An employer was recently required to pay nearly $1.5 million in damages to an employee for a psychiatric injury the employee sustained as a result of the way his employer terminated him. This is a significant decision, because previously psychiatric damages were unavailable to employees involved in employment contractual disputes. This decision may now pave the way for other employees to make similar claims involving an employer’s breach of their employment contract. These claims may have costly consequences for employers.
Facts of the case
Mr Elisha was employed by Vision Australia since 2006 under a written employment contract.
Allegations were made against Mr Elisha that he had been aggressive and intimidating during an incident which occurred on a work trip. Mr Elisha was stood down by Vision Australia and was told the investigation would occur in accordance with Vision Australia’s enterprise agreement and its disciplinary procedure. These two documents set out the disciplinary process Vision Australia was to follow.
Vision Australia directed Mr Elisha to attend a meeting to respond to the alleged misconduct. During the investigation meeting, Mr Elisha denied the allegations.
Vision Australia proceeded to terminate his employment for serious misconduct, referencing previous allegations of aggression and intimidation in support of its decision. Mr Elisha was not given the opportunity to respond to allegations concerning his previous conduct.
Following his dismissal, Mr Elisha was diagnosed with a major depressive disorder and an adjustment disorder with depressed mood.
Mr Elisha brought a claim against Vision Australia for economic loss, pain and suffering. He claimed Vision Australia had breached the terms of his employment contract and had been negligent during the disciplinary process which had resulted in him sustaining psychiatric injuries.
The matter was originally heard in the Supreme Court of Victoria, where Mr Elisha’s claim was upheld. The decision was appealed to the Victorian Court of Appeal which reversed the Supreme Court decision and was then argued before the High Court of Australia.
High Court decision
The High Court found that:
The disciplinary procedure and the enterprise agreement formed part of Mr Elisha’s employment contract with Vision Australia, due to the wording which appeared in Mr Elisha’s employment contract;
Vision Australia had not followed its disciplinary procedure, which required Vision Australia to provide Mr Elisha with a letter setting out the allegations against him. This amounted to a breach of Mr Elisha’s employment contract;
Mr Elisha's injury, being a major depressive disorder and an adjustment disorder with depressed mood, was caused by Vision Australia’s breach of contract; and
Vision Australia’s liability for Mr Elisha’s injury was not too remote because it was within the parties’ contemplation that Mr Elisha would suffer significant distress as a result of Vision Australia breaching his employment contract and terminating his employment after nearly 10 years of service with Vision Australia
What do employers need to be aware of?
In the wake of this decision, employers should look at the following:
Reviewing their employment contracts
Employers should review the wording of their existing employment contracts to ascertain whether an employer's workplace policies and procedures form part of their employee's employment contracts.
Reviewing their disciplinary policies and procedures
Employers should review their disciplinary policies and procedures to ensure that they are being correctly followed and consider whether they need reviewing and updating so that the disciplinary process is clear and fair.
Employers should ensure managers are properly trained in implementing their disciplinary policies and procedures to ensure they are fair and are consistently applied in the workplace.
Key takeaways
Employers need to be mindful of what disciplinary procedures they have in place, and how these procedures are being implemented in the workplace. There may be costly consequences for employers who fail to undertake proper investigations and implement appropriate disciplinary procedures.
If you have any questions about the wording of your existing employment contracts, policies and procedures, require assistance in implementing a disciplinary process in the workplace, or require legal representation, please contact a member of our employment law team.
John Sneddon, Director
(07) 3307 4504
Ruby Nielsen, Senior Associate
(07) 3307 4551
Eve Lee-Roberts, Associate
(07) 3307 4511
Sophia Chetcuti, Lawyer
(07) 3307 4515
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