Jardine, Glenys --- "Costs in employment law cases: An overview" [2021] PrecedentAULA 31; (2021) 164 Precedent 30

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COSTS IN EMPLOYMENT LAW CASES

AN OVERVIEW

By Glenys Jardine

Litigation at any time is ‘inescapably chancy’.^[1] For an employee whose job is in peril or lost, the issue of whether they have to pay the cost of defending their livelihood should be considered before they commence any case against their employer.

The opposing side is usually a corporate entity which has the financial capacity to absorb the litigation costs more readily than the employee. Further, the financial stakes are not as high as the amounts sought in commercial litigation, so the costs that can be incurred in employment litigation are relatively more significant in comparison.

For an employee in such a situation, the first question to ask is: what is the cause of action? Depending on the cause of action, different rules in relation to costs apply in the various jurisdictions.

Possible causes of action in employment law exist in common law, in economic torts, under the Fair Work Act 2009 (Cth) (FW Act), under federal anti-discrimination law, under the Australian Consumer Law (ACL), and in Victoria under the Equal Opportunity Act 2010. It is noted that each jurisdiction has its own version of equal opportunity law.^[2]

COMMON LAW

Breach of contract

One potential cause of action to be considered by an employee is breach of contract. In a breach of contract claim, the usual principle of costs following the cause applies. If there are no Calderbank letters or other offers of compromise to complicate matters, then the successful party can request that their costs be paid on a party/party basis – usually about 60 per cent of their costs. An employee contemplating litigation needs to understand that they risk being ordered by a court to pay a large portion of the employer’s legal fees in the event that they are unsuccessful. As a rule of thumb, the quantum of an employer’s legal costs may be two to four times the legal costs of the employee, so this could impose an extraordinary financial burden on an employee, particularly if they are unemployed.

Anti-discrimination

Federal anti-discrimination legislation – such as the Sex Discrimination Act 1984, the Race Discrimination Act 1975 and the Age Discrimination Act 1984 – has no provision in relation to costs, so as with the common law, costs follow the cause; that is, the successful party can claim costs against the other party.

Similarly, if an employee has a cause of action under the ACL or an action based on one of the economic torts, costs will follow the cause.

Calderbank letters or offers of compromise

Compounded with the ordinary consideration of costs is the issue of whether the employer makes a Calderbank offer or offer of compromise in the course of the proceedings. If such an offer is made and the employee is subsequently unsuccessful in their action, the court may award costs on an indemnity basis against the employee. This means that the losing party has to pay costs, fees, charges, disbursements, expenses and remuneration, as long as they haven’t been unreasonably incurred.^[3]

On a practical basis, this can amount to somewhere between 80 to 100 per cent of the successful party’s costs. A startling example of this was in Chen v Monash University,^[4] where the unsuccessful employee in a discrimination claim was ordered by the trial judge to pay the employer’s costs of $900,000.

Of course, the reverse can apply if an employee makes a Calderbank offer or offer of compromise during the course of the proceedings and is ultimately successful.

FAIR WORK ACT

Unfair dismissal claims

With the general policy aim of making litigation under the FW Act cheap and more efficient, s611(1) of the FW Act states that in unfair dismissal claims under the Act, each party bears its own costs regardless of the result.

This provision is designed to protect an employee from the risk of having to pay their employer’s legal costs if their action is unsuccessful. Further, it is meant to discourage protracted litigation, as each party is usually motivated to minimise the costs they have to pay. However, the total remedy that the employee may be awarded in an unfair dismissal claim, if the employee is successful, is no more than six months’ pay (if they are not seeking reinstatement).^[5] Before bringing a claim, the employee needs to consider that if they choose to bring an unfair dismissal claim with legal assistance, a large portion of their remedy may be gobbled up in legal costs and the employee may see no financial benefit.

The FW Act provides some protection against this, in that each party may not have a representative unless the representative has been granted leave to appear by the Fair Work Commission (FW Commission) under s596 of the FW Act. However this permission is granted very frequently, particularly if the factual matrix in the case is complex. Generally, the employee has an unenviable choice to make out of the following scenarios:

• Do I try to run my case myself when I have no idea what I’m doing?

• Do I run my case and pay my lawyers, with little financial benefit to myself?

• Do I walk away because I just can’t afford to run my case?

