High Court rules employee entitled to damages for psychiatric injury caused by employer’s breach of contract – unpacking the case of Elisha v Vision Australia Limited [2024] HCA 50
On 11 December 2024 the High Court of Australia found damages were available for psychiatric injury to an unfairly dismissed employee in circumstances where the injury arose from the manner of the employee’s dismissal. The lessons from this decision are:
- employers need to exercise caution when drafting employment-related policies and procedures, particularly in relation to disciplinary matters;
- employers need to follow their policies and procedures; and
- employees can in some circumstances be awarded damages for psychiatric injury arising from a breach of policies or procedures.
Background
Mr Elisha had been employed by Vision Australia since 2006. In March 2015, Mr Elisha stayed at a hotel for work purposes, and was involved in an incident, resulting in allegations about his behaviour and conduct towards hotel staff.
Mr Elisha was ultimately dismissed after an investigation into his conduct, but one of the reasons contributing to the dismissal was evidence of prior misconduct which had not been put to Mr Elisha. This meant that, contrary to the employer’s disciplinary procedure, Mr Elisha did not have a proper opportunity to respond to all of the allegations against him.
Following his termination, Mr Elisha was diagnosed with major depressive disorder and adjustment disorder with depressed mood. He was found to have no work capacity for the foreseeable future.
Mr Elisha commenced unfair dismissal proceedings against Vision Australia in the Fair Work Commission. The proceedings settled.
Supreme Court proceedings
Mr Elisha then commenced proceedings in the Supreme Court of Victoria. The trial judge held that Vision Australia had breached its Enterprise Agreement and its disciplinary procedure, which was incorporated into Mr Elisha’s employment contract, by failing to provide Mr Elisha with the allegations upon which it ultimately acted in dismissing him.
Importantly, the trial judge concluded that the possibility that termination could result in distress or even psychiatric injury was acknowledged by Vision Australia. The trial judge therefore concluded that the risk of psychiatric illness was not too remote.
Mr Elisha was awarded damages of over $1.4 million for breach of contract.
Court of Appeal
On appeal, the Court of Appeal relied on the House of Lords decision of Addis v Gramophone Company Ltd [1909] AC 488 and held that damages for psychiatric injury were unavailable for a breach of contract other than where the psychiatric injury was consequent upon physical injury caused by the breach or where the object of the contract was to provide enjoyment or relaxation.
The Court of Appeal also held that Mr Elisha’s psychiatric injury was too remote from Vision Australia’s breach for damages to be recoverable.
The High Court’s decision
The majority of the High Court of Australia (Justice Steward dissenting) overturned the Court of Appeal’s decision and reinstated the judgment of the Supreme Court of Victoria. The High Court concluded that damages are recoverable for psychiatric injury caused by an employer’s breach of the employment contract and the manner in which an employee is dismissed.
The High Court’s decision is important for two reasons.
First, the High Court rejected the argument that the decision in Addis had the effect of precluding an employee from recovering damages for breach of a contractual duty concerning the manner of their dismissal.
Secondly, the High Court concluded that the kind of damage suffered (psychiatric injury) was within the reasonable contemplation of the parties, at the time of entering into the contract. As a result, Mr Elisha’s distress arising from the manner of his dismissal was reasonably foreseeable, and not too remote a possibility. This opened the door for the High Court to conclude that the breach of contract could give rise to damages for psychiatric injury.
Key takeaways
The Elisha decision recognises the high value that today’s society places on a person’s employment, not only in providing an income, but also on a person’s sense of identity and self-esteem.
Elisha is also a reminder to employers of the importance of following their own disciplinary procedures and the terms of the employment contract while implementing disciplinary processes. If a contract is drafted in such a way as to incorporate the terms of a policy, and the policy contains promises as to what the employer is going to do in a particular set of circumstances, a failure to comply with that policy can have significant consequences.
Source: Lexology
