The recent decision of Justice Lee in TWU v Qantas marks a significant development in the enforcement of employment law in Australia.
In a case arising from Qantas's 2020 outsourcing of ground-handling services, the Court imposed a record $90 million penalty for adverse-action breaches. Notably, $50 million of this penalty - an unprecedented sum - was ordered to be paid directly to the Transport Workers' Union (TWU), the successful applicant and so-called "common informer."
This outcome, in part, reflected the Court's recognition of the union's role in taking on the risk of prosecuting the matter. The size of the penalty payable to the TWU marks a turning point in employment litigation. There is now enormous financial incentive for unions to pursue large-scale actions under the Fair Work Act 2009 (Cth) (Fair Work Act) and other workplace laws. The class action regime is also generally available for such actions. Increasingly complex workplace law settings provide fertile ground for proceedings of this nature.
For boards, this ruling comes at a time of increasingly complexity arising from:
- rising class-action risk in the employment space (see for example the current underpayment class actions against major retailers and other actions currently regularly being advertised by class action law firms);
- higher statutory penalties;
- liability for company officers and individuals found to be 'associated with' contraventions;
- a highly complex and inflexible modern award system; and
- expanding categories of representative proceedings for underpayments, discrimination, and a range of compliance matters.
In this context, boards should carefully consider how their organisations identify and manage compliance with these increasingly complex obligations. Unforeseen liabilities related to employment practices are now becoming a material risk for large employers.
Background to the penalty
The penalty follows Lee J's previous decision on compensation which resulted in Qantas being ordered to establish a $130M compensation fund for the terminated employees. These numbers are unprecedented under Australian employment law. They follow one contravention being recorded for each redundant employees – giving 1820 contraventions. The particular contraventions were unable to be regarded as arising from a single course of action, and hence constituting just one contravention. There are various types of contraventions that need to be regarded separately, hence the risk of very substantial penalties.
The contraventions related to Lee J's decision (which survived a High Court appeal) that Qantas' 2020 decision to outsource its ground handling operations and the resulting redundancies contravened the general protections provisions of the Fair Work Act.
This was because his Honor found that Qantas did not establish on the balance of probabilities that it did not decide to outsource its ground operations partly to prevent the exercise by the employees of their workplace right to organize and engage in protected industrial action and participate in bargaining for a new enterprise agreement in the year following the decision, 2021.
Hi Honour made this finding notwithstanding his acceptance of sound commercial reasons for the decision. These reasons were compelling in that decision achieved cost savings of approximately $100m per annum and was made by Qantas when it was in a precarious financial position during the COVID-19 pandemic. The process of corporate decision making where the impact of decisions affects employee must be approached carefully with a keen eye to this risk.
The size of the penalty is significant because it represents a material increase in the potential financial exposure associated with employment related claims. Lee J applied well established principles but he looked at a very wide variety of circumstances which pertained at the time the decision was made.
There are some salient lessons in here for boards approaching major decisions impacting employees and managing the risk of major regulatory litigation.
Payment to the TWU
Of particular significance to the employment/industrial relations landscape in Australia is that $50 million of the penalty was ordered to be paid to the TWU, rather than the Commonwealth Consolidated Revenue Fund, and a further $40 million has been set aside in trust while the Court considers whether an additional share should flow to the union.
On our brief calculations, this is a sum which exceeds to total sum of the union dues which the TWU might have expected to have received over a period of no less than 25 years. It is clear that access to an opportunity to secure such a windfall is very likely to encourage all unions to look carefully for these opportunities.
The Court's reasoning was clear: the Fair Work Ombudsman did not prosecute the matter, and the TWU's litigation was seen as filling an "enforcement vacuum." By awarding a substantial portion of the penalty to the applicant, the Court sought to encourage "common informers" to pursue alleged contraventions of the Act where regulators do not. The TWU asserted that it incurred approximately $6.9 million in legal and campaign costs and deployed significant organiser resources over four years. While the penalty far exceeds these costs, the Court accepted that a "windfall" was permissible in this matter.
The concept of a "common informer" has its roots in early 20th-century law but has rarely been influential in modern employment litigation. Justice Lee's decision is the first to allocate a penalty of this magnitude to a union. With rising statutory maximum penalties and the ability in some cases to aggregate thousands of breaches, the potential financial upside for unions has grown exponentially.
This potential revenue stream fundamentally changes the risk-return equation. Litigation can now be more than self-funding, but rather, profit-making. As a result, settlements are likely to include payments to unions in lieu of penalties, adding further cost pressure for employers. Unions may increasingly target high-profile corporates where significant penalties and publicity are achievable.
Adding to this dynamic is the growth of class-action proceedings in the employment law space. Plaintiff firms are increasingly aligning with unions or litigation funders to launch representative proceedings for wage underpayments, misclassification of independent contractors, casuals and gig workers and "systemic" breaches of modern awards or enterprise agreements. The modern award system, now comprising over 120 instruments with thousands of minimum entitlements, loadings, and allowances, remains highly technical and inflexible. There have been many cases where even experienced judges do not agree on the proper application of modern awards. Inadvertent errors can quickly accumulate across large workforces, creating multiyear exposure and fertile ground for class actions.
The potential financial exposure associated with litigation in this area is demonstrated by the recent Federal Court decision in an employment underpayment proceedings involving Woolworths and Coles. His Honour Justice Perram found that the annualized salary arrangements utilized by the employers did not operate as they intended to permit award payment obligations to be satisfied across the year.
As a result, and despite acceptance that those employees received payments which were overall above award rates, Woolworths and Coles nonetheless had to make award related payments to those employees. It has been reported that Woolworths has flagged potential additional costs topping $500 million after tax (after having already repaid $330 million to staff), while Coles has put its preliminary estimate at up to $250 million (on top of the $31 million it has already paid out and a further $19 million it had already provisioned for).
Implications for boards
These developments set new precedents which establish a high bar for compliance with the Fair Work Act. They provide clear encouragement for unions to seek to monetise litigation, and are likely to further encourage the existing trend of class actions in this space. Boards should expect areas of scrutiny for potential claims may include:
- restructures, offshoring, labour-hire, outsourcing and automation;
- compliance with obligations in the Fair Work Act and industrial instruments relating to both financial and non-financial obligations (for example, record-keeping and the use of annualised salaries); and
- allegations of systemic harassment, sexism, bullying or other workplace misconduct.
Non-executive directors, though not involved in day-to-day operations, are expected to exercise oversight of legal compliance. The emerging trend of unions acting as "private regulators," with the prospect of multi-million-dollar penalty awards, raises the stakes for boards across all industries. Employment law compliance needs to be on the board agenda as a key area of risk. Early identification of employment-law risks, robust governance processes, and constructive engagement with workforce representatives will be critical to reducing exposure in this area.
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.
