A Federal Court class action has been launched against the Commonwealth, alleging a remote Work for the Dole scheme racially discriminated against Indigenous people.

On Monday, Maurice Blackburn Lawyers filed the claim, seeking compensation for the "thousands of Aboriginal and Torres Strait Islander people" who took part in the Community Development Program (CDP) between July 2015 and May 2021. The lead applicant is Aboriginal woman Serena Marrkuwatj Bonson from Maningrida, who the case alleges received 17 penalties and lost income for up to four weeks at a time.

Maurice Blackburn's principal lawyer, Miranda Nagy, said at various times, Ms Bonson was caring for children and grandchildren.

"She remembers having difficulty and having to ask other members of her extended family for money or food because she didn't have enough," she said.

"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."

The class action argues the program — which overwhelmingly targeted First Nations communities in remote regions — was "discriminatory and unjust". It required participants to complete 25 hours of 'Work for the Dole' activities each week to receive income support. Many worked longer hours and in harsher conditions than people in urban areas.

The lawsuit could apply to about 20,000 Indigenous people in 60 remote communities across Western Australia, Queensland, New South Wales, the Northern Territory and South Australia.

Baru Pascoe is a Yolŋu Elder from Maningrida in the Northern Territory. He says the CDP was imposed by Canberra public servants without community consultation, Similar to many polices which have impacted the community in the past, the result have often caused misery and untold damage.

"Canberra thinking; not our thinking," he says.

Mr Pascoe notes many people with disabilities were required to perform tasks to receive financial support to survive.

"It was rolled out and a lot of people suffered or were confused, stressed, traumatised. A lot of people had nightmares, even getting sick," he said.

Over the six months he was on the program, he received five penalties.

"CDP harmed the community," Mr Pascoe said.

"People didn't understand it. 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."

Maurice Blackburn says the CDP breached racial discrimination laws, leaving First Nations people working "millions more hours than if they had been doing Work for the Dole under the equivalent program in cities". They argue this caused financial hardship and emotional distress.

The CDP, which docked welfare payments if participants failed to meet engagement requirements, has long been criticised for its impact on vulnerable people. Remote participants were required to work 50 hours per fortnight year-round, while urban participants only had to work up to 30 hours a fortnight for six months of the year.

Ms Nagy called the program a "deeply flawed" scheme that relied on "racist stereotypes" about Indigenous people being "idle" and in need of enforced daily activities, adding there is "little doubt" it was targeted at First Nations people.

She said the government "applied rules that demanded more of First Nations people than those in the cities and punished them more harshly when they did not or could not comply".

"We are seeking compensation for the harm caused and recognition of the dignity and equal rights of those affected," she added.

In 2021, the Ngaanyatjarra Shire in WA secured $2 million in a class action settlement over harms caused by the CDP, arguing it was discriminatory. At the time, a spokesperson for then-Indigenous Australians Minister Ken Wyatt rejected suggestions the scheme was racist.

The government has since moved to phase out the program. Funding will only continue until the end of October, with the CDP set to be formally replaced by the Remote Australia Employment Service (RAES) on November 1.

Minister for Indigenous Australians, Malarndirri McCarthy, said the government has invested more than $770 million into their new Remote Jobs and Economic Development Program to "give First Nations Australians the dignity of real work, real pay and better conditions".

"Our program is a game changer and making a real difference in people's lives. It is grounded in self-determination and focused on economic opportunity and community development," she told the ABC.

With AAP