In a system that already imposes onerous obligations on employers to prevent discrimination in their workplaces, an additional amendment to the Australian Human Rights Commission Act 1986 (AHRC Act) further shifts the balance of risk in discrimination claims against employers.

The amendments enshrine a departure from the usual longstanding position of a losing party to a claim paying the costs of the winning party. Now, employees get an almost free run from the risk of paying costs if they lose, while employers are put at significant risk of costs even if they successfully defend a claim.

These amendments even shift the balance of risk from an employee who unreasonably rejected an employer’s offer to settle when the employee does not achieve an outcome better than the offer to settle (and therefore pursued a claim without merit).

The Shift

The amendments to the AHRC Act change the way in which costs can be ordered for federal discrimination claims. The amendments:

1. remove judges’ ability to consider settlement offers made earlier in the claim when considering costs orders;
2. require employers to pay an employee’s costs (by default) if the employee is successful on either the whole or part of their claim (and this may be on an indemnity basis); and
3. provides that an employee may only be liable to pay the employer’s costs if:

• the employee commences the proceeding vexatiously or without reasonable cause (a high standard to prove);
• the employee engages in an unreasonable act, or unreasonable omission, causing the employer to incur additional unnecessary costs; or
• an employer successfully defends the claim, and the employer does not have a ‘significant power advantage or have ‘significant financial’ resources relative to the employee (probably limiting this to sole traders micro-businesses).

The Practical Effect

If an employee commences a discrimination claim against their employer and is successful, the employer will be ordered to pay the employee’s full legal costs. On the other hand, employers who successfully defend a discrimination claim will have to wear their own legal costs, unless they can establish:

1. that the claim was vexatious or without reasonable cause; or
2. the employee acted unreasonably in the conduct of the claim and that unreasonable conduct resulted in the employer incurring additional (unnecessary) legal costs.

Proving a vexatious claim or a claim pursued without reasonable cause means the employer will have to prove that the employee knew their claim was without merit, but continued with it anyway. This is very difficult to establish. Proving an act or omission by the employee was unreasonable will also be difficult to prove. It means that there will be few matters in which an employer is likely to be successful in recovering costs.

Establishing that the employer does not have a significant power advantage vis a vis the employee will also to be difficult to establish in most employment circumstances. This provision is aimed at protecting junior employees and small businesses. The more senior an employee (in tenure, age, and status), the less likely an employer is to have a power advantage over them. But, junior employees or indeed any young person, will almost certainly be an employee over whom an employer has a power advantage.

Of course, the larger a business and the greater its turnover, the more likely the employer will have significant resources compared to the employee. Establishing any of the grounds for an employee to pay the employer’s costs is unlikely except in the rarest of cases.

What do you need to do

This amendment is yet another incentive for employers to take positive and active steps to eliminate discrimination from their workplaces because the only way to minimise the risks of paying costs in a discrimination claim is to not have the claim in the first place.

These amendments alter the commercial reality of defending discrimination claims considerably. Costs will become a real risk, in addition to reputational risks and the time and monetary cost of engaging in the litigation. The amendments even take away the leverage of a reasonable settlement offer early on in any discrimination claim, because even if the employee rejects a reasonable offer, that rejection will no longer be taken into account in considering whether an employee has acted unreasonably.

Employers really need to take measures to eliminate or otherwise minimise discrimination in their workplaces. Training, consultation with workers and active cultural programs aimed at eliminating discrimination are the best risk minimisation steps to avoid costs. It is no longer sufficient to have an annual online discrimination and workplace conduct reminder. Any employer and its management must develop an active program to remind workers that discrimination has no place in the business or workplace.

If:

1. you are unsure whether the steps you are taking are sufficient to minimise risks of discrimination;
2. you don’t have an active program to eliminate or minimise discrimination claims;
3. there is a dispute or a grievance alleging discriminatory conduct; or
4. a discrimination claim is commenced against your business;

you need to contact our Employment, Workplace Relations & Safety team immediately.