| The High Court of Australia has recently awarded $1.44 million in damages for psychiatric injury suffered by a technology consultant whose former employer failed to maintain procedural fairness during a disciplinary process. Here’s what businesses can learn from the judgement. |
Key takeaways
An unfair process of termination for alleged misconduct could affect a person’s livelihood, identity, and self-esteem.
Employers should take extra care to maintain procedural fairness at all times when investigating and terminating an employee’s employment for misconduct.
What employers need to consider
- Review employment agreements to confirm whether organisational policies and procedures form a part of the employment agreement.
- Review policies and procedures to ensure they are fit for purpose and reflective of your organisation’s values, objectives and the manner in which your organisation operates in practice.
- When undertaking an investigation for misconduct, employers should disclose all relevant allegations so that an employee has a fair opportunity to respond, particularly if any of the allegations are intended to be relied upon as a reason for dismissal.
- Proper training should be provided to managers to ensure awareness of the relevant disciplinary procedures.
- Consider offering extra support to employees during an investigation or disciplinary process to prevent any adverse psychological impacts.
Elisha v Vision Australia Limited [2024] HCA 50 – Background Mr Adam Elisha (Mr Elisha), was employed by Vision Australia Limited (Vision) from 2006 to 2015 as an adaptive technology consultant, tasked with assisting vision-impaired clients with software and hardware systems.
Mr Elisha’s employment came under scrutiny in 2015, following allegations of misconduct during a work-related stay at a rural hotel in Victoria, Australia. The alleged misconduct triggered a series of disciplinary actions which ultimately led to Mr Elisha’s employment being terminated. Notably, the investigation into the allegations relied heavily on third-party accounts of Mr Elisha’s behaviour, alongside vague assertions of a broader “pattern of aggression” to justify the termination.
Following his termination, Mr Elisha was diagnosed with a major depressive disorder as well as an adjustment disorder with depressed mood, rendering him unable to work.
Decision in the lower courts
Justice O’Meara in the first instance found in favour of Mr Elisha, awarding over $1.4 million in damages for breach of contract.1 Vision appealed this decision, contending that its disciplinary policies were not binding contractual terms and that damages for psychiatric injury were too remote. The Victorian Court of Appeal (VSCA) unanimously allowed the appeal. Whilst the relevant terms of the disciplinary policy were found to have been incorporated into Mr Elisha’s employment contract and Vision failed to give Mr Elisha a chance to respond to the allegations against him, the VSCA held that Vision’s breach of its disciplinary procedure did not give rise to liability for psychiatric harm, and concluded Mr Elisha’s psychiatric injury was too remote to have been within the reasonable contemplation of the parties at the time the employment contract was formed.2
While the VSCA recognised Vision’s procedural failings, its decision effectively insulated employers from liability for non-economic harm arising from such breaches.
The High Court’s decision
The High Court allowed Mr Elisha’s appeal, overturning the VSCA’s decision.
Central to the case was Vision’s mishandling of the disciplinary procedure described by the primary judge as “nothing short of a sham and a disgrace”.3 The High Court examined several critical issues:
1. Incorporation of policies and breach of employment contract
The High Court found that Vision’s disciplinary policies, including the Vision 2015 Disciplinary Procedure, were incorporated into Mr Elisha’s contract via an “Other Conditions” clause which stated:
“In addition, Employment Conditions will be in accordance with regulatory requirements and Vision Australia Policies and Procedures. Breach of the Policies and Procedures may result in disciplinary action”.4
In interpreting the above clause, the High Court held that a reasonable person would interpret this language as creating binding obligations,5 and affirmed that Vision’s disciplinary policies, incorporated into the employment contract, imposed binding obligations.
2. Damages for psychiatric injury and the scope of employer duty
The High Court grappled with whether damages for psychiatric injury were recoverable under the employment contract. Vision had argued, citing the long-standing precedent in Addis v Gramophone Co Ltd [1909] AC 488, that damages for psychiatric injury (like damages for mental distress) were not recoverable in employment cases.6
The High Court rejected Vision’s argument, observing that Addis had been overtaken by modern developments in employment law. In rejecting Addis, the High Court held that damages for psychiatric injury can be recoverable for a breach of contract where such harm is a reasonably foreseeable consequence of a breach, with no exception for employment contracts.7
3. Remoteness of psychiatric harm
The final key issue considered by the High Court was whether the psychiatric injury suffered by Mr Elisha was too remote to warrant compensation. The High Court clarified that the test for remoteness requires the harm to have been “within the reasonable contemplation of the parties” and a “serious possibility” at the time the contract was formed.8
Whilst the precise psychiatric injury suffered by Mr Elisha need not have been contemplated at the time his employment commenced, it was reasonable to expect that Mr Elisha would have been so distressed by the manner in which Vision breached the employment contract that there was a serious possibility that Mr Elisha would suffer a serious psychiatric injury.9 The High Court also noted that Vision’s own policies included provisions for employee support during termination processes, acknowledging the potential psychological toll that disciplinary actions and terminations can take.10
The High Court commented that an unfair process of termination for alleged misconduct could affect a person’s livelihood, identity, and self-esteem, and quoted Lord Millett in Johnson v Unisys Ltd: a person’s employment “is usually one of the most important things in his or her life. It gives not only a livelihood but an occupation, an identity and a sense of self-esteem“.11
If you require assistance or are interested in learning more, please contact Kiri Jervis.
1Elisha v Vision Australia Ltd [2022] VSC 754.
2Vision Australia Ltd v Elisha [2023] VSCA 265.
3Elisha v Vision Australia Ltd [2022] VSC 754 at [226], [236].
4Ibid [36].
5Ibid [40].
6Ibid [50].
7Ibid [48] to [59].
8Ibid [65].
9Ibid [69].
10Ibid [68].
11Ibid [68].
