A recently passed law means employers now have higher liability risk for sexual harassment litigation costs. Here’s what HR needs to know.

Last week the Federal Government passed another employment law change, which significantly increases the risk that employers will be liable for costs orders in sexual harassment litigation.

The Australian Human Rights Commission Amendment (Costs Protection) Bill now outlines that respondents – often employers – will be liable for the legal costs of a claimant in a sexual harassment claim under the Sex Discrimination Act 1984 (Cth) – even if only one element, not all, of their claim is successful. 

The Bill is intended to remove barriers for individuals accessing legal protections and remedies in relation to sexual harassment. It’s based on the only remaining recommendation from the Sex Discrimination Commissioner’s 2020 Respect @ Work report, but goes much further than even that Report recommended.          

The report recommended a costs protection model like the one in the Fair Work Act 2009 (Cth), where a party would only have to pay the other party’s legal costs if the court finds they started the case without a valid reason, acted vexatiously, or behaved unreasonably, leading to extra costs for the other side.

The Bill goes much further. It not only prevents a respondent from recovering legal costs against a claimant, except in severely limited circumstances, but it also expands the circumstances in which a claimant, with even a minor success, can recover their legal costs from the respondent.

The implications for employers is significant, as will be the future strategy and conduct of defences in these matters.

Types of claims for which employers could be liable for legal costs

Since 2022, there have been various overlapping claims that an individual can make about alleged workplace sexual harassment – adding harassment on the ground of sex, discrimination on the ground of sex and hostile working environment on the ground of sex to the long-standing list of potential sexual harassment claims in the workplace.

This means claimants can take a multifaceted approach, pleading multiple breaches of the law in respect of a single incident.

Under the new costs regime, claimants are even more incentivised to take a multifaceted approach, because if they are successful in one claim among many, they may be able to recover their entire legal costs.

“Prevention is better than the cure. The critical thing employers can do to avoid claims is proactively address sexual harassment in the workplace and comply with the positive duty.” – Aaron Goonrey, Partner and Emma Lutwyche, Special Counsel, Pinsent Masons 

For employers defending multiple allegations and breaches, not only will they be much more likely to be responsible for paying all the claimant’s legal costs, their legal costs will also increase to defend ambit claims, with little prospect of recovering them.  

The only time employers will not be liable for a claimant’s legal costs will be if the court is satisfied that the claimant engaged in an unreasonable act or omission which caused the costs to be incurred. For example, if the claimant includes allegations in their claim which they later discontinue, but the respondent has already incurred costs responding to it.   

Even then, the relief will only be from liability for costs associated with that unreasonable act or omission, not all costs.

When can an employer recover its legal costs?

A claimant can only be ordered to pay the legal costs of the respondent in three limited circumstances. They are:

• If the respondent is entirely successful, does not have a significant power advantage over the claimant and does not have significantly more financial resources than the claimant.
• If the claimant instituted the proceedings vexatiously or without reasonable cause.
• If the claimant’s unreasonable act or omission caused the costs to be incurred.

The Bill has been designed to limit an employer’s access to exceptions and recover legal costs from a claimant. 

Before the court can order that an entirely unsuccessful claimant pay the legal costs it has caused the employer to incur, the court must take into account power and financial resources differentials.  

It is hard to foresee circumstances in which an employer and a former employee will not have a significant power and financial differential. This will make it incredibly difficult for employers to recover legal costs against an individual, even if the employer is entirely successful in defending the claim.

What can employers do?

Prevention is better than the cure. The critical thing employers can do to avoid claims is proactively address sexual harassment in the workplace and comply with the positive duty. 

Taking all reasonable and proportionate measures to eliminate the risk of sexual harassment will ensure employers have a sound defence to claims that they are vicariously or accessorily liable for sexual harassment that occurs at their workplace. 

Sign up for AHRI’s short course ‘eliminating sexual harassment in your workplace.’

We recommend the following steps be taken as part of a tailored approach, which will be unique for each employer:    

• Identifying and consistently reviewing risks and implementing measures to eliminate or minimise those risks.
• Conducting training at all levels of employees and leaders throughout the organisation about lawful and expected standards of behaviour.
• Ensuring robust policies, procedures and complaint mechanisms are in place.
• Handling complaints appropriately, including conducting investigations where appropriate (and under legal professional privilege if possible).

Read HRM’s guide on handling complaints and workplace investigations.

If complaints of sexual harassment are made, we recommend seeking legal advice from experts early. In our experience, adopting a considered and reasonable strategy from the early stages of a complaint being raised is the most effective approach for avoiding adverse litigation outcomes.   

In terms of litigation, employers will need to carefully consider their position regarding:

1. Their defence to claims involving sexual harassment. Thorough due diligence should be conducted on all aspects of a complainant’s allegations, particularly when sexual harassment litigation is being defended; and
2. Possible negative costs orders and whether they may be in a position to obtain costs, if successful, given the limited circumstances to obtain costs for employers in such matters.

All information, content and materials available on this site are for general informational purposes only. The contents of this article do not constitute legal advice and should not be relied upon as such.

Aaron Goonrey is a Partner and leads the Australian and APAC Employment & Rewards practice at Pinsent Masons. Emma Lutwyche is a Special Counsel at Pinsent Masons.