Many employers understand that if an employee is successful in a claim, compensation may be payable. However, not all employers will be aware that the Fair Work regime extends well beyond compensation. Depending on the circumstances, employers may also be liable for paying damages, penalties and an employee’s legal costs (even though the Fair Work regime is commonly referred to as a “no costs” jurisdiction).

An employer was recently ordered to pay approximately $160,000 after an employee was miscategorised as an independent contractor. As a result of that miscategorisation, the employer had not paid the individual his untaken annual leave, public holiday leave, personal/carer’s leave or provided reasonable notice. The decision of the Federal Court of Australia (the “Court”) provides a helpful break down for employers in relation to the financial amounts that can be imposed under the Fair Work Act 2009 (Cth) (“FW Act”).

Damages and statutory compensation

Damages and compensation are designed to put an individual in the position they would have been in but for the breaches that occurred. In this case, over a 14-year period, the individual had not been paid for 44 public holidays and had not received accrued annual leave or personal/carer’s leave entitlements. The employee was also entitled to payment of reasonable notice on the termination of his employment.

The Court awarded total damages and compensation totalling over $130,000 for these contraventions.

Penalties

In addition to compensation and damages, the Court imposed penalties on the employer. Under the Fair Work regime, penalties may be imposed by a court if there has been a contravention of certain sections of the FW Act.

In determining the level of penalty to impose a court will consider a range of factors. In this case, the Court considered :

• the deliberate nature of the breach, but also the genuine mistaken belief that the individual was an independent contractor;
• the genuine contrition of the employer following the initial judgment;
• that this was the first time the employer had contravened the FW Act; and
• the size and resources of the employer.

The Court imposed penalties totalling $29,925, just over 15% of the maximum penalty.

The primary motivation behind imposing penalties is deterrence of the employer involved as well as a general deterrence to other employers.

Costs

The employee also sought that the employer pay his legal costs. While such orders are common in general civil litigation, proceedings under the FW Act are ordinarily conducted on a “no costs” basis meaning each party bears its own legal costs irrespective of the outcome of the claim.

However, there are some exceptions to this. Under the FW Act, costs can be pursued where a party’s unreasonable act or omission caused the other party to incur the legal costs.

In this case, the employee made an offer to settle of $120,000 ($10,000 less than what the Court eventually awarded). While a rejection of a reasonable settlement offer can enliven costs in an otherwise no costs jurisdiction, the Court found it was not unreasonable for the employer “to have chanced its arm” given the strength of its defence. Accordingly, no costs order was made and the parties had to bear their own costs.

You can read more about when costs may be awarded here.

Takeaways for employers

It is important for employers to understand the different financial consequences that may arise under the Fair Work regime. Compensation is only one component. Damages, penalties and, in some circumstances, costs may also be imposed. When considering strategy and settlement options, employers need to be aware of this full spectrum of financial exposure.