Elisha v Vision Australia Limited [2024] HCA 50.

The High Court of Australia has ruled that an employee who suffers psychiatric injury through wrongful termination or disciplinary procedures can be entitled to damages in certain circumstances in a decision that could have a significant impact on Australian employers.

The case is a clear illustration as to how costly it can be for employers if disciplinary and other related procedures are not conducted properly or in accordance with defined processes.

Background

Mr Elisha was employed as an 'adaptive technology consultant' for Vision Australia pursuant to an employment contract dated 27 September 2006 (Contract). His work involved setting up or assisting in respect of software and hardware systems for the vision impaired, visiting homes and workplaces throughout Australia.

Significantly, the Contract included provisions that specified that Mr Elisha would comply with Vision Australia's policies and procedures. In 2015 Vision Australia had established a disciplinary procedure (2015 Policy).

In early 2015, Mr Elisha was working in country Victoria and staying at a hotel when allegations of intimidating behaviour were made to Vision Australia about his dealings with the hotel manager.

Following an initial investigation, Mr Elisha was given a 'stand down letter' detailing several allegations, and required to attend a meeting in response to the allegations.

Subsequent to the meeting, Mr Elisha's employment was terminated on the basis of 'serious misconduct'. In doing so, Vision Australia relied on other alleged instances of misconduct (described in Court as 'slurs') which were not included in the stand down letter or discussed in the meeting.

Mr Elisha brought an unfair dismissal claim in the Fair Work Commission (FWC) which was settled in July 2015 with Vision Australia paying six months' salary as compensation, the maximum amount under the Fair Work Act 2009.

However, five years later, Mr Elisha issued a claim for damages in the Supreme Court of Victoria in 2020 alleging, among other things, that Vision Australia had breached the Contract by its conduct in the disciplinary process, resulting in him suffering loss and damage primarily through the development of a psychiatric injury. Mr Elisha alternatively argued that Vision Australia breached a common law duty of care to him in respect of the disciplinary process.

Decisions below – Trial: Supreme Court of Victoria

Vision Australia defended the claim at first instance, initially relying on a deed of settlement signed by Mr Elisha in settlement of his FWC unfair dismissal proceeding on the basis of estoppel. This was rejected by the Court which found that "the terms of the deed should not be construed as having effected a release of claims beyond those made in the unfair dismissal proceeding" as the psychiatric injury and damages claim could not reasonably have been within the contemplation of the parties when settling the FWC claim.

Following a lengthy trial, O'Meara J delivered judgment on 13 December 2022 in favour of Mr Elisha, and found:

• Prior to the disciplinary meeting and before receiving Mr Elisha's response, Vision Australia had prejudged the outcome, concluding that Mr Elisha was at fault;
• Apart from Mr Elisha's manager, others involved in the termination decision had "rarely if ever dealt with" Mr Elisha, and so were reliant on his manager's description of past conduct which was influenced by a strained and discoloured relationship;
• The process which led to Mr Elisha's termination was "unfair, unjust and wholly unreasonable" and that " … the process adopted by [Vision Australia] was nothing short of a sham and a disgrace"; and that
• The disciplinary process conducted by Vision Australia was found to breach terms of Vision Australia's Enterprise Agreement and the 2015 Policy, both of which had been incorporated into the Contract.

O'Meara J found that Mr Elisha suffered psychiatric injury as a consequence of Vision Australia's breach of the Contract, resulting in damages of $1.44 million.

Appeal: Victorian Supreme Court of Appeal

Vision Australia successfully appealed to the Victorian Court of Appeal, on the basis that the primary judge, O'Meara J erred in:

• finding that clauses from the Vision Australia Enterprise Agreement and the 2015 Policy formed part of the Contract (Ground 1);
• finding that Vision Australia breached the Contract (either the relevant Enterprise Agreement clauses or the 2015 Policy) (Ground 2);
• failing to conclude that, if Vision breached the Contract (Ground 3):
  • damages, properly assessed, would be a maximum of one month's pay;
  • damages were not available at law for any psychiatric harm suffered by Mr Elisha; and
  • damages for psychiatric harm suffered by Mr Elisha were too remote.

The Court of Appeal found that the Vision Australia Enterprise Agreement was not incorporated in the Contract.

