The High Court’s recent decision in Elisha v Vision Australia Ltd [2024] HCA 50 was widely anticipated, to see whether the Court would permit damages for breach of contract and/or negligence for a psychiatric injury arising from termination of employment.

Did the case change the law?

Yes, but the decision will have narrow application. The High Court upheld the decisions of the Supreme Court and Court of Appeal that it is possible for an employee to recover damages in breach of contract for such an injury, overturning precedent that previously excluded damages arising from employment termination decisions.

The breach of contract in this case arose specifically from the uncommon practice of incorporating Vision Australia’s policies into the employee’s employment contract.

The Court held that there was no action in negligence for psychiatric injury, and as such there is no common law duty of care to avoid psychiatric injury arising from the process of termination of employment. The High Court held that such a duty would be incoherent with other employment and compensation legislation. There may of course still be work health and safety/psychosocial hazards and workers compensation liability for injuries arising from decisions made about termination of employment.

What were the facts?

Vision Australia terminated the employee’s employment following a meeting where he was asked to respond to allegations of inappropriate behavior towards a hotel manager. Importantly, the Supreme Court found, having heard from the hotel manager and the employee, that the hotel manager’s evidence involved ‘unconscious exaggeration’ and that her account became ‘more florid over time’ meaning he could not rely on disputed aspects of her account without verification.

Of most significance to employers is the findings of the Supreme Court, upheld on appeal, that the employee was not accorded procedural fairness (and the relevant parts of the employer’s policy were not applied) because the ‘real’ reason for the decision was that he was considered a ‘serially aggressive and unrepentant bully.’ That was told to the decision maker and the relevant HR personnel by the employee’s manager.

Importantly, the ‘aggressive behavior’ allegation:

• was not put to the employee during the disciplinary process;
• was not supported by documentary evidence or earlier complaints against or discussions with the employee;
• was included in an internal email, addressing a union complaint, referring to the need to ‘get those previous examples and pattern on the record' when no such process was undertaken.

The employee’s denials of the conduct involving the hotel manager in a disciplinary meeting were assumed to be a continuation of his ‘pattern’ with those attending recording in file notes that he ‘presented himself very arrogantly and showed no remorse.’

The High Court cited the employee’s evidence that the termination decision ‘without any exaggeration, [has] been catastrophic, there's been not one single aspect of my life that hasn't been either destroyed or obliterated' and upheld the damages of over $1.4m. The employee had earlier settled an unfair dismissal claim (for 26 weeks of pay) with the Supreme Court holding that the wording of the relevant deed of settlement was not a bar to the breach of contract claim.

Key takeaways

To avoid a ‘botched’ process, employers should:

• Carefully consider the wording of settlement deeds and seek advice as required.

• Avoid incorporating policies (or the terms EAs) into employment contracts to avoid breach of contract arguments.

• Ensure that disciplinary processes are fair and transparent, and that relevant matters are put to employees for them to respond to. Employers also need to critically assess differing accounts to make a determination as to what occurred, without taking into account views about previous conduct that has not been put to an employee. Employers need to be able to defend allegations that the ‘real’ reason for a decision is different from that put to the employee.