While not admitting legal liability, the Commonwealth has agreed to pay $112 million in compensation to about 400,000 individuals as well as legal costs.
The in-principle class action settlement came hours after a Federal Court trial over the scheme was due to start on Monday.
As part of the settlement, law firm Gordon Legal also said the government had agreed to drop $398 million in invalid debts it had been pursuing against class action members.
The robodebt saga involved matching Australian Taxation Office and Centrelink data to claw back welfare benefits the government said had been overpaid.
This was last year ruled by the Federal Court to be illegal.
The government had already agreed to refund thousands of people $720 million before the settlement.
While the final detail of the settlement will still require court approval at a later date, Gordon Legal Managing Partner Andrew Grech said he was “really hopeful” the settlement scheme would be complete by the end of 2021.
Grench said all 400,000 group class members would be eligible to access the $112 million in compensation.
“The court will have to approve that process to each and every group member and group members will have an opportunity to review the detail of that process,” he said.
“If group members want to object to any aspect of the settlement they’re very entitled to and the court will of course consider those objects before it approves any settlement.”
If all of the class action group members access a portion of the compensation, they could be left with $281 each.
Grench said although “no money amount” could compensate people for the hardship group members had endured as a result of the robodebt scheme, the settlement had been fair and reasonable and in the best interest of group members.
“The minimum that citizens can expect from their government is that it will act lawfully and that is a very important principle which has really been at the heart of this class action since day one,” he said.
Grench said an “independent expert cost assessor” would determine the legal costs and put them to the court for approval.
– with AAP
