31 December 2020
The Federal Court has recently overseen a number of judgments in 'employment related' class actions that have generated significant interest for class action lawyers and litigation funders.
As we saw with the advent of securities class actions and then the Royal Commission related representative claims, these judgments and the 'underpayment' scandals reported nationwide in 2020, suggest large scale, high value employment representative actions will become a common feature of the Australian class action landscape.
The most significant judgements signalling the trend are Workpac v Rossato (permanent employees characterised and paid as casuals); Bywater v Appco Group Australia (sham contracting) and Augusta Ventures Limited v Mt Arthur Coal Pty Ltd (mass employee underpayment).
We walk you through the key take aways from these decisions below.
Classifying permanent employees as casuals: WorkPac Pty Ltd v Rossato
In the landmark unanimous decision of WorkPac Pty Ltd v Rossato  FCAFC 84 (Rossato), on 20 May 2020 the Full Bench of the Federal Court of Australia found that, a casual employee was in fact a permanent employee and entitled to all the benefits that came with that classification (i.e. paid leave, sick leave etc).
Key and novel to the judgment, marking out new territory in employment law, as a permanent employee, Mr Rossato was entitled to paid leave entitlements but also retained the casual loading payments that formed part of his hourly pay. We discussed the decision in our earlier publication on 29 May 2020 which you can find here.
The decision is discussed in more depth at our article here, although in brief:
Was Mr Rossato a casual or permanent employee?
The hallmarks of casual employment are where the employee has "no firm advance commitment to continuing and indefinite work". Given that Mr Rossato was employed for an indefinite period of time under six consecutive contracts and his employment was stable, continuing, regular and predictable, he was found to have a "firm advance commitment" and therefore, was a permanent employee.
Was the casual loading mistakenly paid? (Restitution Claim)
The Court found that, because the mistake was WorkPac's characterisation of Mr Rossato's employment rather than his pay, Mr Rossato was entitled to retain his casual loading. WorkPac had independently assessed and determined the amount it should pay Mr Rossato, above the award, to retain him. As a result, even if the mistake was 'pay' related, it could not be identified and separated for restitution purposes.
Can the casual loading set off Mr Rossato's leave entitlements? (Set off Claim)
For a set-off claim, WorkPac would need to establish that there is a "sufficiently close correlation between the agreed purpose of the contractual payment and the nature of the award obligation". The Court was not satisfied that there was a sufficiently close correlation because:
the nature of casual loading was different to that of leave entitlements;
Mr Rossato was seeking to be paid leave entitlements, not a payment in lieu of them such that the double dipping provisions did not apply; and
casual loading cannot discharge Mr Rossato's entitlements to leave because it would be cashing out by pre-payment in breach of the Fair Work Act 2009.
Implications of the Federal Court Decision
The Rossato judgment is now on appeal to the High Court and industrial relations law reform targeted to this issue is imminent – therefore certainty around the implications of the judgement might be some way off.
That said, the Federal Government estimates there is between $18billion to $39billion in issue on the permanent v casual misclassification – a lot to interest motivated representative action funders in a competitive funding market.
Settlements: What if group members receive "diddly squat"?
In Bywater v Appco Group Australia Pty Ltd  FCA 1537 (Appco), the Federal Court did not allow the settlement of a sham contracting class action because of concerns that it leaves group members with too little. Instead, the parties were allowed further time to obtain evidence in support of the settlement and prevent the appointment of a contradictor.
The claim is made on behalf of employees of Appco, seeking around $65 million in compensation for underpayment of wages and entitlements. The parties reached a proposed settlement of $1.9 million, with 50% of that being sought from the litigation funder. At the settlement approval application on 9 October 2020, his Honour Justice Lee raised concerns in relation to:
the class receiving only $910,000 after costs – an amount he described as "diddly squat";
the fact that Appco only had net assets of $2.1 million which seemed to be a result of steps taken by Appco upon commencement of the class action (a new entity was created, the directors transferred to that company and Appco was placed into voluntary administration); and
an insurance policy that was initially thought to respond, but at no stage was an application for indemnity brought before the Court or proceedings against the insurer commenced.
Having regard to those matters, his Honour was very far from satisfied that the proposed settlement was fair and reasonable and in the interests of the group members
The application was adjourned to 30 November 2020 to allow the parties further time to investigate methods to increase the amounts payable to group members.
Although the judgment has a lot to say on settlement approval issues in representative actions generally, the comments from Justice Lee suggest that reasonableness of the settlement will be of keen interest where employee entitlements are concerned in these types of class actions. A funder's fee of 50% of the settlement will also raise eyebrows, 20% – 25% being the maximum we're seeing in the market at the moment.
Are litigation funders immune to a security for costs order?
In an appeal to the Full Federal Court in Augusta Ventures Limited v Mt Arthur Coal Pty Ltd  FCAFC 194 (Augusta Ventures), a litigation funder successfully avoided orders requiring it to provide security for costs in two related class action proceedings (see Turner v Tesa Mining).
The classes in both actions consist of employees of a mining company seeking compensation for the alleged underpayment of wages and entitlements. It appears that this is claim commenced off the back of the Rossato judgment.
In considering whether or not the litigation funder should be ordered to provide security for the costs of the class actions, the Court had regard to a unique feature of employee class actions – section 570 of the Fair Work Act 2009 (Cth) (FWA). Section 570 of the FWA displaces the usual rule that costs follow the event and provides that parties are not required (in the absence of unsatisfactory conduct) to pay the costs of another party.
As the claim would have been stayed if security was ordered and that was deemed unfair to class members in the circumstances; the Court held that an order for security for costs against the litigation funder was not appropriate.
With the decisions of Rossato, not only has there been a significant interest in employee class actions but at least for claims under the Fair Work Act and where security would disadvantage these types of group members, the major hurdle for funders on these types of claims (and indeed in class actions generally), security for costs, can be removed.
Where security for costs can reach into multiples of millions, the reduction of capital requirements for funders to run these types of class actions, has an obvious effect.
As the Rossato, Bywater and Augusta Ventures judgments indicate, there are a number of factors which will make employee related representative actions attractive to litigation funders and class action law firms, including high value claims with large numbers of potential class members, favourable security for costs conditions and the likelihood the courts will approach settlement reasonableness with a keen eye to whether the amount is in the interests of group members.
We expect employment related class action risk is one insurers operating in the Australian market will need to pay close attention to and it is now an opportune time to review policy wordings and any combined risk offerings to ensure they are indemnifying the risks and what Underwriter's intended.
Given the importance now being placed on employment conditions and the developing trend from regulators of strict compliance with industrial relations legislation, we expect this to a target for Commonwealth government reform, particularly as the economy emerges from Covid, we may see the balance tipping back in favour of employers and, by implication, their insurers.
For now, the favourable conditions existing for funders generally, coupled with these recent decisions in employment class action claims, makes this area a fertile ground for funders and developing risk for insurers operating in this space.
For further information, please contact:
John Moran, Partner, Clyde & Co