The 10-Employee Rule: Can Your Australian Company Actually Sue for Defamation?

A significant misconception persists among Australian executives regarding the protection of their corporate brand. When a competitor, media outlet, or disgruntled activist publishes damaging falsehoods, the immediate instinct is often to instruct counsel to file for defamation. For the majority of established businesses, this path is legally blocked.

Since the introduction of the uniform Defamation Act 2005, the right of corporations to sue for defamation has been severely restricted. The legislation reflects a policy decision to prioritise free speech over corporate reputation, operating on the premise that companies have other means to correct the record and do not suffer “hurt feelings” in the way individuals do.

This statutory bar forces legal teams to look beyond traditional defamation. We must instead construct a strategy using alternative commercial torts and statutory protections found in the Australian Consumer Law (ACL).

The Statutory Bar: Can Corporations Sue for Defamation in Australia?

The short answer for most successful businesses is no. Section 9 of the Defamation Act 2005 (and equivalent provisions in all States and Territories) stipulates that a corporation has no cause of action for defamation unless it is an “excluded corporation.”

To qualify as an excluded corporation, an entity must meet one of two strict criteria:

• It is not formed for financial gain (such as a charity or non-profit); or
• It employs fewer than 10 persons and is not related to another corporation.
• It is not a public body.

For any entity operating for profit with a headcount of 10 or more, the door to defamation litigation is shut. This threshold often catches growing SMEs off guard. They assume legal recourse exists for reputational slurs, only to discover their size disqualifies them from the primary cause of action used to protect reputation.

The “Related Body Corporate” Trap

The calculation of employee numbers is not limited to the specific entity being attacked. The Act prevents large corporations from circumventing the ban by suing through a small subsidiary.

If your operating company has only five employees but is a subsidiary of a holding company that employs 50 people across the group, the law views the subsidiary as part of the larger group. Consequently, the subsidiary is not an excluded corporation and cannot sue. The courts look at the total headcount of the corporate group to prevent what essentially amounts to a loophole for large conglomerates.

Government reports on defamation reform have consistently supported this restriction. As noted in a submission on defamation provisions, the rationale remains that corporations should not use defamation law to stifle legitimate public criticism or market competition.

Injurious Falsehood: The Heavy Artillery

When defamation is unavailable, the common law tort of injurious falsehood becomes a primary option. While often conflated with defamation, it is a distinct cause of action with a significantly higher burden of proof.

To succeed in a claim for injurious falsehood, a corporation must prove:

1. Falsity: The statement made was factually false (unlike defamation, where the defendant must prove truth, here the plaintiff must prove falsity).
2. Malice: The statement was made with an intent to cause injury or with reckless indifference to the truth.
3. Actual Damage: The publication caused actual financial loss.

The requirement to prove “actual damage” is the most challenging hurdle. In defamation, damages are often presumed. In injurious falsehood, you must show a direct causal link between the lie and a specific financial loss—such as a cancelled contract, a drop in share price, or a downturn in sales figures directly attributable to the publication.

Proving malice is equally demanding. We must demonstrate that the publisher knew the statement was false or did not care whether it was true or false. Mere negligence is insufficient.

Misleading or Deceptive Conduct (ACL Section 18)

For many corporate clients, the Australian Consumer Law offers a more pragmatic route than injurious falsehood. Section 18 of the ACL prohibits conduct, in trade or commerce, that is misleading or deceptive or likely to mislead or deceive.

This provision is particularly effective when the reputational attack comes from a competitor. If a rival business makes false claims about your product quality, financial stability, or ethical standards, they are likely engaging in misleading conduct.

The advantages of an ACL claim include:

• No need to prove malice: The intent of the misleading party is generally irrelevant.
• Broad remedies: Courts can issue injunctions to remove content, order corrective advertising, and award damages.
• Standing: The focus is on the error and its impact on the market or consumer, rather than the “reputation” of the plaintiff.

However, the “trade or commerce” requirement is a strict limitation. Statements made by media organisations in their news reporting are generally exempt under the “prescribed information provider” defence, unless the content is advertising or promotional in nature. This distinction is analysed in our discussion on Misleading and Deceptive Conduct vs Defamation, which highlights how these remedies interact in complex financial cases.

The “Identification” Strategy: Suing Through Executives

While the corporation may be barred, the individuals who run it are not. If a publication names specific directors, executives, or employees, those individuals retain their right to sue for defamation.

This strategy requires the imputation to be personal. A statement that “Company X is a fraud” might not identify the CEO. However, a statement that “Company X, directed by Jane Doe, creates fraudulent accounts” clearly defames Jane Doe. In such cases, the executive sues in their personal capacity.

This approach carries risk. The litigation becomes personal, exposing the executive to cross-examination and intense public scrutiny. Furthermore, the damages awarded are for the individual’s reputation, not the company’s lost profits. While the company can often fund the litigation (subject to proper corporate governance approvals), the strategic goal is usually to secure a retraction or apology that benefits the firm.

Similar principles apply regarding identification in digital spaces. As we explored regarding the Australian social media ban, the legal landscape surrounding online identification and liability is tightening, creating new leverage points for individuals targeted by online harassment.

Negligence and Interference with Contractual Relations

In specific circumstances, other valid causes of action exist:

• Negligence: If a duty of care exists (rare in media contexts but possible in professional service reports) and is breached, causing pure economic loss.
• Tort of Interference with Contractual Relations: If a third party knowingly induces a client to breach their contract with your company through false statements.

These are complex, fact-specific claims that require precise evidence of intent and contractual knowledge.

Strategic Considerations for Australian Boards

When a corporation with more than 10 employees faces a reputational crisis, the legal response must be calculated. Firing off a “concerns notice” alleging defamation when the company has no standing to sue will immediately signal to the other side’s legal team that you are bluffing or ill-advised.

A sophisticated response involves:

1. Audit the Entity: Confirm exact employee numbers, including casuals (on a systemic basis) and related entities to see if the exclusion definitively applies. See the Who can be defamed guidelines for strict definitions.
2. Identify the Damages: Immediately quantify financial loss to assess the viability of an injurious falsehood claim.
3. Assess the Source: Is this a competitor (ACL claim) or a media outlet (limited ACL options)?
4. Review Data Security: Often, reputational attacks stem from data leaks. Review our analysis on lessons from the Meta settlement to understand the intersection of privacy failures and reputation.

Scholars have noted that Australia’s approach creates a unique pressure on corporations to use these alternative torts. An analysis of distinct approaches to corporate reputation compares Australia’s restrictive model with jurisdictions that allow broader corporate standing, highlighting the need for Australian businesses to be far more agile in their legal structuring.

The inability to sue for defamation does not mean a corporation is defenceless. It means the defence must be based on economic reality and statutory breaches rather than the protection of good name alone. By utilising the Australian Consumer Law and the tort of injurious falsehood, companies can still secure significant remedies against damaging falsehoods.