A significant recently proposed amendment to the Fair Work Act involves an overhaul of the costs provisions. Under the proposed laws, Fair Work Australia (FWA) will have new powers to make costs orders against applicants who bring ‘unreasonable’ claims.
These amendments will be important for small business employers for whom the toll of unfair dismissal claims has a significant financial impact. In addition to a disincentive for applicants to bring claims with poor prospects of success, these reforms are intended to help employers recover the substantial time and costs invested in defending unmeritorious claims.
The current costs regime
The current costs provisions afford applicants with almost a free range to pursue claims without the fear of a costs order. Generally, each party must bear its own costs. FWA may, on application, make an order for security for costs, however, realistically, costs often impact on the parties’ ability to resolve a dispute.
An order for security does not necessarily result in a costs order if the applicant fails. An offer to resolve a matter on the basis that an applicant discontinue and each party pay their own costs is unlikely to deter an employee who has nothing to lose by pursing his or her claim.
Under the current laws, FWA may only make a costs order against an applicant where it is satisfied that the application has been brought vexatiously, or without reasonable cause, or where it should have been reasonably apparent that the application had no prospects of success.
At present, FWA may only make a costs order following determination of a matter, if the employer makes an application within 14 days of the determination or if the applicant files a notice of discontinuance. This further procedural step is another hurdle for employers seeking to recover costs.
Applications for recovery of costs have been few and far between, and, broadly, it is necessary to demonstrate that proceedings are manifestly untenable or groundless.
The proposed regime
At present little is known about the proposed costs regime, other than that FWA will have the power to make a costs order against an applicant where he, or she, brings an unreasonable claim. Demonstrating that a claim has been brought unreasonably is likely to be a significantly less stringent test than demonstrating that a claim has been brought vexatiously and whilst the new test is not yet known it seems likely that the intention is to lower the bar.
FWA may exercise its discretion to make a costs order where the claim is vexatious or without reasonable cause. An employee who files an unfair dismissal claim after rejecting an offer and does not achieve an award greater than the offer, may be found to have brought the claim unreasonably. Presumably the new proposal will go even further.
Claims that do not disclose a cause of action
A common problem for employers is unfair dismissal claims that are incomplete, fail to disclose a cause of action or fail to provide adequate particulars to support any cause of action. In these cases, employers are often forced to incur costs by undertaking their own investigations and providing a broad response.
During compulsory conciliation, the employer may have very little information about the claim and be unable to assess the merits or consider a settlement strategy. This is particularly so when an employer is facing an adverse action claim and bears the onus of proving that any action taken was not for a prohibited reason.
FWA should, in our view, be more proactive in screening claims and should direct applicants who file incomplete claims, or claims that do not disclose a cause of action, to provide further information prior to directing an employer to respond to the claim. This would minimise unmeritorious claims and reduce unnecessary costs being incurred by employers.
Proposed changes to the costs regime will hopefully provide some relief for small businesses. Providing the law has sufficient certainty and effectiveness, it will enable litigation in FWA to be more effective and drive early resolution. Employees will be more cautious when bringing claims because of the threat of a costs order being made against them. On the flipside, employers may also be more likely to defend claims, rather than resolving the matter on a commercial basis to pursue costs options.
Costs aside, the best way for a small business to protect itself from unmeritorious claims is to adopt preventative measures to avoid claims in the first place. Preventative measures include implementing fair and compliant dismissal processes. Small businesses who employ 15 employees, or less, should ensure dismissals are consistent with the Small Business Fair Dismissal Code and, where appropriate, should seek legal advice.
Robin Young is a Partner and Nick Read a solicitor at the law firm Holman Webb