What employers need to know: New costs protection regime and legal updates for unlawful discrimination and harassment

The Australian Human Rights Commission Amendment (Costs Protection) Bill 2023 passed Federal Parliament last month enlivening the final recommendation of the Respect@Work report, which provides protection to claimants in discrimination and sexual harassment cases from adverse cost orders, save for very limited circumstances.  The equal access cost protection reform is intended to alleviate the barrier to justice that adverse cost risks currently pose in federal unlawful discrimination proceedings, with the broader intent of strengthening Australia’s anti-discrimination framework and helping to pave the way towards eliminating all forms of discrimination.  There are important changes that organisations need to be aware of, including in respect of preventative frameworks from both a Respect@Work positive duty and duty holder perspective, and also more broadly to eliminate all forms of unlawful discrimination from occurring in workplaces.

Recent State-based work, health and safety changes have also reinforced community and regulator expectations, setting new requirements for organisations to clearly document, plan and implement preventative steps to end workplace harassment and discrimination.

Equal access cost protection explained

On 19 September 2024 the Federal Parliament passed the Australian Human Rights Commission Amendment (Costs Protection) Bill 2023 (Cth) (Costs Protection Bill), amending the Australian Human Rights Commission Act 1986 (Cth) by inserting a modified ‘equal access’ cost protection for applicants in federal unlawful discrimination (including sexual harassment) court proceedings. This ‘equal access’ cost protection applies to all proceedings commenced under the federal anti-discrimination laws and applies to proceedings commenced in the Federal Court of Australia (FCA), Federal Circuit and Family Court of Australia (FCFCA) and also appeals to the High Court.

It is well known, and articulated in the Respect@Work report, that adverse costs orders have historically acted as a significant deterrent to applicants taking discrimination and harassment claims beyond the Australian Human Rights Commission (AHRC) conciliation stage to the FCA and the FCFCA.  Importantly the equal access cost protection will apply to other forms of discrimination and is not limited to claims under the Sex Discrimination Act, including for example discrimination on the basis of age, disability, or race, with the overarching goal of fortifying Australia's anti-discrimination framework and achieving its objective of eradicating all forms of discrimination.  The changes are designed to alleviate the barrier to justice that the risk of an adverse costs order presented to applicants in federal unlawful discrimination proceedings and provide parties with greater certainty regarding costs in such proceedings.

The key elements of the costs model include:

It is important for employers to be aware that an ‘unreasonable act or omission’ (in connection with the above assessment) is intended to be a high threshold and reserved for rare cases, requiring holistic consideration of the circumstances to determine unreasonableness.

The court has the power to take into account issues that were raised during the conciliation phase when determining costs. However, it has been clarified that certain actions, such as refusing a settlement offer or not participating in conciliation, do not automatically constitute unreasonable behaviour. Other factors, such as presenting new arguments or being self-represented or disabled, should also be considered in determining reasonableness, but absent consideration of the totality of the circumstances, are not intended to amount to an unreasonable act or omission.

Other relevant considerations for employers to examine holistically when considering costs include:

1. the specific details of any settlement offer, such as the presence of a confidentiality clause, the absence of non-monetary remedies or where there is no acceptance of the unlawful discrimination; or
2. situations where the applicant refuses an offer but is unable to assess its reasonableness or appropriateness in the circumstances, for example due to lack of relevant jurisprudence or legal representation or advice. These factors may affect the applicant's ability to make an informed decision about the offer.

Class action proceedings

The costs model applies in the same way to representative applications, as it does to individual applicants. It has been observed that this may encourage public interest litigation in unlawful discrimination matters. As a result of the changes, the representative organisations will have greater certainty about the anticipated legal costs if they commence legal proceedings. This costs certainty may lead to more discrimination representative claims being made.

Organisations should be aware of the potential for representative applications in relation to organisational approaches to conduct and systems that may be directly or indirectly discriminatory. We expect that claims of this nature may arise where there is broadscale evidence of behaviours that create, for example, a toxic workplace for women or management practices that not only do not support diversity, equity and inclusion but foster bias against any minority groups.

