6 September, 2019
The trend towards employment-related class actions and underpayment claims
What you need to know
- Over the past 18 months there has been a significant increase in employment-related class actions with a number of prominent cases in both the private and public sector
- The claims have been commenced by smaller plaintiff law firms backed by overseas funders
- We expect the trend of employment class actions to continue against both public and private sector employers, and for such claims to continue to be commenced by both smaller plaintiff law firms dedicated to class actions, and also unions
What you need to do
- Assess your organisation's exposure to an underpayment or misclassification claim, such as by auditing your organisation's compliance with its industrial instruments
- Consider whether your employees have been correctly engaged, classified and paid
- If you employ casual employees who work a regular pattern of work, consider whether those employees are truly 'casual'
What sort of claims are being pursued?
Generally, the actions commenced in recent times are on two fronts: alleged misclassification of employment status or type, and compliance and alleged underpayment under industrial instruments.
The first group challenges the status of independent contractors alleging they have been engaged as employees, or casual employees alleged to have been engaged as permanent employees.
The second group focusses on the misapplication of terms of industrial instruments resulting in alleged underpayment claims, often centred on annual leave, overtime, loadings, penalty rates and allowances for workers.
An aspect of the class actions have been attempts to sheet home responsibility for underpayments to hosts of labour hire employees and principals or franchisors, by utilising accessorial liability provisions alleging their "involvement" in the underpayment.
Who is backing the claims?
The trend has been backed by plaintiff law firms focussed on employment-related class actions, building book and brand – often leveraging off investigations by the Fair Work Ombudsman or precedent-setting court rulings (like the Full Court of the Federal Court's ruling in WorkPac Pty Ltd v Skene [2018] FCAFC 131, see our Employment Alert here), focussing on the same or similar circumstances and industries. Overseas litigation funders are “investing” in these claims – although recent events may lead them to proceed more cautiously.
Unions have taken mixed approaches to class actions, having historically used “test case” style litigation, or dispute proceedings and enterprise bargaining, to achieve broader outcomes. We have, however, in the last week, seen the Construction, Forestry, Maritime, Mining and Energy Union commence a class action. The Retail and Fast Food Workers Union also recently started a class action.
While unions, particularly those in more organised industries with greater union density, have not typically pursued class actions, this trend may be changing. We also expect smaller unions or industrial associations to pursue such claims to increase their leverage and to try and arrest declining membership numbers.
What challenges face those bringing the claims?
Questions remain about whether class actions are an appropriate vehicle for the resolution of employment claims, given the factual complexities and differences in any employment relationship. They are prone to "de-classing" applications.
In addition, the approach of the courts to issues like common fund orders, security for costs applications and costs orders also remains uncertain given the typical starting point that parties in claims under the Fair Work Act bear their own costs. Questions also remain over whether costs orders could be pursued against funders (who are not parties to the claim and not subject to the usual position that parties bear their own costs in claims under the Fair Work Act).
The Federal Court recently left open the ability of an employer to seek costs orders when it dismissed a class action commenced against a government owned organisation for alleged underpayment of redundancy entitlements, employer superannuation contributions, leave and other entitlements provided under an enterprise agreement, in a claim successfully defended by Ashurst.
Multiple employment-related class actions covering the same class may trigger disputes between plaintiff law firms and unions in relation to competing class actions. The class action commenced in the last week by the CFMMEU is in direct competition to a proceeding commenced by a small plaintiff firm late last year. The courts have already confirmed that it is not "first in, best dressed", with priority likely to be given to actions without a litigation funder which improve potential returns for class members. The Courts have developed a multi-factorial approach to managing competing claims – see our Class Action Update here and here.
Where to from here?
We expect employers facing class actions to put up challenges and to test these uncertain areas. Whether this deters less traditional funders and plaintiff law firms remains to be seen.
What is clear though is that employment-related class actions are, like other class actions, time consuming and complex. They present a material challenge to employers, particularly where supply chains, and outsourcing of labour are prevalent.
We recommend employers take steps now to prepare, including reviewing their current industrial arrangements to ensure compliance with industrial instruments and correct classification of employees.
Making the case: Insights from Geoff Giudice
Class actions are intended to provide an accessible remedy for claimants who are impecunious or otherwise unequipped to litigate as individuals. This is a desirable social goal. Unfortunately, however, this type of action can raise a number of additional difficulties for the defendant and it can be extraordinarily hard to estimate the costs likely to be incurred or how long the case will take. Even if the substantive issues of fact and law are clear cut, there are a number of procedural and other preliminary points that can arise. For example in Perera v Getswift Limited [2018] FCAFC 202 the Federal Court was required to adjudicate between three competing claimants, each of which was backed by a litigation funder. A number of other areas of potential cost and delay are referred to in this Alert.
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