Generally, under s.611 of the Fair Work Act 2009 (“FW Act”), parties to proceedings within the jurisdiction of the Fair Work Commission (“FWC”) are liable to bear their own costs in relation to the matter.

This rule typically applies even in the case of a party that is unsuccessful in an Application, such as a dismissed employee who unsuccessfully brings an Unfair Dismissal Application.

However, as with all things in the law, there are exceptions. Under s.611 of the FW Act, the FWC may order a person to bear some, or all of the costs in circumstances where:

  1. the FWC is satisfied that the person made the application, or responded to the application vexatiously or without reasonable cause; or
  2. where the FWC is satisfied that it should have been reasonably apparent to the person that the application, or the person’s response to the application, had no prospects of success.

It is important to remember that the powers of the FWC and the rights of the parties appearing before it are largely governed by a single statute namely, the FW Act. This is important because statutory costs provisions such as s.400A, prescribe the parameters that must be considered on a costs application.  The provision governing costs orders against parties is set out in s.400A of the FW Act, which relevantly states:

(1) The FWC may make an order for costs against a party to a matter arising under this Part (the first party) for costs incurred by the other party to the matter if the FWC is satisfied that the first party caused those costs to be incurred because of an unreasonable act or omission of the first party in connection with the continuation of the matter.

(2) The FWC may make an order under subsection (1) if the other party to the matter has applied for it in accordance with section 402.

(3) This section does not limit the FWC’s power to order costs under section 611.

[Emphasis added]

It is important to note that while each case will turn on its own facts, there are cases where it is reasonable for a party to reject an offer of settlement and to substantially obtain a less than favourable outcome than the offer that was rejected. The FWC operates a discretionary jurisdiction and has considerable latitude on these matters.

In the case of Ferry v GHS Regional Pty Ltd [2016] FWC 3120 (24 May 2016), Mr Ferry (the “employee”) filed an Unfair Dismissal Application against GHS Regional (the former “employer”) after he was dismissed by that employer for entering the workplace outside business hours and removing property without authorisation.

Following a failed conciliation, the employee was made a reasonable offer of settlement by his employer. Subsequently, the employee rejected the offer and was ordered by the FWC to pay the employer’s legal costs.

The employee was a self-represented litigant with no legal experience, but despite this fact, the FWC determined that the employee rejected the offer to settle at a time where he should have been capable of identifying the relevant weaknesses in his case, having had the benefit of reviewing the employer’s evidence. The employer had also rightfully put the employee on notice that it intended to rely on the letter of offer to seek to recover its costs in the event the offer was rejected and the employee’s claim unsuccessful.

The issue in this matter was that the employee failed to reasonably assess the prospects of his case (having had the benefit of the employer’s evidence) and on that basis, the employee allowed the proceedings to continue in wilful disregard of known facts.

The employee’s refusal of the employer’s offer was described by the FWC as an “imprudent refusal of an offer to compromise”, which led the FWC to exercise its discretion to award indemnity costs in reliance on s.400A of the FW Act.

The FWC held that despite this decision, the discretion afforded to the FWC to make costs orders against parties (under s.400A), should not deter parties from hard bargaining, nor compel them to accept the best, or near best offer from the other party.

Some people might be aware of the device of a “Calderbank Offer”. This is a device that applies in the civil jurisdiction of the Courts, and is not to be confused with other offers of settlement made in the FWC’s jurisdiction.  Strictly speaking, the FWC is bound to consider the relevant statutory provisions on costs applications before it rather than common law principles.  However, many lawyers, including us, use Calderbank Letters to send a message to the other side that the client is prepared to consider costs issues if the opportunity so presents.

Message for Employers

The take home message from this decision is to ensure early consideration is given to making a reasonable offer of settlement in unfair dismissal proceedings (preferably in writing and perhaps by way of a “Calderbank Letter”), with a view to achieve an early resolution, so as to give the Respondent employer a position with respect to legal costs if a favourable outcome is later achieved in the hearing.

We also recommend that employers seek legal advice before rejecting a settlement offer as, there can be costs implications that can flow from any subsequent FWC Decision in the case.