A recent decision of the Federal Circuit Court of Australia has highlighted the potential benefits for employers who make reasonable offers of compromise during the process of resolving disputes.
Legal costs under the Fair Work Act
Generally speaking, at the end of a legal dispute, courts will make orders that an unsuccessful party must pay the legal costs of the successful party. However, when courts or the Fair Work Commission are dealing with matters arising under the Fair Work Act 2009 (Cth) (the Act), they are only empowered to make those orders in limited circumstances. The Act requires a court to be satisfied that aggravating circumstances exist, for example, that:
- the party instituted the proceedings vexatiously or without reasonable cause; or
- the party’s unreasonable act or omission caused the other party to incur the costs..
Costs orders are, therefore, relatively rare in the context of employment litigation and this can cause considerable frustration for litigants who must spend money to defeat or settle claims that, although lacking merit, do not fall foul of the statutory criteria set out above.
Adamczak v Alsco Pty Ltd
The Applicant, Mr Adamczak, brought proceedings against his former employer, Alsco Pty Ltd (Alsco), and four of its managers, after his employment was terminated. Mr Adamczak alleged he had been subject to workplace bullying and adverse action while employed by the respondent.
As the dispute progressed toward a hearing, Alsco made settlement offers of $60,000, $70,000 and $80,000 respectively, despite maintaining that Mr Adamczak’s claims had no prospect of success before a court. Mr Adamczak turned down each of these proposals and made counter-offers of $179,500 and $185,000, alongside a veiled threat to publicly disclose information relating to Alsco’s business operations.
The Court wholly dismissed Mr Adamczak’s claims and, subsequently, Alsco sought a costs order from the Court.
The Court found that Mr Adamczak had acted unreasonably in failing to give proper consideration to Alsco’s offers of settlement. Further, Judge Brown remarked that Mr Adamczak’s threat represented “at best… an inept attempt to tickle up the offer or, at worst, an attempt at extortion”.
The Court ordered Mr Adamczak to pay Alsco’s legal fees, which amounted to $35,000.
The decision illustrates the importance of an employer’s strategy and behavior during the negotiation process and also highlights the potential commercial benefits for employers who make reasonable settlement offers.
- Offers of settlement should be made in the proper form – known as a Calderbank offer – to maximise the chances and quantum of cost recovery for a successful party.
- Where appropriate, an offer made on a purely commercial basis can assist employers to resolve the matter expeditiously, reduce the associated costs and demonstrate a pattern of reasonable behavior, even when the offer is not accepted.