On 11 December 2024 the High Court of Australia (High Court) handed down its decision in the matter of Elisha v Vision Australia Limited [2024] HCA 50. That matter concerned the question of whether damages are available for psychiatric injury when an employee is dismissed following what was described by the primary judge as a ‘sham’ disciplinary hearing. The answer from the High Court was a resounding ‘YES!”.
Despite his employer having a written disciplinary procedure, Mr Elisha was dismissed by his employer without regard to that procedure after around 10 years of employment. The employer told Mr Elisha that the dismissal was due to ‘serious misconduct’ arising from an alleged ‘hotel incident’ during a stay by Mr Elisha at a rural hotel that was related to his performance of his duties. While the facts of the alleged incident were disputed by the parties, the High Court found that Mr Elisha had contacted the reception desk in the early hours of the morning due to a noise disturbance and, following a discussion with one of the hotel owners, was moved to another room. A few weeks later two other employees of Vision Australia stayed at the same hotel and were told by the hotel owner that had interacted with Mr Elisha on the night in question that he had (allegedly) bullied, harassed and been rude to her. Those employees then reported what they had been told to their line manager who in turn reported the allegations to other employees of Vision Australia, including Human Resources professionals. The chain of communication eventually led to Mr Elisha’s line manager, Ms Hauser. She then informed other employees involved in the matter that Mr Elisha had a ‘pattern of aggression and excuse making’ conduct, without substantiating the claim. While the reason given for dismissal was the alleged serious misconduct at the hotel and associated alleged breaches of multiple employment policies (which Mr Elisha contested), the Court found that the ‘real reason’ was the allegation of a pattern of aggression and excuse making which Mr Elisha was not informed of and did not have an opportunity to respond to.
While Mr Elisha had a history of anxiety, depression and sensitivity to noise prior to the ‘hotel incident’, it was only after the dismissal that he developed Major Depressive Disorder and an Adjustment Disorder with depressed mood. The consequence of this development is that Mr Elisha is unfit to work again for the foreseeable future.
Following the dismissal, Mr Elisha made an unfair dismissal claim against Vision Australia. That matter was settled for the maximum amount of compensation, 26 weeks’ pay. He subsequently brought a breach of contract claim in the Supreme Court of Victoria and sought damages for the psychiatric injury he suffered as a consequence of the employer’s conduct.
The matter was heard first by O’Meara J. His Honour noted inconsistencies in the account of the hotel owner (Ms Trch) and concluded that while Mr Elisha had a sensitivity to noise and symptoms of anxiety and may have spoken in ‘tones of annoyance fueled by a fear that if the problem were not fixed he would not be able to get any sleep and would spend the night awake and unwell’, he had not yelled or shouted and was not aggressive or threatening during the incident and did not throw his room keys toward the front desk when he left the hotel the following morning. His Honour found that Ms Trch’s account had been accepted by Ms Hauser and the HR Manager before the meeting at which Mr Elisha responded to the allegation he was informed of. He found that the dismissal was ‘unfair, unjust and wholly unreasonable’ and that the process adopted by Vision Australia was ‘nothing short of a sham and a disgrace’ and in breach of both the Enterprise Agreement (EA) and the Disciplinary Procedure, in particular as a consequence of failing to provide Mr Elisha with a letter informing him of the allegations made against him (i.e. the alleged pattern of aggressive conduct) upon which Vision Australia acted when deciding to dismiss him. He observed that if a proper process had been followed, Ms Hauser would not have made ‘secret slurs’ against Mr Elisha and those slurs would not have prejudiced the conduct of the disciplinary meeting. His Honour found that it was within the contemplation of Vision Australia that the dismissal of Mr Elisha could result in distress and psychiatric illness and that there was a ‘serious possibility’ of such harm if the employer’s procedure (incorporated into the contract) was not followed. He ordered that damages in the amount of $1,442,404.50 be paid to Mr Elisha.
