Justin Hemmes’ hospitality empire Merivale is fighting to hold on to the $18 million settlement made in an underpayment class action lawsuit, after hundreds of additional workers unexpectedly joined the claim, derailing proceedings.

In March, Merivale reached a settlement in response to allegations that it relied on an invalid Employee Collective Agreement, rather than the relevant industry award, to underpay up to 14,000 workers $129 million between 2013 and 2019. The hospitality group denies any wrongdoing.

Under the agreement, Merivale was to pay a lump sum of $18 million to cover all damages and costs − almost half of which was likely to go to lawyers and the litigation funder.

The Federal Court was scheduled to hear the settlement agreement on May 7 to determine whether it was fair and reasonable, but circumstances unexpectedly changed following a 37 per cent jump in the registered number of affected Merivale workers.

Anyone employed by Merivale during the period covered by the collective agreement was eligible to join the claim and receive a portion of the settlement sum.

Counsel Rory Markham, of class action law firm Adero Law, told the court the number of group members rose to 788, “wildly beyond” what they anticipated during the final mediation hearing in December.

Markham argued the $18 million sum could no longer be considered fair or reasonable, given that less than $9.5 million would remain to be distributed among the affected workers, and sought further mediation with Merivale.

“This is not a good deal,” Markham argued, advising that Adero could no longer support the settlement and was abandoning the approval application.

“This is, in fact, a poor deal that has been substantially diluted by the additional registrations.”

Merivale does not wish to mediate and seeks to enforce the settlement as it stands. Merivale counsel Richard McHugh, SC, instructed by Johnson Winter Slattery, argued that the settlement figure had accounted for payment distribution to any additional group members.

As an alternative to amending the settlement figure, McHugh proposed “an obvious way through is for the funding commission or legal costs to be reduced”.

The original agreement proposed paying nearly 50 per cent, or about $8.6 million, of the settlement to Adero and litigation funders Investor Claim Partners. “The figure does seem high,” McHugh said.

A costs referee accountant has been employed to examine Adero’s records and determine what costs were incurred during the lawsuit, which has been ongoing since 2019.

Before another hearing to determine whether further mediation is possible, the court ordered Adero to provide Merivale with further information and modelling to understand how the group members came to withdraw their settlement approval.

Federal Court Justice Tom Thawley cautioned Merivale to focus on the issue at hand, rather than any alleged fault on the part of Adero lawyers.

“It seems to me that if the lawyers for the applicants were grossly incompetent … and failed to take into account the number of people that might register, it doesn’t really matter,” Justice Thawley said.

“The court isn’t going to approve a settlement which isn’t fair and reasonable, and it’s in everyone’s interest to focus on that question first.”