Costs Orders in Employment Litigation: When are They Made?
Updated: Sep 9
⏹︎ By Mark Flaherty and David Drentin
The Fair Work tribunals and courts of Australia have traditionally always been 'no costs' jurisdictions. But what does this actually mean? Can employers ever recoup legal fees incurred defending unmeritorious claims brought by employees?
The 'no costs' jurisdiction
In general civil litigation in Australia, the unsuccessful party must pay the successful party’s legal costs. This is known as the ‘costs follow the event’ rule.
However, in employment litigation in the Fair Work Commission and the Fair Work division of the Federal Courts, this is not the case. Rather, these jurisdictions are ‘no costs’ jurisdictions, which means save for a few limited exceptions, each party bears their own costs, regardless of the outcome.
In practical terms, this means that where an employee commences an unfair dismissal or general protections claim against an employer in Australia, even if the employee’s claim is dismissed entirely, the employee does not have to pay any of the employer’s legal costs.
History and rationale for the 'no costs' jurisdiction
The ‘no costs’ nature of these jurisdictions is not new; it has existed in substance since the genesis of the employment jurisdiction in Australia in 1904. It has been said the rationale for this approach is two-fold:
Access to Justice
Unfair dismissal and general protections claims are typically brought by individuals against a better-resourced employer, and a 'costs follow the event' rule would let employers use the mere threat of a costs order to discourage employees from litigating even meritorious claims. This, arguably, would further entrench the inequality of bargaining power rather than correct it. As stated by Lee J in Turner v Tesa Mining (NSW) Pty Ltd [2019] FCA 1644:
“… This legislative choice has had the effect of safeguarding the ability of an applicant, a person often with a modest claim facing the spectre of an intimidating inequality of arms, to bring an action freed from the vexation that an adverse costs order could mean financial ruination…”
Institutional Design
The FWC and the Fair Work Division are built to process a very high volume of relatively low-value, often self-represented disputes quickly and informally, in keeping with the original conciliation ethos. A full costs jurisdiction would generate satellite litigation over costs itself, adding delay and expense to a system meant to avoid both.
Are there exceptions to the 'no costs' rule? Can a party ever obtain a costs order in employment litigation?
In short - yes.
Both the Fair Work Commission and the Fair Work Division of the Federal Circuit and Family Court of Australia and Federal Court have specific carve-outs to allow costs to be ordered against a party where that party has engaged in unconscionable conduct.
In the Fair Work Commission, costs can be ordered where:
a party made the application or responded to the application “vexatiously or without reasonable cause” [1];
it should have been apparent to the party that the “application or response to the application had no reasonable prospect of success” [2]; or
if a party causes another party to incur those costs because of an unreasonable act or omission of the first party in connection with the conduct or continuation of the matter [3].
In the Fair Work Division of the Federal Circuit and Family Court of Australia and Federal Court, costs can be ordered where:
a party instituted proceedings “vexatiously or without reasonable cause” [4];
the party’s “unreasonable act or omission caused the other party to incur the costs” [5]; or
the party unreasonably refused to participate in a matter before the Fair Work Commission and the matter arose from the same facts as the proceedings [6].
What are some examples of 'vexatious' conduct?
An applicant’s purpose will be vexatious where the predominant motive of issuing proceedings is to harass or embarrass the other party or gain a collateral advantage. Vexatiousness is concerned with the motive, not the merits of pleadings [7].
For instance, in Church v Eastern Health [2014] FWCFB 810 an employee's appeal on an interlocutory decision was found to have been made vexatiously because the FWC found its predominant purpose was to delay the first instance hearing, even though the FWC was not persuaded it was made without reasonable cause.
By contrast, in Dickason v Endeavour Industries Pty Ltd [2012] FWA 4687 an employer's failure to attend two conferences in a general protections matter was held not to be a vexatious response; the non-attendance being explained by an administrative error and the company's receivership rather than any purpose of harassing the applicant or gaining a collateral advantage.
More recently, in Camenzuli v Companion Systems Pty Limited [2025] FWC 2166 an employer was found to have responded to an unfair dismissal claim vexatiously because the FWC found its predominant purpose being to harass or embarrass the applicant or to gain a collateral advantage by pressuring him to abandon his claim. The employer had pressed false allegations, and also approached the applicant's new employer when redacted payslips would have answered any question of mitigation. Indemnity costs were awarded against the employer.
