In a matter recently before the Federal Circuit Court of Australia an employer successfully claimed that an employee acted unreasonably in the course of proceedings and the employer was awarded costs of $35,000.
As many readers will know, the Fair Work jurisdiction (claims brought under the Fair Work Act 2009 (Cth) (FW Act)) is a “no costs” jurisdiction. For most employers, what this means is that when an employee brings a claim, say for unfair dismissal or unlawful adverse action, and the employer successfully defends the claim, it cannot pursue the employee for any of the legal costs it has incurred in the process. In short, everyone pays their own legal fees, regardless of the outcome.
There are provisions in the FW Act that enable a party to apply for an award of costs in certain circumstances, but the bar is very high and the order is rarely given.
However, in a matter recently before the Federal Circuit Court of Australia an employer successfully claimed that an employee acted unreasonably in the course of proceedings and the employer was awarded costs of $35,000 (Adamczak v Alsco Pty Ltd (No. 4)  FCCA 7)
The employee brought a general protections claim under the FW Act, claiming that he was dismissed because he made bullying and harassment complaints against four colleagues.
In its defence, the employer argued that the employee was dismissed for violating the confidentiality provisions of the employer’s electronic mail policy when he sent confidential information to sources outside of the company, not because of any complaints he made.
The employer and the employee exchanged written evidence prior to a formal hearing of the matter and their legal representatives exchanged correspondence. In particular, the employer’s representatives wrote to the employee’s representatives setting what they considered to be the weaknesses of the employee’s case and offering to settle the matter on a commercial basis to avoid either party incurring further costs.
The first offer made to the employee was $60,000. The following month, the employer made a further offer of $80,000 to settle the matter. In its offer letter, the employer stated that it considered the offer to be generous having regard to the weaknesses of the Applicant’s case, and that should the employee refuse the offer and the employer be ultimately successful, it would rely on the letter as evidence of the employee’s unreasonableness in pursuit of a costs order against him.
In response, the employee’s representative proposed a counter offer on behalf of the employee of $185,000. This was rejected by the employer.
Sometime later, the employer’s representative wrote again to the employee’s solicitor proposing settlement for $70,000. The letter explained that the erosion of the offer was due to the employer having incurred further costs as a result of the employee’s continued pursuit of his claim.
The employee rejected this offer and his representative responded with a further counter-offer of $179,500. The employee’s offer letter alluded to the potential prejudice that might befall the employer if issues pertaining to its operations and management team were ventilated in public.
This offer was rejected by the employer and it noted in a letter responding that it was concerned that the employee had no genuine interest in attempting to resolve the matter but was intent on causing the employer “maximum inconvenience and harm.”
The matter proceeded to a hearing and the employee’s claim failed in every aspect. The employer subsequently brought an application for costs against the employee under s570 of the FW Act, as foreshadowed in its offer letters to the employee.
In determining the application for costs, the Federal Circuit Court of Australia had regard to the public interest principles contained in s570 of the FW Act and of Fair Work claims in general. Namely, that the Fair Work jurisdiction is intended to be a no-costs jurisdiction where each party must bear their own costs, whatever the outcome. In principle, costs in the Fair Work jurisdiction can only be awarded in very specific circumstances and the bar to establish that those circumstances exist is quite high.
In this matter, the employer argued that the employee’s rejections of its generous offers to settle represented unreasonable conduct on behalf of the employee, and it would not have incurred the costs that it did had the employee given thoughtful and genuine consideration to its offers.
The employee claimed that he was entitled to pursue his claim according to the public interest principles of the FW Act - that litigants should not be deterred from enforcing their rights under workplace laws, because of the threat of a costs order, where there is a reasonable basis for that pursuit. The employee said that there was no way he could have known that his case did not have prospects of success as he had acted on the advice of his legal representatives.
The Court examined the authorities on the issue and commented that the time at which an offer is made is highly relevant to whether it is acceptance/rejection is reasonable or not.
In the present case, the offers from the employer came after it had set out the strengths of its case (and the weaknesses of the employee’s case) and the affidavit evidence of its witnesses. Therefore, the evidence in the matter was relatively certain and the employee would have had a good understanding of the case that would be run by the employer.
The Court also noted that the employee’s response to the offers was to propose significantly higher counter-offers coupled with veiled threats of airing unpleasantness about the employer in a public setting. Judge Brown said, “In my view, the letter represented an inept attempt to tickle up the offer or, at worst, an attempt at extortion.”
In these circumstances, and having regard to the significant quantum of the offers made by the employer, the Court found that the employee’s rejection of the offers amounted to an unreasonable act or omission on his part. The Court made an award of costs against the employee and ordered that he pay the employer $35,000.
Lessons for employers
Although the bar is quite high, it is possible for an employer to obtain an award of costs where an employee has bought a claim vexatiously or has acted unreasonably.
In this case, the employer was ultimately successful because it had made genuine attempts to resolve the matter through a series of reasonable offers prior to the hearing. This conduct, in the eyes of the Court, is in the public interest in that “the courts not be clogged with unmeritorious claims, which potentially deny more deserving litigants of having their cases adjudicated expeditiously.”
Accordingly, the value of offer letters that reserve the rights of party to pursue costs has been upheld by the Court and employers may rely on such offers should an employee act unreasonably and reject a bona fide offer in the course of litigation.
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