Employer Liable for nearly $1.5M for Breaching Workplace Policies in Contract

The High Court in Elisha v Vision Australia Limited [2024] HCA 50 (11 December 2024) has made it clear that an employee can claim damages for psychiatric injury if an employer breaches its disciplinary procedures incorporated into an employment contract.

What happened?

The employer accused Mr Elisha of misconduct after it received complaints from a hotel owner of aggressive behaviour by Mr Elisha during a work trip. Although a ‘he said, she said’ the employer found the complaint proven and summarily dismissed him. This was based on a pattern of aggressive behaviour arising out of past incidents that were never put to Mr Elisha as part of the investigation or show cause process.

Mr Elisha brought a breach of contract claim.

The Court held that the employer had breached the employment contract by failing to comply with its disciplinary procedure.

The Court held that the disciplinary procedure was incorporated into the contact because the contract required Mr Elisha to comply and a breach could result in disciplinary action. The procedure was also prescriptive and used mandatory language.

Put simply, without the employer’s breach (failing to inform him of all allegations made against him and procedural fairness prior to dismissal), Mr Elisha would not have been dismissed for serious misconduct and his psychological injury would not have occurred.

Interestingly, this claim was made 5 years after the employee had made and settled an unfair dismissal claim with a deed of release. The release only applied to the unfair dismissal claim which meant that the breach of contract claim could proceed.

Our Take

This was a creative claim however, it does show the modern understanding of workplace mental health and focus on ‘raising the bar’ on employers in discharging their obligations to provide a psychologically safe workplace. It is reasonably foreseeable and no longer seen as far-fetched or remote than an employee may suffer a psychological injury if terminated in circumstances where there has been a departure from required standards of fairness.

Action Items:

• Review policies and Enterprise Agreements carefully – ensure your policies and any disciplinary processes in an enterprise agreement are not prescriptive and favour an approach of guiding principles that are applied to the individual circumstances. This is preferable generally as the more prescriptive a policy or procedure is, the greater the risk of breaching it;

• Review contracts carefully – ensure employment contracts leave no form for inadvertently incorporating policies and procedures.

• Review Settlement Agreements – ensure there is no ‘wriggle room’ in your release clauses for future claims like this one.

• Rethink your approach to investigations – the trite thing to say is “do thorough investigations” but our view is that many investigations are unnecessary and expensive and time consuming disciplinary procedures are used with ‘high stakes’ rather than a WHS approach to risk management. If you do need to do a disciplinary investigation they key is to get the allegations right and ensure the employee has a chance to respond to all matters that are relevant to the allegations, the breaches found to arise and the proposed disciplinary action. Even if doing it ‘in house’ to sanity check this with an external advisor is important to address the unconscious bias and group think that naturally occurs with sensitive matters.

Our Retainer Clients have already been provided with updated employment contracts, policies and settlement agreement templates with this high court decision in mind. If you would like to have access to the same updated versions of template employment contracts, policies and settlement agreements that our Retainer Clients use, please contact us to discuss.

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