What does 'no reasonable prospect of success' mean?
In determining whether there was 'no reasonable prospect of success', the question is whether, at the time proceedings were initiated, there was a reasonable prospect of success [8].
Where success depends on the resolution in the applicant’s favour of one or more arguable points of law the proceeding has a reasonable chance of success. On the other hand, if on the applicant’s own version of events it is clear that the proceeding must fail it is likely that the proceeding lacked reasonable cause.
What are some examples of 'unreasonable conduct'?
Unreasonableness is not to be confused with negligence or inefficiency [9]. Rather, unreasonableness is to be determined objectively. It is a question of impression and degree, to be assessed by reference to the particular circumstances of a given case [10].
In Rindeklev v Commonwealth of Australia [2026] FCA 1112, Colvin J added that a litigant must be clear and concise in the allegations made, and that an applicant must confine the case to matters serious enough to justify the burden on the respondent and the use of public resources. Claims lacking those characteristics are an abuse of process and advancing them under the Fair Work Act is likely to be unreasonable.
A common issue which can be deemed 'unreasonable conduct' is where a party has refused to accept a reasonable offer made by the other party and then does not achieve a better result at trial.
By way of example, costs were awarded against the applicant in Cugura v Frankston City Council (No 2) [2012] FMCA 530 because the applicant rejected an offer made by the respondent to discontinue and for each side to bear their own costs. The applicant’s unreasonable refusal resulted in the respondent incurring significant legal expenses by requiring that all witnesses be cross-examined even after the applicant had abandoned aspects of his claim.
In Roohizadegan v Technology One Limited (No 7) [2026] FCA 187, costs were awarded because the applicant (an executive) caused their employer to unreasonably incur costs by failing to accept a reasonable Calderbank offer in circumstances where his prospects of success were marginal. The offer was made at a time when the inherent weakness of the applicant’s argument was objectively clear and an applicant acting reasonably at the time should have realised that a higher offer was not a realistic possibility and accepted the offer.
In assessing whether refusal of an offer was unreasonable, the relevant matters are the stage of the proceeding, the time given to consider the offer, the extent of compromise, prospects of success at the date of the offer, the clarity of the offer's terms, and whether indemnity costs were foreshadowed [11].
What does a costs order mean, practically?
While it will turn on the specific circumstances of the order, generally speaking, where a party has obtained a costs order against the other party:
Unless the order is for 'indemnity' costs (which is a higher bar still), generally the party who has obtained the order will not get all of their legal fees repaid. Rather, their legal fees will be assessed against a court scale following a 'costs assessment'.
A costs assessment usually occurs via a qualified costs lawyer reviewing the lawyers' file and legal invoices and determining a figure based on set court rates. As a rule of thumb, this generally equates to about 60% of the party's actual legal fees paid.
Following this costs assessment, the party can either negotiate directly with the other party to have this amount (or a portion of this amount) paid, or in the absence of agreement, seek a formal costs order.
If and when that formal costs order is made and the other party doesn’t comply with the costs order, there are further steps parties can take to ‘enforce’ the costs order.
Specific Issues
Proceedings with Regulators and Unions
Costs orders are rarely made in proceedings commenced by regulators or unions, due to public policy grounds regarding the role of those parties.
As expressed by Justice Wigney in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246, regulators must have the liberty to reasonably pursue hard cases based on circumstantial or highly contentious evidence or perhaps unsettled areas of law, and it might reasonably be expected that they will lose some cases.
Further, Judge Johns in Australasian Meat Industry Employees' Union v Meat Inspectors Pty Ltd (No 2) [2025] FedCFamC2G 2091 posited that unions are akin to regulators and have an important role in the enforcement of the Act. Like FWO (in respect of the public), unions have significant responsibilities on behalf of their members to ensure compliance with Fair Work laws and the commencement of proceedings by unions to enforce the Act has a unique foundation in the public interest.
Suppression Orders
In the recent decision of Lee J in Johnson v H&M Hennes & Mauritz Pty Ltd [2026] FCA 834, a costs order was made against the respondent who filed an interlocutory application which was later abandoned to obtain suppression orders and non-publication orders. The main controversy was whether the filing and maintenance of the application constituted an unreasonable act for the purposes of s 570 of the Act. The respondent argued that publication of the allegations at this stage of the proceeding and prior to mediation would “compromise” the prospects of resolving the matter, and therefore the suppression and non-publication order was necessary. However Lee J did not consider that there was an evidentiary basis for this assertion, nor was there any reasonable basis for requiring a final suppression or non-publication order. His Honour exercised his discretion to order that the applicant be compensated for the costs caused by the filing and maintaining of the interlocutory application.