Instead of paying the damages, Vision Australia appealed the decision to the Court of Appeal of the Supreme Court of Victoria. They contended that the EA and disciplinary procedure was not incorporated into the employment contract and that, if they were, they had not been breached. They also argued that damages are not available for psychiatric illness arising from the manner of dismissal. The Court of Appeal found that the EA had not been incorporated into the employment contract but that the disciplinary procedure had been incorporated and that it had been breached by Vision Australia when Mr Elisha was not informed of the allegation of a pattern of aggression and excuse making. However, they found that damages for psychiatric illness were not available for the breach of contract unless the object of the contract was to provide enjoyment or relaxation and that damages for psychiatric injury were too remote from the breach of contract.
Both Mr Elisha and Vision Australia appealed the decision of the Court of Appeal. The High Court found that: the disciplinary procedure was incorporated into the employment contract (relying on well-established case law that if the wording of a policy is contractual in nature and the employee is expected to be bound by it, the employer is also bound); that liability for psychiatric injury is within the scope of an employer’s contractual duty concerned with the manner of dismissal (rejecting the contention by Vision Australia that a decision made by the UK House of Lords in 1909 was authority for this proposition); and, psychiatric injury was not too remote and that in this case there was a serious possibility of it as a consequence of the employer’s failure to follow its own procedure.
Following the High Court’s decision in this matter, claims have been made that the High Court overturned a precedent dating back more than 100 years when it made the decision in Elisha. However, this is not correct; rather the High Court explained why the 1909 decision has not been relevant in either Australia or the UK for many decades. In the majority decision, the High Court considered that reliance on that precedent (Addis v Gramophone Company Limited [1909] AC 488) was misplaced for three reasons: (i) it did not decide that damages can never be recovered for psychiatric injury arising from the manner of the termination of an employment contract; (ii) it was decided more than 100 years ago in a different social context and has been overtaken substantially by more recent decisions and legislation in both the UK and Australia; and (iii) in the matter of Baltic Shipping Co v Dillon (1993) 176 CLR 344 (31 years before the decision in Elisha) four members of the High Court held that damages for psychiatric injury were available for breach of contract (for enjoyment and relaxation) without any suggestion of an exception for employment contracts.
The High Court dismissed Vision Australia’s appeal. As a consequence, the orders made by O’Meara J (including damages in the amount of $1.44 million) took effect.
The High Court’s decision in Elisha is a reminder to employers that the employment relationship and contract is in fact a two-way street; if they expect an employee to be bound by a policy or procedure and the wording of such documents reflects this expectation (e.g. use of ‘will’, ‘must’, ‘shall’), then the employer will also be bound. Where an employer’s failure to follow its own procedure gives rise to a serious possibility of psychiatric injury, then the employer will be exposed to the risk of significant damages being awarded against them by virtue of their own actions and/or omissions.
Employers need to guard against the type of employee behaviour that was present in the Elisha matter; in particular the tendency in some managers to form a negative view of an employee and find a reason to ‘get rid of them’ without doing the work of managing them appropriately and demonstrating that they have an objective and persuasive basis to their opinion, as well as the tendency of those who are in fact unfamiliar with an employee to too readily accept the unsubstantiated negative opinion of an employee without asking the person expressing that opinion to substantiate it.
The facts in the Elisha matter are a good example of how negative human behaviours can trump policies and procedures every day. Employers need to do more than assume that a policy and procedure will be followed by everyone; they need to be educated about the thinking errors that all humans can engage in and actively create an environment in which people can speak up and question those who express unsubstantiated opinions about others to the other person and the employer’s detriment. This requires a substantial investment in time, effort and thought; however, such investment is far preferable and less costly than an order for $1.44 million damages and the no doubt substantial costs associated with legal proceedings.
Compensation for shock, distress or humiliation arising from an unfair dismissal is expressly excluded in relation to unfair dismissal matters by virtue of s.392(4) of the Fair Work Act 2009, While relatively few breach of contract claims in relation to dismissal (‘wrongful dismissal’ claims) are brought before the Courts, employers are now on notice as a consequence of the Elisha decision that damages for psychiatric injury can be awarded where there is a breach of an employment contract and the elements which make up a successful claim are supported by the particular facts of the case.
