Why are unfair dismissal claims on the rise?

As recently reported by The Australian Financial Review, Fair Work Commission (FWC) president Justice Adam Hatcher recently told the Australian Labour and Employment Relations Association conference, hosted in Brisbane last month, that the elevated number of unfair dismissal claims in the last few years (and especially in the last few months) was pushing the workplace commission to its limits.

“This is unsustainable within our current operational, performance and funding structure,” Hatcher told the industry event, the AFR wrote.

As Kingston Reid partner Christa Lenard also pointed out, flexible working disputes are similarly on the rise, with the recent (and highly publicised) Westpac decision highlighting the need for employers to “ensure that they follow proper process and to consider their evidentiary burden when reasonably refusing a flexible working request”.

For employment, industrial relations, and workplace relations lawyers, the growing number of cases stems from a combination of economic, environmental, sociocultural, technological, and legislative factors.

As Swaab partner Michael Byrnes said, “it has been a busy period, and all indications are that it will continue for some time to come”. To this end, as Maddocks partner Lindy Richardson said, the marked increase in FWC cases is reflected in “both the statistics and in our lawyers’ workloads”.

Economic and professional climate

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Pinsent Masons partner Aaron Goonrey said that, nationwide, many industries are undergoing significant transformation and uncertainty due to the adoption and adaptation of technology, particularly AI.

“The wave of technological advancements is allowing businesses to undergo significant restructuring or, in some cases, drastic downsizing,” he said.

“When you add in factors such as career uncertainty and cost of living, then there is greater incentive for an employee to challenge the termination of their employment.”

Brynes explained that the separation payments they receive from the employer on termination don’t provide enough of a buffer to sustain them until they identify and land their next job.

“Some employees make the mistake of conflating what they consider they need to get them through to their next role with what an employee must legally provide on termination, even though, to put it bluntly, there is usually no nexus between the two,” he said.

These financial motivations, Byrnes said, can lead to employees exploring legal options.

Richardson supported this, noting that ongoing cost-of-living pressures, “combined with employees’ heightened awareness of workplace rights and their employer’s responsibility to minimise psychosocial hazards, are likely emboldening workers to test the waters with unfair dismissal or general protection claims”.

Such circumstances have, Lenard added, “heightened job insecurity, while greater awareness of workplace rights, an extraordinary costs jurisdiction amplified by high-profile cases, the accessibility of new technologies such as AI, as well as ongoing legislative reforms have all contributed to an increase in individuals who are more confident to challenge dismissals”.

The age of AI

For Holman Webb partner Alicia Mataere, the greatest factor in the rise in employee claims is thanks to new artificial intelligence platforms like ChatGPT, which has become “a worker’s favourite and ‘cost-effective’ lawyer”.

“We have numerous unrepresented litigants whose claim (and correspondence) has been almost entirely drafted by Chat GPT,” she said.

“The costs of dealing with Chat GPT claims by unrepresented litigants are higher than when dealing with another legal practitioner; with businesses having to foot the bill as costs under the Fair Work Act are extremely rare.”

AI has “lowered the barrier to entry”, Richardson said in support, noting that lawyers in this space are seeing a marked increase in employees lodging claims, “demonstrating a clear disconnect between the perceived unfairness they are concerned about and a legitimate legal cause of action”.

Not only have platforms like ChatGPT made it easier for employees to complete an FWC application to make a termination of employment claim, Byrnes said in support, but there are other complicating factors.

“AI tools can mislead an employee as to the correct claim to bring, or the merits of such a claim, but it does facilitate the making of claims,” he said.

Legislative change

Elsewhere, the evolving legislative landscape is having an impact, Goonrey said.

“Over the past three years, we’ve witnessed a significant shift in workplace laws at the federal level, tilting the balance of power more in favour of employees. This shift has not only emboldened more employees to pursue claims against their employer but has also led to a noticeable increase in general protections claims,” he said.

