Elisha v Vision Australia Limited (HCA 2024)

Link to Decision

Key Takeaways

The High Court of Australia has confirmed that damages for psychiatric injury may be awarded in circumstances where the manner in which an employee is dismissed breaches the employment contract.

This overturns the established view that an employee cannot recover such damages for a breach of contractual obligations relating to dismissal. The judgment also highlights the need for employers to ensure that their employment contracts and policies are carefully drafted, and that workplace investigations are conducted fairly.

Brief Facts

The worker was an adaptive technology consultant employed by Vision Australia Ltd. In 2015, while staying at a hotel in rural Victoria for work, he raised a complaint with the hotel manager about a noise outside his room. It was alleged that the worker:

• had told the hotel manager aggressively and loudly words to the effect of ‘You’re the manager you have to fix it, are you not able to do your job, are you not able to do any job, are you incapable of doing anything’;
• did not thank her when he was moved to a different room; and
• when checking out of the hotel the next morning, had thrown his room keys on the reception desk in a rude and dismissive manner and left without saying anything.

The hotel manager complained to the employer, and a disciplinary process was commenced. The worker’s direct manager, Ms Hauser, with whom he had a strained relationship, was involved. The other decision-makers involved rarely dealt with the worker, but were told by Ms Hauser that he was ‘aggressive and apt to engage in untenable excuse-making’.

The employer ultimately found the allegations made by the hotel manager substantiated and terminated the worker’s employment for serious misconduct, citing only the incident at the hotel. After his dismissal, the worker was diagnosed with a major depressive disorder and adjustment disorder.

The worker issued proceedings in the Supreme Court of Victoria, alleging that the way in which he was dismissed by the employer breached his employment contract, as well as a common law duty to take reasonable care to avoid injury to employees during such processes. Broadly, these were the two issues to be decided on appeal to the High Court.

Judgment

The primary judge found that the worker had not engaged in inappropriate behaviour as alleged by the hotel manager. Furthermore, the ‘claimed history’ of aggression and excuse-making was the real reason for the dismissal. The employer was unable to substantiate that the worker had engaged in such past behaviour, and had not put this allegation to him in the disciplinary process.

At all relevant times, the employer had both an enterprise agreement and an internal policy, the Vision 2015 Disciplinary Procedure (Disciplinary Procedure), which each detailed the disciplinary process that was to be followed in the worker’s circumstances. In particular, the Disciplinary Procedure required the employer to give the worker notice of, and an opportunity to respond to the allegations that formed the basis for dismissal.

The worker’s employment contract contained a clause in it that read (underline added):

Other Conditions
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.

In a joint judgment, the High Court found that this clause incorporated the Disciplinary Procedure into the worker’s contract. Accordingly, the employer’s failure to give him a chance to respond to the allegation regarding past aggressive conduct and excuse-making breached his contract.

The High Court further affirmed that damages for psychiatric injury were recoverable in this case, as it was reasonable to expect that the worker would suffer such injury as a result of the way in which this particular contractual obligation was breached.

Implications

Employers should ensure that they do the following:

• Make sure that there is a clear distinction between documents that are intended to impose legally binding contractual obligations, and internal policies and procedures.
• Include carefully worded clauses in your employment contract templates that confirm the non-binding nature of workplace policies.
• Ensure that disciplinary processes comply with procedural fairness requirements in applicable enterprise agreements, policies and legislation, including unfair dismissal laws in the Fair Work Act 2009 (Cth).
• For NSW employers, Section 151E of the WC Act 1987 provides that normal work injury damages provisions still apply to an award of damages for breach of contract. Accordingly, in NSW, workers will still need to meet the 15% WPI threshold, and only damages for economic loss can be awarded.