Class action settlements 101 for employers

Posted by May 03, 2019 | Articles | No Comments

By Mark Cox, Director and Miette Xamon, Law Clerk

Class action settlements: what are they and why should you care?

Class action lawsuit. It’s a term you’ve heard enough on the news and one that you never want to be at the receiving end of as an employer. An employee class action lawsuit, sometimes called a class action settlement, is a legal proceeding allowing the claims of many individuals against the same defendant or defendants (generally an employer), arising out of the same, similar or related circumstances, to be conducted by a single representative or representatives.

Class actions aren’t new—they date back to 13th Century England, when crowds of villagers would initiate ‘group litigation’ against their landlords—but thankfully class actions are still relatively rare in Australia. On average, there are only 21.4 class actions every 12 months in Australia.[1] In fact, the number of class actions per year has remained fairly consistent, but with the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there is expected to be a spike in class action lawsuit applications in that sector. If you are an employer in the banking sector (or any other!) it pays to have an understanding of the class action settlement system and what it could mean for your business.

Minimum requirements for class action lawsuits in Australia

Australia’s current federal class action regime is contained in Part IVA of the Federal Court of Australia Act 1976 (Cth). There are certain criteria that must be met to commence a class action:

  • there must be 7 or more persons with claims against the same person
  • the claims of all 7 or more persons must arise out of the same, similar or related circumstances and
  • the claims of all persons must give rise to a substantial common issue of law or fact.

Proceeding may then be commenced by one or more of those persons, representing some or all of the applicants. Individual issues may be brought up during a class action lawsuit proceeding as well; however, the individual has to cover their own costs for that part of the proceedings.

Fulfil your FWA responsibilities to avoid the risk of a class action lawsuit

Although the Australian federal class action regime is regarded as one of the best in the world, and class actions lawsuits aren’t very common (of substantive claims advanced in class actions filed from 1 June 1992 to 31 May 2017, 10.9% have been claims by employees[2]) they still occur in Australia: In February 2019, the Australian mining labour hire firm WorkPac was hit with a class action lawsuit from their casual employees. The employees claim they are ‘regular casuals’, who had been working consistent hours and had to apply to take unpaid leave instead of paid annual leave.

The class action lawsuit seeks to recover significant backpay, with the potential losses for some workers estimated at up to $62,700. This class action is fallout from the decision in WorkPac Pty Ltd v Skene, which found that Mr Skene, who was employed as a casual, was actually a permanent employee due to the regular and systematic nature of his employment. This single case has led to an $84 million class action lawsuit by multiple employees—not an enviable position for any employer.

It’s clear that by ensuring compliance with the Fair Work Act, you minimise the risks of both individual and class action lawsuits. For advice on responding to a class action lawsuit, or for preventative Fair Work compliance advice, contact MDC Legal today.

[1] V Morabito, ‘An Evidence-Based Approach to Class Action Reform in Australia’. Monash University (11 July 2018). Pg. 8.

[2] V Morabito, ‘An Empirical Study of Australia’s Class Action Regimes’. Monash University, 5th Report (July 2017). Pg. 27.