The Federal Court has overturned a Fair Work Australia (FWA) Full Bench’s decision that it was not frivolous or vexatious for an employee to pursue an unfair dismissal claim after agreeing to settle.  

Implications for employers

This decision indicates that, where an employee pursues a claim after agreeing to settle the matter, an employer may apply to FWA to dismiss the claim on the basis that it is frivolous or vexatious.  This decision suggests that a claim arising in such circumstances may be found to be vexatious even where a formal settlement deed has not been executed between the parties. 

Background

By way of summary, the facts of this case are as follows.

  • The employee, Brent Gorman, brought an unfair dismissal application against his employer, Australian Postal Corporation (Australia Post) in July 2009. 
  • The matter was heard at FWA on 6 April 2010.  The parties agreed to settle the matter during a short adjournment on that day.
  • In April 2010, a draft settlement deed was sent to Mr Gorman.  However, the deed was not executed by the parties and a notice of discontinuance was not filed. 
  • FWA later received correspondence from Mr Gorman’s wife, indicating that Mr Gorman had made a hasty decision on 6 April 2010, and that he had not agreed to the terms in the draft settlement deed.
  • Australia Post made an application to FWA for an order dismissing Mr Gorman’s unfair dismissal application on the basis that the parties had settled the matter pursuant to a binding agreement. 
  • At first instance, FWA dismissed Mr Gorman’s unfair dismissal claim pursuant to section 587(1) of the Fair Work Act 2009 (FW Act).  Section 587(1) provides that FWA may dismiss an application if it is “frivolous or vexatious” or has “no reasonable prospects of success”.  FWA held the agreement to settle on 6 April 2010 made the pursuit of the application improper and vexatious. 
  • Mr Gorman appealed to a Full Bench of FWA.  The Full Bench granted permission to appeal and overturned the first instance decision.  The Full Bench considered that the settlement agreement was not relevant to determining whether the unfair dismissal application lacked substance.  Further, it found that a binding agreement had not been reached as the deed had not been executed.  Accordingly, the parties had merely made “an agreement to agree”.
  • Australia Post appealed to the Federal Court.

Decision

The Federal Court held that the Full Bench had made jurisdictional errors because of the following.

  • It had granted Mr Gorman permission to appeal without considering, as required under the FW Act, whether the first instance decision that there was a binding settlement agreement involved a significant error of fact. 
  • It had failed to consider whether it was in the public interest to grant permission to appeal.
  • It had misconstrued section 587(1) of the FW Act.  There is nothing in the FW Act which suggests that a binding settlement agreement should not be recognised.  The broad wording of section 587, the manner in which FWA is to perform its functions and the matters which it must consider, are consistent with such a recognition.
  • A valid settlement agreement extinguishes the existing claim and continued pursuit of an application based on that claim is “clearly capable of being considered frivolous or vexations or without reasonable prospects of success”. 
  • A settlement agreement is “not a discretionary factor relevant to the subsequent litigation of the original claim; it is an answer to the claim”.  

The Court overturned the Full Bench’s decision and remitted the matter to FWA to determine whether Mr Gorman should be granted permission to appeal, and, if appropriate to hear the appeal.

Australian Postal Corporation v Gorman [2011] FCA 975