Class actions on the rise: What employers need to know

Low risk and big wins are driving a growth in litigation funding

Class actions on the rise: What employers need to know

Employment class action lawsuits are rising in Australia thanks to an ‘incredible growth’ in litigation funding over the past two decades.

Michael Russell, partner, Colin Biggers & Paisley, told HRD that big wins, increased funding and space for opportunities within the law are all contributing to the seismic acceleration of class actions.

“That growth has largely been spurred by the high success and enormous returns in investor class actions such as shareholder claims, where settlements can see eight to nine figure returns to funders,” he said.

“The amount of competition, for relatively limited funding opportunities, has seen increases in both new class actions being commenced (including competing class actions) and new areas of law being considered as funding opportunities.”

He said class action claims within the Fair Work jurisdiction are largely cost-free and this is another factor driving the increase in employment related claims.

If new class actions within the Fair Work jurisdiction fail, the recovery of costs against the litigation funder or the class of plaintiffs remains a challenge.

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This opportunity for low risk, big win claims means litigation funders are more confident to strike out into new areas of law and bring innovative class actions.

Earlier this year, the Federal Court’s ruling against labour hire firm WorkPac laid the foundation for future large-scale class action lawsuits.

“The success of the WorkPac litigation has only served to increase speculation that class actions in the employment space will become the norm, unless the High Court puts the matter to rest in the near future in the upcoming Rossato appeal,” Russell said.

So, with the rise in class actions showing no sign of slowing, how can employers reduce their risk of becoming embroiled in a legal proceeding like the WorkPac case?

Paul O'Halloran, a partner in the employment and safety team at Colin Biggers & Paisley, said the case makes clear the current legal position on the definition of casual employment in Australia.

He told HRD: “While it might be said that only the most extreme examples of long term casuals will be captured by the WorkPac test (ie those essentially working full time), the reality is that plaintiff lawyers are bringing individual claims against employers in cases where there is substantially more ambiguity.”

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He outlined five steps employers should be taking:

  1. Review your casual cohort: Regularly review your workforce to consider whether any long-term casuals are more appropriately classified as permanent employees. This may mean applying the casual conversion clauses already in modern awards or enterprise agreements.
  2. Educate internal HR and recruitment: Ensure those responsible for hiring staff within your organisation are aware of the casual employment indicia and the factors that would influence a genuine casual employee morphing into a permanent employee
  3. Ensure enterprise agreements and contracts are clear about casuals: To reduce the risk of employees claiming they are not casuals, ensure contracts or enterprise agreements include a detailed definition of "casual employee"
  4. Separately identify the casual loading: The WorkPac decisions indicate that it is not enough to just identify the casual loading in a contract or payslip, rather the casual loading must be identified as being severable from the rest of the individual components of the wage, otherwise, the loading is at risk of being subsumed and its independent and significance displaced. This requires breaking down the wage into all of its identifiable components. This breakdown must be conveyed in the contract and the payslip of the casual employee in both dollar and percentage terms
  5. Set-off clauses: Review set-off clauses in contracts to endeavour to ensure they meet the specific needs in this complex area of law to increase the chance that casual loadings can be claimed back in the event of a challenge. 

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