$1.4 million awarded to employee for major depressive disorder flowing from breach of disciplinary procedure

December 12, 2024

In brief

The High Court, in Elisha v Vision Australia Ltd [2024] HCA 50, has allowed an appeal awarding AU$1.44 million in damages to a former employee of Vision Australia for psychiatric injury flowing from breach of a disciplinary procedure incorporated into the employment contract.

The decision highlights the importance of ensuring employment contracts do not unintentionally incorporate policies, and where such policies are incorporated, ensuring they are followed.

Facts

Mr Elisha commenced employment with Vision Australia in 2006 as an adaptive technology consultant.

In March 2015, Mr Elisha was staying at a hotel in rural Victoria for work when an incident occurred. The circumstances were disputed, however it was alleged that Mr Elisha had been aggressive and intimidating when he phoned reception at 12.30 am complaining of noise and when he checked out the following day.

The incident was escalated to Mr Elisha's manager. The decision noted that Mr Elisha and his manager's relationship had been strained for some years. The manager had also raised concerns regarding verbal reports of Mr Elisha's aggressive behaviour in the past.

A member of the People and Culture department interviewed the hotel proprietor, Mr Trch, and then issued a letter asking Mr Trch to accept their "sincere apologies".

Mr Elisha was then stood down and directed to attend a meeting to respond to alleged misconduct during the hotel incident. Mr Elisha "vigorously" denied the allegations in writing and during the meeting.

Internally, Vision Australia accepted the hotel proprietor's account of events and also had reference to a "pattern of aggression" exhibited by Mr Elisha. Mr Elisha's employment was then terminated for serious misconduct, referencing the hotel incident.

Following the termination, Mr Elisha was diagnosed with major depressive disorder and an adjustment disorder with depressed mood.

Mr Elisha brought an unfair dismissal claim, which was settled for AU$27,248.68, being the maximum amount to which he could be entitled in that jurisdiction.

High Court decision

Mr Elisha alleged that he suffered psychiatric injury caused by Vision Australia's breach of his employment contract.

Relevantly, the High Court held that:

1. Mr Elisha's employment contract incorporated the employer's disciplinary policy. This was on the basis that the employment contract stated "In addition, Employment Conditions will be in accordance with…Vision Australia Policies and Procedures. Breach of the Policies and Procedures may result in disciplinary action" and the acceptance term which stated "I agree to comply with…all other Company Policies and Procedures." The High Court considered that, on the basis of these clauses, the common intention of the parties was for Vision Australia's policies and procedures to be contractually binding.
2. Vision Australia had breached its policies by failing to provide Mr Elisha with a letter, prior to the disciplinary meeting, containing all allegations relied on to support his termination. Specifically, Vision Australia did not mention the pattern of aggressive behaviour in its letter to Ms Elisha. The Court considered the real reason for the dismissal was the "pattern of aggression", which "lacked any foundation" and was never raised with Mr Elisha.
3. Mr Elisha's psychiatric injury was caused by Vision Australia's breach, and the liability for the injury was not too remote particularly given the serious circumstances of the breach. The Court considered that without Vision Australia's breach, Mr Elisha would not have been dismissed for the alleged misconduct.

When considering whether the psychological impact of the breach was in the parties' contemplation, the High Court made the following important observation:

"It has been described as a "social reality" that a person's employment "is usually one of the most important things in his or her life. It gives not only a livelihood but an occupation, an identity and a sense of self-esteem." An unfair process of termination for alleged misconduct could affect all three of those interests; ie, a person's livelihood, identity and self-esteem."

Take away points

This critical decision highlights the need for employers to seek advice in relation to disciplinary processes, and in particular consider the following:

• Employment contracts should expressly state that policies and procedures are not incorporated into the contract. If policies and procedures are incorporated into employment contracts, then they need to be followed.
• Is it necessary to have written policies in relation to disciplinary procedures? The answer to this question may differ between businesses. However, it may be preferable not to introduce policies in relation to disciplinary processes and, instead, manage such processes on a case-by-case basis.
• Generally, employees should be provided with an opportunity to respond to all allegations which may be a basis for dismissal, including any historical behaviour, and a decision should not be made in relation to their employment before hearing and considering the employee's response.