Costs can be awarded against a party if the FW Commission is satisfied that:

• the matter was commenced or responded to vexatiously or without reasonable cause;^[6]

• a party has no reasonable prospect of success;^[7] or

• costs have been incurred as a result of an unreasonable act or omission of one party.^[8] It is noted that the test applied here is an objective test.^[9]

To discourage misconduct of certain law firms and industrial advocates, s401 was included in the FW Act. This enables the FW Commission (upon application for costs) to make an order for costs against a representative for costs incurred by the other party to a matter if it is satisfied that the representative caused those costs to be incurred because:

• the representative encouraged the person to start, continue or respond to the matter when it should have been reasonably apparent that the person had no reasonable prospect of success; or

• there was an unreasonable act or omission of the representative in connection with the conduct or continuation of the matter.^[10]

Orders have been made against lawyers and industrial advocates on occasion, but only in circumstances where the representative has actively encouraged the employee to start, respond to or continue proceedings in circumstances where the employee would not have otherwise done so.^[11]

General protections and other applications

Under the FW Act, general protection claims, if they are not initially resolved in the FW Commission, generally proceed to either the Federal Circuit Court or the Federal Court.^[12] Other claims under the FW Act such as underpayment of wages are also heard by the Federal Circuit Court or Federal Court.

In these FW Act claims, the power of a court to award costs under the FW Act is limited by s570 of the Act. Section 570 prevents a court from ordering a party to pay costs unless the court is satisfied that:

• the proceedings were instituted vexatiously or without reasonable cause;

• a party’s unreasonable act or omission caused the other party to incur costs; or

• the party unreasonably refused to participate in a FW Commission matter that arose from the same facts.

In Hutchinson v Comcare (No. 2),^[13] Bromberg J summarised s570 of the FW Act as follows:

• the purpose of the section ‘is to ensure that fear of a costs order does not discourage genuine litigants from pursuing cases with reasonable cause’ and it ‘is concerned with access to justice’;

• the occasions upon which costs will be awarded are exceptional; and

• ‘the fact that a party has conducted litigation inefficiently, made late concessions, or adopted a misguided approach will be relevant to, but not conclusive of, the party having acted unreasonably in a sense relevant to s570(2)(b)’.^[14]

The situation in which an employee may be able to recover their costs in employment law proceedings is when a settlement offer has been unreasonably rejected by the employer. It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s570(2)(b) and its predecessors.

However, the Federal Court has previously highlighted that it cannot be assumed that principles applying to Calderbank letters are directly applicable in FW Act proceedings because of s570:

‘Caution should be exercised as to how a Calderbank offer, even a generous one, is viewed in such circumstances. Calderbank letters presuppose what might be called a “costs jurisdiction”, in contrast to the usual rule in Fair Work Act claims.’^[15]

That is, Calderbank letters may not have the desired effect in court proceedings under the FW Act.

As there is no cap on remedy in general protections claims, costs incurred may be able to be more readily absorbed by a successful employee if the final result is sufficiently large. In Roohizadegan v Technology One Ltd (No. 2),^[16] a general protections claim, an award of $5.2 million was made against an employer. In that case, the legal costs incurred by the employee would have been proportionately far less of a financial concern than in other cases where the remedy has been much smaller.

Civil penalties

Under the general protections provision of the FW Act, including awarding a financial remedy to an employee if they are successful, the court has the power to award civil penalties.^[17] In Sayed v CFMEU,^[18] the Full Bench of the Federal Court found that civil penalties can be paid to successful applicants in certain circumstances, taking into account the fact that the applicant brought the proceedings under the FW Act at their own risk and expense. This may help an employee financially who is unable to recover costs due to the high bar of what is considered an ‘unreasonable act’ set by s570.

MULTIPLE CLAIMS IN COURT

The courts have also had to deal with the question of what happens when one claim is brought under the FW Act under which each party bears their own costs, and another claim is brought for breach of contract where costs follow the cause.

A party may be successful in one cause of action but not in another, which could further complicate matters.

In Melbourne Stadiums v Sautner,^[19] where the employee had been successful in his claims under the FW Act and in his breach of contract claim, he argued that his offer of compromise (which had been rejected by his former employer) should persuade the Court that he was eligible to be awarded costs at least for his breach of contract claim. The Court disagreed and found that s570(2) prevailed. The rejection of the offer of compromise was not an unreasonable act or omission and accordingly, the employee’s application for costs was refused.

