Dismissal results in $1.44 million in damages for psychiatric injury

Procedural fairness is a core component when moving to dismiss an employee. Failing to afford an employee due process can undermine the validity of the dismissal, opening the employer to the risk of liability to compensate the employee.

In a recent decision of the High Court of Australia, Elisha v Vision Australia Limited [2024] HCA 50, a former employee successfully claimed damages for breach of contract to compensate his psychiatric injury after his former employer failed to adhere to the disciplinary procedure it had incorporated into the employee’s employment contract.

Facts of the case

Mr Elisha was employed by Vision Australia as an adaptive technology consultant for nine years. In 2015, Mr Elisha was involved in an incident of aggression toward one of the proprietors of a hotel who reported the incident and where said incident occurred.

Mr Elisha was stood down by Vision Australia and required to attend a meeting, in accordance with the disciplinary procedure, at which he denied the allegations in relation to the hotel incident.

Vision Australia accepted the hotel’s version of events, taking into consideration allegations of historical aggressive behaviour from Mr Elisha, and terminated his employment. These allegations were never put to Mr Elisha for response, resulting in a significant deviation from the disciplinary procedure.

Mr Elisha was diagnosed with major depressive order and commenced litigation against Vision Australia, including for breach of contract, arguing that the disciplinary procedure was incorporated into his contract.

The primary judge found in favour of Mr Elisha, describing the dismissal procedure as a ‘sham’. However, Vision Australia successfully appealed to the Victorian Court of Appeal who overturned the primary judge’s findings on the basis that damages were not available for psychiatric injury in claims for breach of contract concerning the manner of termination of employment.

The High Court

Mr Elisha appealed to the High Court, who was required to determine whether:

• the disciplinary procedure was incorporated into Mr Elisha’s employment contract
• damages for psychiatric injury were available in a breach of contract claim
• liability for psychiatric injury was too remote in this case.

The High Court found that the disciplinary procedure was incorporated into the employment contract and that Vision Australia’s failure to adhere to it was a breach of a contractual term.

The majority of the High Court held that that damages for psychiatric injury were in fact available for a breach of contract claim, overturning the Court of Appeal’s reliance on a United Kingdom House of Lords decision from 1909. This was on the basis that the present case involved a different social context to the House of Lords decision and that more contemporary High Court jurisprudence left open the possibility of damages for psychiatric injury for breaches of employment contracts.

The majority further held that psychiatric injury arising from the botched dismissal procedure was not a risk that was too remote but, rather, was reasonably within the contemplation of the parties at the time of the contract. Vision Australia’s anticipation of this risk was evident by their implementation of a support program, including counselling for employees.

Accordingly, the High Court upheld Mr Elisha’s claim and restored his award of $1.44 million in damages.

Takeaways for employers

This case highlights the need for employers to ensure that they maintain adequate and fair disciplinary processes for the management of their employees and to avoid incorporating disciplinary procedures and other policies into employment contracts.

If you have questions about workplace policies and procedures or the management of employees, please contact a member of our workplace relations and safety team.