What does this mean for employers?

Statistically fewer than 1 in 5 people who have experienced sexual harassment make a formal report or complaint.^[1] The cost protection regime could lead to a rise in the number of unlawful discrimination complaints being raised and claims being pursued by employees, resulting in an increase in court proceedings. The increased financial exposure for respondents in addition to the potential for adverse media publicity and reputational damage may also encourage organisations to consider earlier settlements of these claims rather than waiting to see if the applicant will take the claim beyond the initial AHRC stage.

Where employees were previously deterred from agitating concerns in fear of an adverse costs order (and the conduct was not reported as a result) employers often lost the opportunity to effectively address unacceptable and unlawful behaviour within their workforce. These changes enhance the likelihood of misconduct being reported and/or claims being made. Employers should be aware of the potential costs they may now face if the applicant succeeds on one or more grounds in such claims. Organisations should take this opportunity to evaluate the effectiveness of existing frameworks and identify any compliance gaps, particularly from a sexual harassment and sex or gender based harassment lens in light of the positive duty (being the legal obligation to take reasonable and proportionate measures to eliminate, as far as possible, discrimination on the ground of sex, sex-based harassment, sexual harassment, conduct creating a workplace environment that is hostile or related acts of victimisation from occurring in the workplace or in connection to work), but more broadly for all forms of unlawful discrimination to stop such conduct from occurring in the first place.

Practical steps to take to mitigate against the cost impact of this reform:

1. Establish a speak up culture: Ensure your organisation has processes and procedures in place that encourage speaking up against unlawful harassment, discrimination, or bullying while clearly demonstrating that such behaviours will not be tolerated. Taking all reasonable steps to prevent these behaviours significantly reduces the risk of their occurrence.
2. Review policies: Examine workplace and other company policies and processes to eradicate any discriminatory language or effects, both direct and indirect.
3. Implement comprehensive training: Provide training for all staff, including bystander intervention, unconscious bias, discrimination, harassment, and anti-bullying, as well as anti-racism training. Additionally, offer tailored training for managers, so they not only understand the law but also lead by example, reinforcing the organisation's stance against disrespectful and unlawful workplace conduct.
4. Understand potential legal costs: Be mindful of costs that organisations may incur if a claim is successful. Obtain early advice on the merits of claims to gauge the risks of litigation. If weaknesses in your defence are evident, consider an early commercial settlement before the matter progresses from the AHRC to court.
5. Consider cost consequences of successful defence: Recognise that even if the organisation successfully defends a claim, each party typically bears their own costs, and the applicant will not be liable for the organisation's legal fees. This underscores the benefit of reaching an early settlement during conciliation before legal expenses dramatically escalate.
6. Prepare for conciliation: Engage thoroughly in the conciliation process facilitated by the AHRC, securing advance approvals for the quantum of any commercial settlements with consideration of potential costs of litigation if the matter proceeds.
7. Conduct a gap analysis: In light of the positive duty and the AHRC's expanded compliance and enforcement powers, it is critical to assess the organisational framework against the benchmarks set out in the AHRC’s Guidance and identify any gaps.

To comply with the positive duty, it is recommended that organisations adopt a prevention and response model incorporating seven key domains (refer to KWM’s article on the Practical Steps to comply with the Positive Duty) of the Respect@Work report, identifying strengths and areas of improvement. Regardless of size or resources, all Australian businesses that have obligations under the Sex Discrimination Act are required to take reasonable and proportionate measures to meet the positive duty.

Sexual harassment as a health and safety issue

It is well recognised that harassment and sex or gender-based harassment are psychosocial hazards that can cause both psychological and physical harm to workers (both those who are the recipients of such behaviours, but also potentially bystanders who may witness such conduct). These issues must be taken into consideration within the context of work, health and safety measures. In addition to the Respect@Work reforms, the Queensland government has recently implemented further obligations on employers and persons conducting a business or undertaking (Duty Holders) to proactively address and prevent sexual harassment through the introduction of the Work, Health and Safety (Sexual Harassment) Amendment Regulation 2024 (Amendment Regulation), which came into effect on 1 September 2024.  

