What is the basis of an unfair dismissal claim?

In determining whether an unfair dismissal has occurred, the FWC will assess whether:

  • the dismissal has occurred at the initiative of the employer;
  • the person terminated was an employee and not a contractor;
  • the termination was ‘harsh, unjust or unreasonable’;
  • the termination was not consistent with the Small Business Fair Dismissal Code; and
  • it was not a case of genuine redundancy.

In addition, a person wishing to bring an unfair dismissal action must show they have completed a minimum period of employment of 12 months for employers who employ less than 15 people; or a minimum of six months for employers with more than 15 people.

As mentioned above, additional eligibility criteria relating to income level and coverage by a modern award or enterprise bargaining agreement mean most executives are disqualified from action for unfair dismissal.

Case examples and the ‘principal purpose’ test

Some modern awards do facilitate the ability of CEOs and other senior executives to take action for unfair dismissal. A number of court cases have provided salient warnings to employers that they should not assume a CEO or senior executive is not covered by an award just because of their job title.

To determine whether a modern award covers an employee, including a CEO, the FWC employs the principal purpose test, which examines the nature of the work and the circumstances in which the employee is employed. This may include an assessment based on considerations such as whether the employee has the authority to hire and terminate staff; sign contracts binding the company; set performance targets and conduct performance reviews of staff; and oversee a budget, among other considerations.

Case example 1: Perhaps the leading case example in this area is Cubillo v North Australian Aboriginal Family Violence Legal Service [2011] FWA 6818. In this case, Ms Veronica Cubillo, the CEO of the North Australian Aboriginal Family Violence Legal Service, made an application for unfair dismissal from her position under s 394 of the Fair Work Act 2009, following her termination in June 2011.

Ms Cubillo argued her employment was covered by the Social, Community, Home Care and Disability Services Industry Award 2010. In response, the employer argued she wasn’t covered by this award because while some of her work activities may be covered by the award, the principal purpose of her employment was managerial in nature and therefore she could not bring an unfair dismissal claim.

The Commission ruled in Ms Cubillo’s favour finding that in this instance, the provisions of the award ‘clearly included’ managerial roles.

Case example 2: Similarly in Muscat v Chase Commercial Pty Limited T/A Chase Commercial [2018] FWC 1398, Ms Karen Muscat applied to the Commission for an unfair dismissal remedy after she was removed from the position of ‘Director of Asset Management’ at a commercial real estate agency. Ms Muscat argued her employment was covered by the Real Estate Industry Award 2010.

Using the principal purpose test, the FWC looked at the time Ms Muscat spent on her different duties and responsibilities to decide that her substantive duties were covered by the Real Estate Industry Award 2010 under ‘property manager supervisor’. In summary, her job title did not necessarily match the duties of her job, and she was entitled to bring an action for unfair dismissal.

Case example 3: In contrast, in David McMillan v Northern Project Contracting T/A NPC; Graeme Norman v Northern Project Contracting T/A NPC [2012] FWA 7049, two employees who held roles as a manager (Mr Norman) and a supervisor (Mr McMillan), argued in their unfair dismissal applications to the FWC that they were covered by the Mining Industry Award 2010, as indicated in their employment contracts. The Commissioner found that notwithstanding the mention of the award in their contracts, under the Act neither man was covered by the award. Instead, both were in genuine managerial and supervisory roles, and both were also over the income threshold.

Conclusions

Employers need to be alert to the fact that a managerial job title and high remuneration will not necessarily exclude a company executive from recourse to the unfair dismissal provisions of the Act if they can show they are covered by a modern award or enterprise agreement.

Doing so requires employers to be aware of award classifications for managers and supervisors in the relevant modern award for their industry or an executive’s role.

Even where an award is not relevant, employers still need to be wary of dismissing CEOs or other senior executives without proper notice or reason, as other actions exist under the General Protections provisions of the Act.

If you have questions or queries about how Australia’s unfair dismissal laws apply to your enterprise or circumstances, contact Australia Lawyers today. We are specialists in the area of employment disputes and can help guide and advise you towards a resolution of any unfair dismissal issue.

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