The class action, launched by Maurice Blackburn lawyers on Monday, is seeking compensation for Indigenous people who undertook work activities under the Community Development Program (CDP) between 2015 and 2021.
Principal lawyer Miranda Nagy said program participants, who were disproportionately Indigenous people in remote communities, had to work many more hours to receive the same payments as someone on work for the dole payments in the city.
She estimates First Nations people in remote areas worked an additional 30 million hours under the program.
"The other aspect of unfairness was that if you didn't turn up you were fined 10 per cent of your fortnightly income," Ms Nagy told AAP.
"In the first three years of CDP, Aboriginal people were about 27 times more likely to be fined than someone who was on the program in Sydney or Melbourne."
The case's lead applicant, Serena Marrkuwatj Bonson, received 17 penalties over the five years she participated in the CDP at Maningrida in the Northern Territory.
"At various times she was caring for children, she was also caring for grandchildren," Ms Nagy said.
"She remembers having difficulty and having to ask other members of her extended family for money or food because she didn't have enough.
"For people on what is really a very low income ... penalising people further created real difficulties and those sorts of feelings of shame and humiliation are what people talk about."
Ms Marrkuwatj Bonson's uncle Baru Pascoe was made to do the same work as much younger men under the program, which as a senior Traditional Owner and Elder was not considered culturally appropriate.
Mr Pascoe said the program caused confusion and stress in his community, with some people left traumatised by their experiences.
"A lot of people had nightmares, even getting sick," he said.
"We saw it like Cyclone Tracey, causing a big storm. The government were creating a mess in the community, and the blackfellas were cleaning up the government's mess.
"There was shame in doing this to our own people."
Ms Nagy said in addition to compensation for the estimated 20,000 people affected by the program, the case also seeks an apology from the Commonwealth.
"We want to expose what happened and expose a policy and a program that we say was racially discriminatory," she said.
"One of the main aspirations of our client is to make sure this kind of program is never put in place again."
13YARN 13 92 76
Lifeline 13 11 14
