The recent High Court decision in Elisha v Vision Australia Ltd [2024] HCA 50 has significant implications for employers, overturning a longstanding position in relation to psychiatric injury. The decision confirms that employers can be held liable for psychiatric injury caused by a breach of the employment contract.
What happened in Elisha v Vision Australia?
Mr Elisha was an employee of Vision Australia Pty Ltd (Vision Australia). Vision Australia terminated his employment but did not follow its own disciplinary process before doing so. The reasons relied upon by Vision Australia in terminating the employment included matters for which Mr Elisha had not been given an opportunity to respond to. Mr Elisha has been notified of one incident of alleged inappropriate conduct while on a work trip, however Vision Australia in deciding to terminate his employment considered the fact that he had “displayed a pattern of aggression” during his employment. Mr Elisha was never given an opportunity respond to the alleged pattern of aggression.
Mr Elisha developed a major depressive and adjustment disorder which rendered him unable to work. He brought a claim against Vision Australia for negligence and breach of contract seeking damages for pain and suffering and economic loss, alleging Vision Australia had caused his injury.
The High Court found that:
- Vision Australia had breached its contractual obligations by failing to provide full details of the allegations against Mr Elisha in writing before conducting a disciplinary meeting. Mr Elisha was not provided an opportunity to properly respond to allegations. Consequently, the termination process was, as described by the primary judge, ‘a sham and a disgrace’ and lacking procedural fairness.
- The psychiatric injury suffered by Mr Elisha was a foreseeable consequence of the employer’s failure to follow proper procedure.
This decision overturned the earlier Court of Appeal decision in the matter and sets a precedent for broader employer liability in disciplinary processes which result in termination of employment (and potentially has broader implications for employer liability generally).
Key takeaways for employers
- Poor process may be a breach of contract – An employer’s failure to comply with its own disciplinary policies and procedures was found to be a contractual breach, resulting in the employer being liable for damages for the loss suffered as a result of that breach.
- Psychiatric injury claims are now a real risk – The High Court ordered damages in the amount of $1.44 million finding the damages were a result of Vision Australia’s failure to follow proper termination procedures, and that there was a foreseeable risk of psychiatric harm to the employee.
- Procedural fairness is essential – Employers must provide the employee with clear allegations and an opportunity to respond before making decisions that will affect an employee during a disciplinary process.
The legal risks for employers
This decision expands the scope of recoverable damages for psychiatric injury in employment disputes. The High Court has now clarified that:
- Breaching procedural fairness can result in significant financial liability for employers.
- The risk for employers will be based on what is reasonably foreseeable at the time of contract formation.
How employers evaluate the risks
To minimise the risk of claims like this, employers should:
- Follow clear and documented disciplinary procedures – Ensure policies and procedures are well-drafted, are not incorporated into employment contracts (but there is a contractual obligation to comply with policies and procedures as amended), and are consistently applied. Constant reviews of policies and procedures is also crucial.
- Provide written notice of all allegations – Employees must receive written details of all allegations before any disciplinary meeting, allowing a genuine opportunity for the employee to respond.
- Ensure fairness in decision-making – Decisions around disciplinary procedures should be based on a structured and impartial process. Employers should avoid rushed processes and should ensure there is never a predetermined outcome.
- Train managers on employment law compliance – Human Resource teams and managers should be equipped to conduct fair and legally sound disciplinary proceedings. Employers should provide training in this regard.
Final thoughts
This decision is an eye opener for employers. A failure to follow applicable policies and procedures and ensure procedural fairness may lead to significant compensation being awarded for psychiatric injury. Employers who take a proactive approach to ensure compliance will be in a stronger position to avoid or defend claims.
If you have concerns about your organisation’s disciplinary procedures or want to review your employment policies, contact Nicole Dunn Lawyers for expert guidance via office@ndlaw.com.au.
Disclaimer: This publication has been provided for general guidance only and does not constitute professional legal advice. You should obtain professional legal advice before acting on information contained in this article