For further commentary on the FWC’s and the Court’s appetite for granting suppression orders and non-publication orders, see our article: Confidentiality and Suppression Orders in Employment Law Matters.
On the horizon? AI and Costs Orders
In the last two years, the FWC and the Courts have been grappling with surging caseloads fuelled by self-represented applicants utilising AI.
General protections cases in the Federal Circuit and Family Court of Australia grew almost 50 per cent in the past year alone, from 889 to 1314 in the year to June 30.
The Fair Work Commission has seen a similar trend. Compared to the three-year average from 2022–23 to 2024–25:
total lodgments are up 40%;
section 365 applications (application to deal with contraventions involving dismissal) are up 62%;
section 372 applications (application to deal with other contravention) disputes are up 135%; and
unfair dismissals are up 41%.
In response, the courts and the government are considering options in order to stem the tide of claims. One such option being suggested by commentators is to introduce cost consequences for unsuccessful claimants, or where claimants have used AI tools but have not fact checked their own content.
The Fair Work Commission’s August 2026 decision in Sadnan Khan v Aldi Pty Ltd [2026] FWC 3144 shows the Commission is already moving in this direction. In that case, a self-represented Aldi employee was ordered to pay $1,230 towards his former employer’s legal costs after relying on AI to make an unfair dismissal claim that had no reasonable prospect of success.
The Commission found that Mr Khan's claim had no reasonable prospect of success because he had not met the minimum employment period of six months. Per s383 of the Fair Work Act 2009 (Cth), the minimum employment period is the earlier of (i) the time when the person is given notice of the dismissal or (ii) immediately before the dismissal. At the time the employee was given notice, he was 3 days short of meeting the six-month minimum employment period. The Commission had advised Mr Khan to discontinue his claim and warned that continuing would put him at risk of a costs order, even telling him Aldi had a “very strong argument”. However Mr Khan pressed on, filing two further AI-generated submissions that again addressed the wrong end date and ignored the Commission’s correspondence. The Fair Work Commission ultimately held that the employee acted unreasonably by continuing his claim after he had no reasonable prospects of success and ordered him to pay some of his employer’s legal costs under s400A of the Fair Work Act 2009 (Cth).
While the cost order of $1,230 did not reflect Aldi’s true legal costs incurred, this case nonetheless demonstrates the Commission’s willingness to order costs in the context of the misuse of AI. The order was expressly intended as a deterrent against claimants using AI tools who failed to fact-check their content. Deputy President Easton specifically stated:
"The making of a costs order now will deter Mr Khan, and hopefully other applicants in the same position, from acting unreasonably".
Key Takeaways
Generally, costs are not awarded to either party in employment litigation, regardless of outcome.
There are several exceptions to this rule however, including:
Where a party has commenced or continued proceedings vexatiously (i.e. for an improper and ulterior motive);
Where a proceeding has no real prospect of success; and
Where a party to proceedings has acted unreasonably (e.g. refused a reasonable settlement offer or applied for a suppression order without a proper basis).
Where a party utilises AI inappropriately (e.g. does not fact check material prepared by AI, or otherwise unreasonably relies on AI generated advice), the Commission and the Courts are becoming increasingly willing to make costs orders against that party.
If you would like to know more about how Makeham Flaherty Employment Lawyers can assist your business or organisation with managing employment disputes, please contact us.
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References
[4] Section 570(2)(a) of the Fair Work Act 2009 (Cth).
[5] Section 570(2)(b) of the Fair Work Act 2009 (Cth).
[6] Section 570(2)(c) of the Fair Work Act 2009 (Cth).
[7] Nilsen v Loyal Orange Trust (1997) 76 IR 180, 181.
[8] Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257.
[9] Tucker v State of Victoria (No 2) [2021] VSCA 182.
[10] PIA Mortgage Services Pty Ltd v King [No 2] [2020] FCAFC 53, [15] (Rangiah, Charlesworth and Snaden JJ).
[11] Patrick Stevedores Holdings Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union (No 5) [2021] FCA 1645 at [6(4)].
This is commentary published by Makeham Flaherty for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories.
Makeham Flaherty 2026.