However, it found that the 2015 Policy formed part of the Contract because under the terms of the Contract Vision Australia had promised to act in a specific way in respect of disciplinary action. On those bases, Grounds 1 and 2 of Vision Australia's appeal were rejected.

In relation to Ground 3, the Court of Appeal accepted Vision Australia's reliance on a 1909 case of Addis v Gramaphone Company Ltd [1909] AC 488 in which the House of Lords had in broad terms, found that an award for wrongful dismissal could not include compensation for 'hurt feelings' or for loss arising out of difficulties in finding 'fresh employment'.

Their Honours went on to find that "the damages for psychiatric injury cannot stand" because the type of damage suffered by Mr Elisha was too remote and not something that could have been in the reasonable contemplation of the parties at the time the Contract was entered into in 2006. They allowed Vision Australia's appeal on Ground 3, overturning O'Meara J's decision.

Appeal: High Court of Australia

On 11 December 2024 Mr Elisha succeeded in his appeal to the High Court.

In a 6-1 decision, the majority agreed with the Court of Appeal and found that Vision Australia's compliance with its 2015 Policy was a term of the Contract. This term had been breached by Vision Australia through its 'sham' termination process and the failure to put all the relevant allegations to Mr Elisha.

However, contrary to the Court of Appeal, the High Court found that the psychiatric injury suffered by Mr Elisha was such that he was entitled to damages and reinstated the original judgment.

In their decision, the High Court majority found that psychiatric injury (even in general terms) is a class of personal injury for which damages are recoverable for breach of contract. In doing so, they rejected Vision Australia's reliance upon Addis for three reasons:

1. Addis did not decide that damages could not be recovered for psychiatric injury arising from the manner of termination of a contract of employment,
2. 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 UK and Australia, and
3. that over 30 years earlier the High Court in Baltic Shipping Co v Dillon (1993) 176 CLR 344 had determined that damages for psychiatric injury were available for breach of contract and this did not exclude employment contracts.

The High Court went on to conclude that Mr Elisha's loss was not too remote, as contended for by Vision Australia, because the psychiatric injury suffered and the general manner of its occurrence was "within the contemplation of the parties, at the time of the contract, as a serious possibility".

Having found in favour of Mr Elisha on the contract damages claim, the High Court decided that it was unnecessary to determine whether Vision Australia owed a common law duty of care in tort, as he alleged.

In the sole dissenting judgment, Steward J reasoned that "psychiatric injury" as a class of damage arising out of a contract breach was too broad, in the same way that "physical injury" would be too broad, and that the sheer number of psychiatric conditions "justifies its rejection as an appropriate classification of damage, both generally and in the circumstance here, for the rest of remoteness".

Learnings

This High Court judgment will likely have ramifications for employers across the nation in both the employment law and workers' compensation jurisdictions.

Mr Elisha's case now emphasises that workers who suffer psychiatric injury as a result of wrongful termination or disciplinary procedures are entitled to damages, provided they establish that policies have become terms of their employment contracts and have been breached by their employers.

Despite some commentary to the contrary, the Addis rule that employees cannot recover damages for mere 'hurt feelings' and distress associated with termination of employment remains in place.

Employers should be diligent in:

• Being specific as to the terms and conditions which are sought to be incorporated into contracts of employment;
• Reviewing template contracts to identify terms that constitute a promise or commitment by an employer to observe or comply with performance or disciplinary processes;
• Ensuring strict adherence to defined codes of conduct, grievance, disciplinary and other relevant procedures;
• Ensuring procedural fairness in such processes;
• Clarifying the extent of any releases in Deeds, for example whether a payment is in full and final payment of all claims, or if there are exclusions.

Whilst Mr Elisha's award of damages is, of course, unique to his particular circumstances, this case is a clear illustration as to how costly it can be for employers if disciplinary and other related procedures are not conducted properly or in accordance with defined processes.

For more information or assistance, contact either our Thomson Geer Employment, Workplace Relations, Safety team or TG Legal + Technology Workplace and Insurance Services team.

Authors

Mark Branagan | Partner, Thomson Geer | +61 3 8080 3638 | mbranagan@tglaw.com.au

Tom O'Grady | Senior Associate | +61 3 9641 8608 | togrady@tglegaltech.com.au

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