Centrelink's decision to release a welfare recipient's personal information to a journalist is unprecedented and will have a chilling impact on public criticism, lawyers say.
Victorian Legal Aid will now change its legal advice to clients to protect their private details from public release by the Government.
"It's important to remember the real human consequence of this decision," executive director Dan Nicholson said.
"We would now have to advise any person who thinks they have an incorrect Centrelink debt that, if they speak publicly about their situation, their confidential information is no longer safe with Centrelink.
"This is an unsatisfactory situation."
Human Services Minister Alan Tudge and his department claim the disclosure is legal according to section 202 of the Social Security Act 1999, and section 162 of the A New Tax System Family Administration Act 1999.
The minister stood by the decision in Parliament on Tuesday and said false information had been placed in the media by Ms Fox.
Peter Sutherland, a social security legal expert at the Australian National University (ANU), said the department had never made a public disclosure with this specific legal argument.
"It is arguable whether the department is authorised by the statute as they claim," he said.
"However, only the courts could determine the lawfulness or otherwise of their action, possibly through a test case by constitutional write in the Federal Court."
Mr Nicholson said the disclosure was a serious matter that should concern all Australians.
"The starting point is that disclosure of this kind is a criminal offence, punishable by up to two years imprisonment unless a specific exception applies," he said.
Mr Nicholson said the Government was relying on an exemption to the offence that allows disclosures for "the purposes of social security law", given their claim that unfounded allegations distract staff and undermine public confidence in the agency.
"This is an extraordinarily broad interpretation of this exception," he said.
"We can't find any decided cases that support it, and we think there are real doubts about this interpretation of the law.
"It seems that Centrelink is attempting to get around important safeguards in the act by releasing the information in the way they have."
Senior law lecturer at Latrobe University Darren O'Donovan has also questioned the legality of the disclosure.
"The Australian public will be bewildered that, at a time when the accuracy of social security records has been under considerable criticism, the department made the decision to place elements of an individual file on the public record," he wrote in a piece for the university.