Discrimination litigation to become more expensive

The rules concerning how legal costs are awarded in discrimination proceedings have changed.

Any proceeding commenced after 2 October 2024 in either the Federal Court of Australia or the Federal Circuit and Family Court of Australia under Commonwealth discrimination legislation will be subject to the new cost rules.

Employers, who are often respondents to discrimination claims, will now have very poor prospects of being able to recover their legal costs, even if they successfully defend claims brought against them.

Previously, the "loser pays" approach applied in discrimination proceedings. This meant that the unsuccessful litigant typically paid the legal costs of the successful litigant.

Here’s what employers need to know about the changes:

• If an employee is successful in the proceedings on at least one ground, the employer will be liable for costs (unless the employee’s unreasonable conduct caused the employee to incur costs).
• If an employer is wholly successful in defending the proceedings (that is, the employee does not succeed on any aspect) the parties will be required to bear their own costs unless one of the following circumstances applies (in which case the court can, in its discretion, order the employee to pay the employer’s costs):
  • the employer does not have a significant power advantage over the employee and does not have significant financial or other resources relative to the employee;
  • the employee acted vexatiously or without reasonable cause in commencing the proceedings; or
  • the employee’s unreasonable conduct caused the employer to incur costs.

Employers need to be aware that the new rules may lead to an increase in discrimination litigation, given employees will likely no longer be deterred from pursuing claims in fear of an adverse costs order if they are unsuccessful.

Employers will need to carefully consider how they approach settlement discussions with applicants, noting that in circumstances where the applicant is unsuccessful, the ‘default’ outcome will be that the parties bear their own legal costs.

These changes also emphasise the importance of businesses taking active measures to prevent unlawful discrimination and provide both physically and psychologically safe and respectful workplaces.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

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