The Fair Work jurisdiction in Australia is generally considered a ‘no costs’ jurisdiction, meaning that even if a party is successful in an action, it is usually unable to obtain a costs order against the loser.

However in the Fair Work Amendment Act 2012 (Cth) widened the exceptions to the ‘no costs’ rule by enacting section 570(2)(b) of the Fair Work Act 2009 (Cth). This section allows costs orders to be made where a party has committed an ‘unreasonable act or omission’ in the bringing or continuing of a claim that causes legal costs to be incurred by the opposing party.

• So what classifies as an unreasonable act or omission for these purposes? Notably, recent case law has shown that one party’s failure to accept the other’s reasonable settlement offer may be considered an unreasonable act resulting in a costs order being made against it.

• In Ferry v GHS Regional Pty Ltd (May 2016) a yard manager was dismissed after taking property without authorisation. He brought an unfair dismissal claim and represented himself in proceedings. Following a series of conciliation meetings, his employer offered him $3000 to settle the claim, which he rejected.

Mr Ferry’s claim was rejected by the Fair Work Commission (FWC) and a costs order was made against him to the tune of AU$13,875.50 to cover the legal costs incurred by his employer.

He argued that due to his lack of legal representation and experience he was not able to evaluate the prospects of his claim to determine if the offer was reasonable.

The FWC noted that, while self-represented litigants were indeed at a disadvantage, this would not be taken into account in determining if the rejection of an offer was unreasonable. Of significance here is that the employer had provided the employee with all the documents to be relied upon in proceedings and this information would and should have been sufficient for the employee to realise his claim had little support, even without legal input.

The FWC also placed weight on the fact that the letter of offer had expressly stated that the employer would seek costs if the claim failed.

Going the other way was Cugura v Frankston City Council (No 2).  In this appeal decision, the employee claimed that his dismissal was an adverse action taken against him on the basis of his disability. The employer, in early September, offered that both parties bear their own costs and walk away from the matter. By early October, the employer had submitted affidavit evidence which more or less irrefutably contradicted the employee’s unsubstantiated claims. Despite this, Mr Cugura still did not accept the walk-away settlement offer.

The Federal Magistrates Court (FMCA) dismissed the appeal and made a cost order against him. It noted that whilst the refusal of the offer at the time it was made may not have been unreasonable, given the employee did not challenge the employer’s evidential case as to the reason for the termination and the way the trial was later conducted on behalf of the employee, the subsequent refusal was unreasonable and hence the costs order justified.

Lessons for Employers

• Where applicable, draw to the attention of an employee (particularly a self-represented litigant) in as much detail as possible why their case has little or no prospect of success. If you have substantial evidence that contradicts an employee’s claim, this should also be brought to their attention at or before the point of the offer.

• Ensure any settlement offer made to an employee is both clear in its terms and reasonable in all the circumstances – the harder-nosed the offer and the more onerous the conditions attached to it, the easier it will be for an employee to show their refusal was not unreasonable.

• Include in all settlement offers a statement that, if the employee rejects the offer, the employer reserves the right to pursue costs under s 570(2)(b) of the Fair Work Act 2009.

• When rejecting a settlement offer made by an employee, do so clearly and state in detail the reasons for rejecting the offer so that these can later be relied upon to show that the grounds for rejection were reasonable.

• Because a costs award is dependent on the costs having been incurred as a direct result of the other party’s unreasonable conduct, ensure that you are able to identify what costs stem from what act or omission by the other side, e.g. by noting what time is spent post-offer on what part of the claim.

• Remember that the costs threat can apply also to part only of a claim, e.g. where a proposal is made to dispose of a particularly weak or minor part of the proceedings leaving the main case extant.