Damages for Psychiatric Injury in Employment Dismissals - The Elisha Decision

The High Court's decision in Elisha v Vision Australia Limited [2024] HCA 50 represents a significant development in employment law with respect to psychiatric injury caused by poorly handled dismissals.

The Court's judgment provides crucial guidance on when employers may be liable for psychiatric injuries suffered by employees due to breaches of contractual disciplinary procedures.

A seemingly innocuous dismissal or disciplinary procedure, if incorporated into a contract, may have serious adverse consequences for an employer.

Background Facts

Mr Elisha was employed by Vision Australia as an adaptive technology consultant.

Following an incident of Mr Elisha being allegedly aggressive at a hotel during work travel, Vision Australia conducted disciplinary proceedings that the primary judge later described as a "sham" and "disgrace”.

Key problems with the process included:

• Vision Australia failed to inform Mr Elisha of allegations about his prior behaviour that influenced their decision;
• management representatives considered these undisclosed allegations when evaluating his credibility;
• Mr Elisha was therefore denied a proper opportunity to respond to all relevant allegation; and
• his employment was terminated based partly on matters never put to him.

Following his dismissal, Mr Elisha developed a major depressive disorder that left him unable to work.

Initial Decisions

Mr Elisha sued Vision Australia for breach of contract and negligence, seeking damages in respect of a psychiatric injury he sustained because of the termination.

At first instance, he succeeded in his contract claim. Vision Australia’s employment contract incorporated aspects of its disciplinary procedures.

The primary judge awarded damages of $1.44 million, which was later overturned by the Victorian Supreme Court of Appeal.

The Court of Appeal affirmed the primary judge’s findings that the employment contract incorporated aspects of Vision Australia’s procedures, but relied on the longstanding view in Addis v Gramophone Company Ltd [1909] AC 488 that psychiatric injury caused by the breach of an employment contract generally could not be compensated. The Court of Appeal also held that damages were too remote.

The High Court's Decision

Mr Elisha was granted special leave to challenge the Victorian Supreme Court of Appeal judgment.

A majority of the High Court held:

• Vision Australia's disciplinary procedures were incorporated into Mr Elisha's employment contract;
• the company breached these procedures through serious procedural unfairness;
• damages for psychiatric injury were recoverable for breach of contractual terms regarding the dismissal; and
• such injury was not too remote as it was reasonably foreseeable as a "serious possibility".

There was a requisite connection between Mr Elisha's psychiatric injuries and Vision Australia’s breach of his employment contract.

Key Takeaways for Employers

The High Court’s decision provides important takeaways:

1. The issue of potential incorporation of employment policies, procedures, Awards and Enterprise Agreements into an employee’s contract is more important than ever. A dismissal procedure incorporated into an employment contract become contractual terms. Significant damages may be available for breaches.
2. Be wary of ‘promissory’ language in employment policies and procedures. A policy that uses merely ‘aspirational’ language is much less likely to be incorporated into an employee’s contract.
3. Be careful of disciplinary and dismissal policies and procedures that set out prescriptive requirements about what an employer should or shouldn’t do. These can place unnecessary procedural burdens on employers.
4. Ensure employment contracts and policies contain an appropriate disclaimer that deals with the issue of incorporation.
5. Be wary of hidden or undisclosed matters forming the basis of a decision to dismiss. This may contravene any procedural fairness obligations that apply to the dismissal (contractual or otherwise).
6. Remember that psychiatric injury from dismissal processes is now established as a potential compensable harm, potentially leading to damages far exceeding those available in unfair dismissal claims.

In light of these and others risks, employers should seek legal advice if unsure about their dismissal processes.

Looking Forward

As the majority of the High Court observed, employment is not only a livelihood but an occupation, an identity and a sense of self-esteem. For some employees, dismissal is devastating.

The potential for psychiatric injury arising from poorly handled dismissals and incorporation of policies is a risk that employers must manage. Serious breaches, as in this case, may result in the employee suffering severe mental harm.

Employers should review their disciplinary policies and procedures and scrutinise how these are implemented in practice. Investment in robust documents, appropriate training for managers involved in disciplinary matters, and obtaining legal advice where appropriate, may help avoid costly claims.

‍This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.