High Court Recognises Damages for Psychiatric Harm Arising from a Flawed Termination
The recent decision of the High Court of Australia in Elisha v Vision Australia Limited [2024] HCA 50 (Elisha) has confirmed that damages can be awarded for psychiatric injury that results from an employer’s breach of contract (including by unfair dismissal). Historically such breaches have not been compensated.
The decision in Elisha could have a significant impact on employers, and reflects the changing societal attitude towards the employee/employer relationship as well as the way psychiatric injuries are viewed in Australia more generally. The case ignites questions as to the broader availability of damages for psychiatric harm following a breach of contract.
Further, Elisha is important as it highlights the importance of employers ensuring that their policies, procedures, agreements and awards are not inadvertently incorporated into their employment contracts. Employers should also be careful to adhere to their processes, procedures and agreements.This is particularly important during a disciplinary process and when terminating an employment contract.
Background
The employee, Mr Elisha commenced employment with Vision Australia Limited (Vision Australia) in 2006. Importantly, Mr Elisha’s employment contract referenced the requirement to comply with Vision Australia’s policies and procedures, including those relating to disciplinary action and the terms of its Enterprise Agreement.
In March 2015 Mr Elisha was on a work trip. It was alleged that he had engaged in ‘aggressive and intimidating’ behaviour towards a fellow guest at a hotel he was staying at during the trip.
Once made aware of the alleged incident, Vision Australia wrote to Mr Elisha inviting him to a meeting to respond to the allegation as part of the investigation process. In the letter, Vision Australia stated that the meeting would be conducted in accordance with its Enterprise Agreement and Disciplinary Procedure. Vision Australia alleged that Mr Elisha had a previous history of displaying aggressive behaviour during his employment, and this was an important aspect taken into consideration when deciding on whether it should terminate Mr Elisha’s employment. However, Mr Elisha was never given an opportunity to respond to these allegations, and his employment was terminated.
Vision Australia’s internal investigation was described by the trial judge as a “sham” and a “disgrace”[1]. It was also found that both Vision Australia’s Enterprise Agreement and Disciplinary Procedure, which it was found to have not complied with, were incorporated into the contract.[2]
For these reasons, and for many more, Mr Elisha was successful in settling an unfair dismissal claim for the maximum amount he was entitled to ($27,248.68).[3]
It was claimed by Mr Elisha, and ultimately held by the trial judge, that Vision Australia’s failure to follow the Disciplinary Procedure which ultimately resulted in him being dismissed, caused Mr Elisha to develop “very severe psychiatric illness in the nature of at least major depressive disorder”.[4] Absent his dismissal, it was unlikely Mr Elisha would have developed this illness or a similar psychiatric condition.[5]
The question that followed was whether damages were recoverable for the psychiatric injury Mr Elisha suffered as a result of Vision Australia’s breach of the Employment Contract.
Scope of Contractual Duty
Addis v Gramophone Co Ltd [1909] AC 488 has long been authority, including in Australian Courts, for the proposition that damages which flow from a wrongful dismissal cannot include damages in respect of injured feelings or loss of employment prospects.[6] This is because psychiatric injury, under the Addis view, falls beyond the scope of the employer’s contractual duty to the employee pursuant to the employment contract.
This was more clearly expressed by Lord Hoffman in the United Kingdom case of Johnson v Unisys Ltd:
"an employee cannot recover damages for injured feelings, mental distress or damage to his reputation, arising out of the manner of dismissal".[7]
The Court of Appeal was of the view that the decision of Baltic Shipping v Dillon is authority for the proposition that, unless the purpose of a contract was to provide enjoyment and relaxation (or some other exception applied), damages for disappointment and distress following breach of contract are unavailable.[8]
The High Court’s decision in Elisha is distinguished from the original position in that, at least in the case of a recognised psychiatric injury (in this case being a major depressive disorder), liability for psychiatric injury is not beyond the scope of the contractual duty pursuant to the employment contract.
The Court preferred the position that the scope of the contractual duty is to be understood by reference to the liability that, in light of the parties’ agreement, might fairly be regarded as being accepted by the parties.[9]
Remoteness
Once it is understood that liability for psychiatric injury is not beyond the scope of contractual duty, the usual principles relating to remoteness in contract should be applied to the employment contract.
The majority in Elisha was of the view that psychiatric injury was a type of damage which could have been reasonably contemplated as following a serious breach of contract, at the time Mr Elisha and Vision Australia entered into the employment contract.
Although the precise manner of the breach need not have been contemplated by the parties, the psychiatric injury would not have occurred if Vision Australia had not breached the contract by its “sham” investigation.
Changing Societal Values
The decision in Elisha reflects the changing societal values towards mental health, particularly in the workplace. Indeed, in dismissing Vision Australia’s reliance on Addis, the Court noted “the case was decided more than a century ago in a different social context and has been overtaken substantially by more recent decisions in the United Kingdom and Australia”.[10]
Key Takeaways:
This High Court decision highlights:
- the importance of ensuring that employment contracts are carefully drafted to ensure that employer policies and procedures and other documents such as awards and enterprise agreements are not inadvertently incorporated into employment contracts;
- the importance of employers carefully following their processes, procedures and agreements during a disciplinary process and or the termination of an employment contract, especially if they have been incorporated into the employment contract;
- the importance of putting all allegations and information that informs the stand down and termination to the employee, in order for the employee to have an opportunity to properly respond;
- ensuring that workplace investigations are objective and free from bias; and
- more generally, a changing position in Australian case law in respect of the wider implications of breaches of contracts and the loss that can flow from such breach.
Please do not hesitate to reach out to our experienced employment law team if you have any questions regarding any of the information provided above.
[1] Elisha, [65].
[2] Elisha, [37] and [40].
[3] Elisha, [22].
[4] Vision Australia Ltd v Elisha [2023] VSCA 265, [174].
[5] Elisha v Vision Australia Ltd [2022] VSC 754, [629].
[6] [2023] VSCA 265, [197].
[7] [2003] 1 AC 518 at 541, [44].
[8] [2023] VSCA 265, [198] – [202].
[9] [2023] VSCA 265, [58].
[10] Elisha, [51].
