High Court awards $1.5 million for a termination in breach of contract which resulted in a psychiatric injury

This month, the High Court of Australia has confirmed that an employee is entitled to $1.5 million in damages for a psychiatric injury that was caused by his employer terminating his employment in breach of his employment contract which incorporated the terms of the employer’s enterprise agreement and disciplinary procedure.

Background of the Case

The case involved a former employee of Vision Australia, Mr Adam Elisha.

It was alleged by Vision Australia that Mr Elisha had engaged in aggressive behaviour towards a hotel owner during a work trip. A disciplinary meeting was conducted during which Mr Elisha denied the allegations, however Vision Australia terminated his employment for serious misconduct that same day, basing its decision on a ‘pattern of aggression’, relying on previous reports of him being aggressive, which it had received but never put to Mr Elisha.

After his dismissal, Mr Elisha was diagnosed with major depressive disorder and adjustment disorder with depressive mood, leaving him unable to work.

Mr Elisha made an unfair dismissal claim against Vision Australia in the Fair Work Commission which settled after Vision Australia agreed to pay Mr Elisha 26 weeks’ wages, being the maximum compensation amount he was entitled to in unfair dismissal proceedings.

Supreme Court Proceedings

Mr Elisha then commenced proceedings in the Supreme Court of Victoria on the basis that Vision Australia had breached his employment contract and its duty of care during the disciplinary process, resulting in him suffering loss and damage, principally his psychiatric injury including major depressive disorder.

The Supreme Court found in favour of Mr Elisha, finding that the decision to terminate Mr Elisha’s employment had been predetermined based on his employment history which had not been verified, and further that Mr Elisha had not been given the opportunity to properly respond to the allegation of a history of aggression and other matters which were ultimately relied upon in support of his termination.

The Supreme Court also held that Vision Australia had failed to comply with the due process requirements of its own enterprise agreement and disciplinary procedure which were deemed to have been incorporated into Mr Elisha’s employment contract given they were both referred to within the document. This included a requirement to provide Mr Elisha with an allegations letter.

The Supreme Court also found that the possibility that termination could result in distress or even psychiatric injury was acknowledged by Vision Australia’s witnesses during the trial and that Vision Australia’s representatives should be taken reasonably to have had in contemplation that distress and potential psychiatric illness was a risk that was a ‘serious possibility’, ‘not unlikely’ or ‘on the cards’ in the event that the protective processes directly contemplated by the terms of the enterprise agreement and disciplinary procedures were not followed.

Accordingly, the Supreme Court found the employment was wrongly terminated, this ‘contributed very significantly’ to Mr Elisha’s psychiatric injury and ordered Vision Australia pay Mr Elisha $1.5 million in damages.

Court of Appeal Proceedings

Vision Australia appealed the Supreme Court’s decision on a number of grounds.

While the Court of Appeal agreed that the disciplinary procedure was incorporated into Mr Elisha’s employment contract, and that Vision Australia had breached the contract by failing to follow due process, it ultimately found that damages for psychiatric injury were not available for the breach of contract by Vision Australia. This included because the Court of Appeal considered the psychiatric injury was too remote from the breach of contract by Vision Australia – it was beyond the scope of contractual duty of Vision Australia as employers do not owe a duty of care to avoid injury to employees during the termination process and termination itself.

High Court Ruling

Mr Elisha subsequently appealed the matter to the High Court.

The High Court agreed with the Supreme Court’s initial findings that both the enterprise agreement and disciplinary procedure were incorporated into Mr Elisha’s employment contract due to the clear language with sufficient emphasis upon the need for compliance with the terms of those documents, which indicated an intention that such terms would be contractually binding.

The High Court also further confirmed that a psychiatric injury is a type of personal injury for which damages can be recovered in breach of contract claims.

In addressing the question as to whether the psychiatric injury was too remote from the breach of contract by Vision Australia, the High Court stated that an important element in the causal sequence by which Mr Elisha’s psychiatric injury occurred was that without Vision Australia’s breach, Mr Elisha would not have been dismissed for alleged misconduct. And further that this causal element was entirely predictable in light of the nature of Vision Australia’s breach.

Accordingly, the appeal was allowed, meaning that Supreme Court’s decision was reinstated, and Vision Australia is to pay $1.5 million for damages for psychiatric injury suffered by Mr Elisha.

Learnings for Employers

This case gives rise to many risks for employers, including that in additional to the usual unfair dismissal claim risks for not following a procedurally fair process, there is now a potential further risk of breaching an employee’s contract which may give rise to a significant award for damages if it results in a psychiatric injury.

Employers should therefore pay close attention to, and seek to comply with, any procedural requirements contained in contracts of employment, policies, enterprise agreements or awards that may apply during disciplinary or termination process.

Employers should also consider reviewing contract of employment to determine whether such instruments are incorporated within the terms of that employment contract, which could give rise to a breach of contract claim.

If you require assistance in dealing with the complexities of disciplinary meetings, employment contracts or employment disputes generally, please contact HR Legal.

Case reference: Elisha v Vision Australia Limited [2024] HCA 50

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.