Called out in the Commission: Employee ordered to pay employer’s legal costs

In a rare decision by the Fair Work Commission (FWC), an employee has been ordered to pay her former employer’s legal costs after it held that the employee’s application had no prospects of success, was without basis and was an abuse of process.

Costs under the Fair Work Act 2009 (Cth)

The Fair Work Act 2009 (Cth) (FW Act) jurisdiction is a “no costs” jurisdiction. Parties to matters are responsible for their own costs, even when a party wins the matter.

However, a party may apply to the FWC for an order for its costs to be paid by the other party. Section 611 of the FW Act grants the FWC power to make an order for costs against a party if it is satisfied that:

(i)   The application was made or responded to vexatiously or without reasonable cause; or

(ii)  It should have been reasonable apparent to the person that the application or response had no reasonable prospects of success.

In the matter of ZH v Douglass Hanly Moir Pathology [2017] FWC 3382 before the FWC, a former pathology technician at Douglass Hanly Moir lodged a General Protections application involving dismissal with the Commission, alleging that she was forced to resign from her employment. The employee alleged that she suffered damage and hurt and sought compensation and reinstatement to her position.

The employer opposed the application on the basis that, only two weeks earlier in FWC proceedings for the employee’s application for an order to stop bullying the parties had reached a settlement for all claims made by the employee against the employer in respect of her employment. The parties, with the assistance of Commissioner McKenna, had reached the full and final settlement in exchange for the termination of her employment being accepted as a resignation and payment of one years’ salary (approximately $32,000 gross).

This settlement had arisen in the context of the employee having made various claims about her employment including that she was bullied, harassed and had been discriminated against. The employee had commenced a series of different proceedings in the FWC, the Federal Circuit Court and lodged a complaint to the NSW Anti-Discrimination Board.  

Unsurprisingly, in response to the new General Protections claim, the employer also made an application for the employee to pay its costs – including legal costs.  The employer argued firstly that she was not dismissed and secondly, the settlement was a complete bar to the application. The employer submitted that the employee was fully aware that she could not make further claims against the employer and that the General Protections application was a “deplorable attempt to extract more money”.

On this basis, the employer submitted that the employee’s application was frivolous and vexatious and had no reasonable prospects of success.

In response, the employee claimed that she was tricked into signing the settlement agreement because tax had been incorrectly deducted from the settlement amount. She also made allegations that the employer had breached the settlement agreement.

DP Sams agreed that the employee’s application was “doomed to fail” having regard to the terms of the agreement which confirmed (i) the employee had resigned; and (ii) it was a full and final settlement of any and all claims against the employer in relation to her employment. DP Sams noted that the settlement agreement was clearly drafted, there was no evidence of coercion or pressure on the employee and the terms were reached and agreed upon before a Commissioner.

Regarding the application for costs, DP Sams noted that in General Protections disputes, the Commission may also make an order for costs against a party under section 375B of the FW Act if it is satisfied that the party caused costs to be incurred because of an ‘unreasonable act or omission’ in connection with the dispute.

DP Sams accepted that the employee engaged in an ‘unreasonable act’ in filing her General Protections application with full knowledge that the settlement agreement precluded further claims against the employer. In his view, the employee’s conduct in the proceedings was “utterly appalling” and her actions in filing the General Protections application were intended to harass the employer.

DP Sams was scathing of the employee’s conduct in her dealings in the matter and with the Commission and commented that this was a case in which “the interests of justice demand that the Commission ‘call out’ completely unacceptable behaviour of a party to a proceeding and the improper motives of that party in filing and continuing an utterly unmeritorious application.”

Acknowledging that such costs decisions are rare, DP Sams was satisfied that the circumstances warranted a costs order be made against the employee and that the employer was entitled to costs on an indemnity basis.

This decision demonstrates the value of ‘full and final’ settlement agreements when properly drafted, to successfully defend and preclude further claims by employees. 

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

02 9256 7500 | sydney@workplacelaw.com.au

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog.

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