Employment class actions update

A shifting risk profile, but heightened risk remains 4 min read

A series of recent High Court decisions have resolved some legal uncertainties that have contributed to the increase in employment class actions in recent years. We examine what these developments mean for employment class action risk.

Key takeaways 

• As we have previously reported, there has been a trend of elevated class action filings over the last five years (see, most recently, our 2022 Class Action Risk Report). Employment-related class actions have increased from 11% of all class action filings in 2017–19 to 19% in 2021.
• Recent statutory reform and High Court employment law decisions have provided greater certainty around the contractor/employee relationship and the casual/full-time employee relationship. In response, a string of class actions relating to the misclassification of employees (and associated underpayments) have been discontinued.
• Employee class action risk remains high overall, although we may see that risk profile shift over the coming years. We expect to see fewer misclassification claims, a continued focus on underpayment class actions more broadly, and an increasing focus on breach of employment terms claims.

The employment class action landscape

Every year, we analyse class action filings data. In our annual Class Action Risk Report, we analyse what that data, and broader trends, tell us about class action risk.

We've seen that since 2018, a growing number of class action filings have been employment related, with such claims spiking in 2021 and comprising approximately 19% of total claims filed that year. These claims have impacted a broad range of sectors, including government, healthcare, mining and industrial. While there is some overlap, these actions can be separated into three broad subtypes: breach of employment terms, the misclassification of employment relationships (often resulting in underpayments), and underpayments more broadly.

Our analysis shows that underpayment claims have steadily been coming to the fore since 2019. In late 2021 and the first half of 2022, we have seen filings for breach of employment terms (in particular, terms relating to rest breaks and COVID-19 policies).

Number of employee class actions, filings by subtype (1 January 2018 – 30 June 2022)

Recent changes to the law

In the Rossato decision handed down in August 2021,¹ the High Court clarified that workers who do not have a 'firm advance commitment to continuing employment beyond a particular assignment' are casual employees. Five months before the decision was handed down, the definition of casual employee under the Fair Work Act 2009 (Cth) was amended – the statutory definition being largely consistent with that proffered by the High Court. That amendment had already settled some of the uncertainty surrounding casual employees, making it more difficult for misclassification of casual employee class actions to succeed, even before the High Court decision was handed down.

In the February 2022 decisions of Personnel Contracting and Jamsek,² the High Court clarified the approach for determining whether someone is a contractor or employee, with the focus being the terms of the employment contract. This marked a shift away from the previous legal test, of looking at the entirety of the conduct between the parties to characterise their relationship. On the previous 'multifactorial' approach, the terms of the contract between the parties were merely one factor to be considered.

For more information about each of these recent developments, see our previous Insights on casual employees, on the March 2021 legislative changes, and on the employee-contractor relationship.  

A new era in employment class action risk?

Following the developments regarding the classification of casual workers, plaintiff firms sought court approval to discontinue a number of misclassification of casual worker class actions.³ We aren't aware of any new filings of these types of claims since the Rossato decision. However, differences in employment terms in different circumstances mean it is possible we will continue to see these types of claims arise.

In recent years, only a couple of class actions for misclassification of contractors have been filed. While already not a particularly active type of claim, we consider that the clarity provided by the High Court on the means by which the contractor/employee relationship is characterised will make these types of claims increasingly less likely.

In late 2021 and the first half of 2022, we have seen the emergence of a new subtype of claims – those concerning breach of employment terms. So far, the claims have been in relation to rest breaks and COVID-19 policies. Despite the small sample size, we suspect that these types of filings may continue to form part of the class action risk landscape through 2022 and beyond.

What does the future hold?

Overall, while we expect misclassification claims to decrease in light of the recent legislative reform and High Court decisions, we don't expect them to disappear altogether. Recent class action filings data indicate we may see a continued focus on underpayment class actions, and an increasing focus on breach of employment terms. This may represent a shift in the profile of employment class action risk, but is unlikely to result in any reduction in risk overall.