In Liu v Stephen Grubits & Associates,^[20] the Full Court of the Federal Court endorsed this interpretation of how s570 of the FW Act operates (in relation to a proceeding in the Federal Court) as a limitation on the broad discretion to award costs which is contained in s43 of the Federal Court Act 1976 (Cth) when both of those Commonwealth laws are read together.

EQUAL OPPORTUNITY ACT IN VICTORIA

General damages

As a matter of interest to WorkCover practitioners, the Victorian Civil and Administrative Tribunal (VCAT) is prepared to award general damages in certain claims brought under the Victorian Equal Opportunity Act, in addition to any right that the employee may have to be paid compensation under workers’ compensation law. In the matter of Collins v Smith,^[21] the employee was the victim of serious sexual harassment by the respondent employer. She was awarded damages, including general damages of $180,000, which were not categorised in the same way as the general damages available under workers’ compensation law. VCAT held that the employee was eligible to be awarded specific general damages because of the sexual harassment that she had suffered in breach of the equal opportunity law.

Costs in VCAT

Under s109(1) of the Victorian Civil and Administrative Tribunal Act 1998, the general proposition is that each party is to bear their own costs in the proceeding. However, VCAT may order at any time that a party pay all or a specified part of the costs of another party in a proceeding if it is satisfied that it is fair to do so, having regard to:

‘(a) whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as—

(i) failing to comply with an order or direction of the Tribunal without reasonable excuse;

(ii) failing to comply with this Act, the regulations, the rules or an enabling enactment;

(iii) asking for an adjournment as a result of (i) or (ii);

(iv) causing an adjournment;

(v) attempting to deceive another party or the Tribunal;

(vi) vexatiously conducting the proceeding;

(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceeding;

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;

(d) the nature and complexity of the proceeding;

(e) any other matter the Tribunal considers relevant.’^[22]

Generally, the provisions relating to costs are similar to those under the FW Act, with the proviso that Calderbank letters and offers of compromise that are made in a VCAT matter, in accordance with the relevant rules, are taken into account when VCAT is considering a costs application against an unsuccessful party.^[23]

CONCLUSION

The question of costs is difficult for any employee who is contemplating commencing an action against their current or former employer. Employment lawyers should ensure that their client is well-advised about costs implications before they become caught up in the whirlwind of litigation.

Glenys Jardine is a barrister at the Victorian Bar, specialising in employment law, anti-discrimination law, WorkCover and personal injuries matters. PHONE [phone] EMAIL [e-mail].

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^[1] Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721.

^[2] See Discrimination Act 1991 (ACT); Anti-Discrimination Act 1977 (NSW); Anti-Discrimination Act 1996 (NT); Anti-Discrimination Act 1991 (Qld); Equal Opportunity Act 1984 (SA); Anti-Discrimination Act 1998 (Tas); Equal Opportunity Act 1984 (WA).

^[3] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72.

^[4] Chen v Monash University (No. 2) [2015] FCA 552.

^[5] Fair Work Act 2009 (Cth) (FW Act), s392(5).

^[6] Ibid, s611(2).

^[7] Ibid.

^[8] Ibid, s400A(1).

^[9] Baker v Salver Resources Pty Ltd [2012] FWAFB 4014.

^[10] FW Act, above note 5, s401.

^[11] Church v Eastern Health [2014] FWCFB 810.

^[12] FW Act, above note 5, s370. Unless both parties agree to arbitration by the FW Commission – see FW Act, s369.

^[13] [2017] FCA 370 (Hutchinson).

^[14] Ibid, [7]–[8].

^[15] See Hutchinson, above note 13.

^[16] [2020] FCA 1407.

^[17] FW Act, above note 5, s539.

^[18] [2016] FCAFC 4.

^[19] [2015] FCAFC 20.

^[20] [2019] FCAFC 24, [5].

^[21] [2015] VCAT 1992.

^[22] Victorian Civil and Administrative Tribunal Act 1998 (Vic), s109(3). See also ss109(4)–(5): ‘(4) If the Tribunal considers that the representative of a party, rather than the party, is responsible for conduct described in subsection (3)(a) or (b), the Tribunal may order that the representative in his or her own capacity compensate another party for any costs incurred unnecessarily. (5) Before making an order under subsection (4), the Tribunal must give the representative a reasonable opportunity to be heard’ (unlike the FW Commission where the representative has no automatic right to be heard).

^[23] Ibid, s112.