“Unlike unfair dismissal claims, general protections are not subject to income thresholds or compensation caps, making them available to a broader range of employees, including senior executives. Moreover, the Fair Work Commission remains a no-costs jurisdiction in most cases, which reduces the financial risk for employees considering legal action.”

These features, Goonrey continued, combined with growing awareness of workplace rights and protections against adverse action for reasons such as exercising a workplace right or discrimination, “have contributed to a marked increase in general protections claims as a strategic alternative to the traditional unfair dismissal pathway”.

“As well as the increased workload, lawyers are having to contend with greater complexity in the law surrounding the employment of a person” he said.

“Employers are being asked to do more around issues such as psychosocial risks and flexible work arrangements, such as working-from-home arrangements and respecting the right of employees to disconnect.”

Implications for lawyers

Contrary to popular belief, Byrnes reflected, “and perhaps to a commonly held view as to the way the system should work”, not every termination that is unfair will necessarily result in a meritorious claim.

“Some employees who are excluded from unfair dismissal can treat a general protections claim as a perfect substitute – that isn’t the case, it is a much narrower cause of action. Nevertheless, that doesn’t stop the claims being brought, with the unfair or unreasonable conduct shoehorned into adverse action because of the purported exercise of a workplace right,” he said.

“Lawyers for employees need to manage expectations (which can sometimes wrongly be seen as weakness) and lawyers for employers need to balance a strict legal view of a claim as being devoid of merit with an appreciation that there still might be commercial or reputational imperatives for settlement.”

While, as aforementioned, unfair dismissal claims remain the most popular lodgment, general protections cases are very much on the rise, with Lenard noting there is a rise “in what might be referred to as ‘quasi’ unfair dismissal claims.

These are, she said, “claims masquerading as general protections matters, simply because the unfair dismissal jurisdiction is not available to the applicant”.

This trend has left many employers weighing whether to settle early at conciliation, she said, “simply to avoid what could otherwise become a protracted and resource-intensive legal process”.

“Some relief is on its way, with the Fair Work Commission recognising an unsustainable workload impacted by a high volume of unmeritorious claims,” Lenard said.

“One measure being adopted by the Fair Work Commission – which will be welcomed by employers – is revised, more robust general protection application forms, which are being designed to help applicants better understand the jurisdictional thresholds that need to be met in order to make a claim.”

Mataere also pointed out that it isn’t entirely correct to apportion blame to lawyers for the shifting landscape.

“Industrial advocates and paid agents (non-lawyers) regularly lodge claims and appear in the Fair Work Commission. Lawyers, unlike agents, have professional obligations [that] they must adhere to. The commission has reviewed the role of advocates in the commission and published guidelines to try [to] impose standards for those advocates,” she said.

Moving forward

Looking ahead, Lenard said she and her colleagues expect to see elevated claim levels persist, with a continued focus on flexibility disputes, unfair dismissal, and general protection claims.

“In this environment, early engagement with legal advisors isn’t simply about defending claims, it’s about enabling employers to assess any potential areas of exposure, align internal stakeholders and make informed choices about their approach to the claim,” she said.

“Those who do engage early are better positioned to achieve pragmatic resolutions and avoid unnecessary settlement payments just to resolve nuisance claims.”

As legal advisers, Richardson posted, “we’re helping employers navigate this complex and emotionally charged landscape with a dual-pronged approach”.

“While having the right documentation and internal processes is always a given, we’re helping clients vigorously defend unmeritorious claims while remaining commercially pragmatic and settling where appropriate (sometimes by looking to resolve the underlying cause of the dispute rather than offering financial settlements),” she said.

“Looking ahead, without reform, the landscape is unlikely to change. Lawyers will need to continue balancing their technical expertise with clients’ commercial expectations.”

To this end, Goonrey concluded, it is not enough for lawyers to wait for the phone to ring before acting.

“A messy employment law claim can cost employers both financially and reputationally. In my experience, lawyers are now doing more to mitigate claims from happening,” he said.

“This includes taking more time at the front end, educating employers and their line managers on their obligations and setting up the processes to make sure compliance is achieved so as to reduce the possibility of successful claims being brought.”