Australia: Employment class actions and litigation funding - feast or famine?

Last Updated: 10 June 2019
Article by Michael Russell

In brief - Employers are the subject of a wave of class action litigation at a time when the state of play is less certain than ever before. (Some) litigation funders are excited, but perhaps all is not what it seems

I THE STAGE IS SET

At one level a perfect storm confronts Australian employers. Traditional employment structures are under significant threat, whilst at the same time litigation funders are attracting unprecedented levels of capital for Australian litigation. Entrepreneurial litigation funders and plaintiff firms have jumped in whilst larger funders have remained on the sidelines. The restraint being exercised is potentially telling.

II THE "PERFECT STORM" - PART 1

In Workpac Pty Ltd v Skene [2018] FCAFC 131, the Full Federal Court determined that Mr Skene, who was hired as a casual employee, was entitled to entitlements of a full-time employee, such as sick pay and annual leave. The Court ruled that Mr Skene was not a casual employee as a matter of law, irrespective of how Mr Skene was originally engaged or the label that was used to describe his employment.

The media portrayed the decision as a "landmark" with potentially "dynamite" consequences for Australian employers. This is because many will say that the decision is at odds with a large body of previous case law and traditional understandings of employment law in Australia.

II THE "PERFECT STORM" - PART 2

Over the past two decades litigation funding in Australia has seen incredible growth. That growth has largely been spurred by the high success and enormous returns in investor class actions such as shareholder claims, where settlements can see eight to nine figure returns to funders.

In recent years many new litigation funders have arrived from overseas with large amounts of capital to invest in new cases. The amount of competition, for relatively limited funding opportunities, has seen increases in both new class actions being commenced (including competing class actions) and new areas of law being considered as funding opportunities.

In pursuit of new opportunities, a series of funded class actions were commenced in 2018. Workpac v Skene has only served to increase speculation that class actions in the employment space will become the norm.

III SIDELINING WHILST DOUBTS EXIST

Most of the employment class actions to date have been commenced by less traditional funders and smaller plaintiff firms. The older Australian funders and larger firms have seemingly been content to watch from the sidelines pending the viability and economics of employment class actions becoming better understood.

The doubts that exist over employment class actions are several and significant:

  1. The authority in Workpac v Skene is under threat from new legal challenges and government intervention. Already we have seen the Commonwealth Government signal its intentions by formally supporting legal challenges and introducing regulation to water down the impacts of the decision. Workpac v Skene is likely to get a further shake-up post the Federal elections in 2019.
  2. Employment class actions are being challenged at a structural level with de-classing applications and appeals being pursued to explore whether class actions are the appropriate vehicle for employment claims, where the nature of the employment relationship between employer and employee is often seen as requiring a high degree of factual inquiry of each and every specific relationship. Employment class actions don't carry the same beneficial characteristics of shareholder class actions, such as notions of indirect reliance that have the effect of automatically raising the levels of commonality between group members to class action suitability.
  3. The economics of employment class actions are nowhere near fully understood. In shareholder and investor class actions the potential size of a damages case can be readily quantified, often from public documents and disclosures. Employment class actions lack transparency, meaning that each class action runs considerable risk that any returns will not meet the required returns of investment. Funders also have to worry about how the costs of employment class actions will be dealt with by the Courts, including on applications for security for costs. Traditional no-cost jurisdictions are likely to be challenged by class action defendants and government intervention.
  4. The dynamics for resolution of employment class actions are considerably different from shareholder and investor class actions. Critically, unlike shareholder and investor claims, where the claims are often made against well capitalised and insured publicly listed entities for commonly insurable claims, the nature and insurability of employment claims means that solvency of class action defendants is a risk for litigation funders. Additionally, funders can't simply assume that insurance exists to fund resolutions, a key feature and reason for settlements in shareholder and investor claims.

The above issues are likely to explain the level of caution being exercised by traditional funders and large plaintiff firms.

IV WHERE TO FROM HERE

Whilst litigation funders have a piqued interest in employment class actions, there remains considerable risks and unknowns to warrant a further avalanche of class actions. This is especially the case for traditional litigation funders looking to maintain a consistent risk profile.

Most importantly, employers should not panic, but rather, proceed with caution and take advice on how to protect against class action risk whilst considerable steps are being taken, both at a court and government level, to manage and reduce the threats created by Workpac v Skene for current and future class action defendants.

Michael Russell
Commercial litigation and dispute resolution
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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