A number of cases this year have highlighted that even though the Australian Fair Work Act 2009 regime is generally a “no costs” jurisdiction (i.e. a win does not ordinarily result in an award of costs in the successful party’s favour), the unreasonable conduct of claims can come at a high price for applicants.

Costs will not normally be awarded against party under the FWA, unless the Court thinks that the person has:

• instituted proceedings vexatiously or without reasonable cause;

• unreasonably acted or failed to act causing the other party to incur costs; or

• unreasonably refused to participate in a matter before the Fair Work Commission which arose out of the same facts.

• As the cases below demonstrate, the Courts will not be shy in awarding material costs where one of these circumstances arises.

Unreasonable act

In Yeoh v. IBM Australia Limited the employee claimed that IBM had discriminated against her on grounds of her gender and family responsibilities by requiring her to work double her contracted working hours and paying her less than her husband (who also worked for IBM). She even blamed the company for her marriage collapse.  But the claim that mostly led to her downfall was that her manager had treated her less favourably by referring to her as having a ‘baby brain’.

In some circumstances such a comment would be enough to succeed in a discrimination claim. But in this case the Judge rejected Ms Yeoh’s claim, finding that she had embellished her evidence and exaggerated her claims in order to try and advance her case. Judge Street said “to deliberately fabricate evidence to advance one’s case casts doubt on the credibility of the applicant in relation to the other areas of conflict of evidence between the applicant and the respondent’s witnesses”.  He went on to find in favour of IBM in relation to all of the allegations.

Ultimately the Court ordered her to pay IBM AUS$150,000 (US$115,000; €103,000; £73,000) in costs following her decision to reject IBM’s pre-hearing offer for both parties to walk away and bear their own costs.

Vexatious pursuit of the maximum penalty

Less than three months later, the Federal Circuit Court in Zahra v. Pharmacy Management Avoca Beach Pty Ltd (No.2) ordered a pharmacist’s assistant to pay her former employer AU$5,000 for unreasonably lodging an adverse action case and in particular, for pursuing the maximum available penalty against her former employer when that claim was clearly never going to succeed.

In considering the application for costs, the Court said that seeking the maximum available penalty for the employer’s alleged breaches in circumstances where it could not realistically be awarded was vexatious and unreasonable, and on this basis ordered the assistant to pay the AU$5,000.

Fanciful discrimination claims

Two days later the Federal Court in Chen v. Monash University (No 2) rounded out the spate of cases with a costs order against a self-represented academic who made more than 50 unsuccessful claims of sex discrimination and harassment against Monash University and two senior academics.  You would think there might be a message for her in there somewhere, but never mind.

After rejecting a AU$30,000 settlement offer from the University, Ms Chen pursued her discrimination claims in the Federal Court.  Following a lengthy and expensive trial, the Court concluded that the claims were “fanciful” and without foundation and ordered that she pay the legal costs of the University and the two professors.

In considering the application for costs, the Court said that Ms Chen’s failure to accept the “generous offer of settlement before any substantial costs had been incurred on either side”, particularly given that the effect of refusing the offer was properly explained to her, was unreasonable and on this basis ordered her to pay a whopping AU$900,000 (US$690,000; €620,000; £440,000 – ouch! in any currency) in costs to the University and the two academics.

What does this mean for employers?

These cases serve as a timely reminder for Australian employers that in certain circumstances an early offer of settlement will place them in a position to seek costs if the matter proceeds to trial and is found to be without merit.  In making costs orders where an early offer of settlement is declined, the Court will consider whether the other party’s failure to accept the offer was reasonable. As such, employers should ensure:

• the offer is clear and capable of being accepted;

• the amount of the offer and the time limit for accepting the offer are reasonable in the circumstances;

• the potential effect of the applicant refusing to accept the offer is clearly explained.

• BUT remember also that an offer may reasonably be refused without costs exposure even if the applicant’s claim later fails. The issue is why it was refused. AND remember that there is nothing to stop these principles applying in reverse, such that an employer which unreasonably refuses an offer from an applicant and then loses could equally be exposed to a costs order in favour of the employee.