Paying the Price: Employee required to pay employer’s legal costs after losing unfair dismissal case

The Fair Work Commission has ordered a former cabin crew supervisor to pay his ex-employer’s legal costs after rejecting settlement offers and then losing his unfair dismissal claim. The case provides a useful illustration of an employer successfully recouping costs under Fair Work Act provisions where an employee has rejected a reasonable offer to settle.

The Serious Misconduct

The employee had his employment terminated for serious misconduct after a complaint of sexual harassment was made against him. The complaint was investigated and uncovered a history of repeated unwelcome conduct which humiliated or offended colleagues, and to which there were multiple witnesses.

Further instances of sexual harassment emerged after the employee was dismissed.

Costs Awarded

The employer sought costs under sections 611 and 400A of the Fair Work Act 2009 (Cth). Four distinct time periods were sought to be relied upon by the employer for when costs should be recovered from, being:

  1. the date the unfair dismissal application was commenced;
  2. the conciliation date, when four weeks’ pay was offered to the employee;
  3. the date the employer’s evidence was filed; or
  4. the date that an offer, which included a $20,000 payment, along with his termination being changed to a resignation on his HR file and a letter of service being provided, was rejected by the employee.It was found that the employee had not brought the application vexatiously. However, he had in failing to settle the matter, and continuing the application despite the convincing evidence of the employer, engaged in an unreasonable act or omission. This was found to have caused the employer to incur significant additional costs. Costs were awarded to the employer from the date the $20,000 offer was refused by the former employee.

The employer sought its full legal costs, but these were not awarded. Instead, party/party costs, which represent a portion of the total legal costs from the assigned date, were ordered. The fact that it was not known if the former employee had relied upon legal advice in deciding to pursue the application to hearing was given as a reason for not granting indemnity costs.

Guidance for Employers

This case suggests that the failure to accept a reasonable offer might be taken into account by the Commission in deciding whether costs should be awarded. It is therefore prudent to clearly document all settlement offers made, including stating that the offer will be relied upon for making a costs application if it is rejected. This is supported by another earlier case, Ferry v GHS Regional Pty Ltd [2016] FWC 3120. A former employee, who amongst other things stole from his employer, lost his unfair dismissal case and was ordered to pay indemnity costs for the unreasonable act or omission of refusing a written offer of $3000.