Duty Holders are already required to proactively manage the risk of sexual and sex or gender-based harassment as part of their work, health and safety obligations.  However, from 1 September 2024, the Amendment Regulation in Queensland required Duty Holders to identify factors that could increase the risk of sexual harassment in the workplace and have enacted additional work, health and safety compliance requirements.

Compliance with the Amendment Regulation requires organisations with Queensland-based operations to take immediate steps to action the following:

1. Sexual harassment risk assessment: Conduct a specific sexual harassment risk assessment, taking into account feedback from the workforce following consultation.
2. Determining control measures: Determine appropriate measures to address the risk of sexual and sex or gender-based harassment. Duty Holders must consider factors such as the characteristics of workers (age, gender, sex, sexual orientation, disability) and the characteristics of the workplace or work environment. This includes factors like a work environment that allows or tolerates inappropriate behaviour, a lack of diversity in the workplace or decision-making positions, and other factors that may impact a person's behaviour towards workers.
3. Written prevention plans: From 1 March 2025, there is a requirement to have a written prevention plan to manage risks from sexual harassment or sex or gender-based harassment at work. These prevention plans must outline the identified risks, the control measures implemented to address each risk, and the specific procedures for handling reports of sexual harassment at work.
4. Review: The plans and control measures must be reviewed promptly in the event of a report of sexual harassment or sex or gender-based harassment, upon request by a Health and Safety Representative or Committee, or at least every three years.
5. Prevention plan accessibility: The prevention plan should be accessible to workers and organisations should take reasonable steps to ensure they are aware of the plan.

Work, health and safety is a focus of organisations, and their boards, with increased regulatory activity and offence provisions, including with the introduction of industrial manslaughter offences in all Australian states and territories. Tasmania was the last Australian jurisdiction to pass industrial manslaughter laws in September 2024.  Relevantly, in New South Wales, the new offence of industrial manslaughter under the Work Health and Safety Act (NSW) commenced on 16 September 2024 and is designed to act as a weighty deterrent to unsafe workplace behaviour. Under the new offence, Duty Holders are now liable for any deaths resulting from gross negligence with maximum penalties of $20 million for a body corporate and 25 years of imprisonment for an individual.  While different approaches have been adopted in each jurisdiction, the rationale behind the industrial manslaughter reforms is to introduce a consequences-based offence by singling out serious failures to comply with health and safety duties where it causes the death of a person at work.   

The impacts of sexual harassment and related unlawful conduct are undeniably linked to significant health risks to workers. In accordance with the sentiment of the legislative changes mentioned above, Duty Holders must proactively implement systems that identify hazards and assess risks, as well as establish control measures and maintain reporting systems for incidents, hazards, and risks that encourage employees and other stakeholders to voice safety concerns. Further, it is essential to regularly audit the organisation's safety systems to identify and address compliance gaps and ensure regular and appropriate reporting to the board on such matters.

What now?

The rapidly changing regulatory climate reflects a growing societal intolerance for discrimination and harassment and emphasises the importance of having robust prevention frameworks, that need to be reviewed, updated, and clearly documented. This includes the development of a thoroughly considered prevention and response plan. While this is particularly pertinent for organisations with operations in Queensland, due to the new legislative obligations, it is also necessary for organisations across Australia to meet the positive duty requirements and foster safe workplaces.

In response to the myriad of legislative changes in this space, we strongly recommend that employers extend their efforts beyond the historical bare minimum of merely updating workplace policies and offering anti-discrimination and sexual harassment training. Organisations should instead take a more comprehensive approach by critically examining their organisational values, workplace culture and implemented means to eliminate unlawful behaviours. Cultivating an inclusive culture that actively rejects discrimination and harassment not only contributes to a positive working environment, enhancing attraction and retention of staff and improving workforce productivity, but also helps organisations discharge their legal duties within sex discrimination and work, health and safety frameworks.

Please get in touch with a member of our team if you would like to discuss how these recent reforms impact your organisation and the practical steps your organisation can be taking to meet its obligations.