Since the 1909 English Court of Appeal decision of Addis v Gramophone Company Ltd [1909] AC 488, it has been a widely held principle that an employee cannot recover damages for the manner in which they were dismissed.[1] However, the recent High Court decision of Elisha v Vision Australia [2024] HCA 50 has overturned this principle in Australian law.
While damages for the manner of dismissal cannot be recovered in the Fair Work Commission, there will be some circumstances in which employees can claim such damages through the common law courts. Therefore, employers should consider their HR practices when terminating an employee’s employment. There are also lessons about the need for careful wording in references to policies in employment contracts and settlement deeds.
What happened in this case?
Background
From 2006, Mr Elisha was employed by Vision Australia Ltd (Vision) as a consultant. From 2014 to 2015, Mr Elisha began treatment with his general practitioner and his psychologist for both anxiety and depression. The psychologist noted that Mr Elisha faced significant workplace stress and interpersonal difficulties with staff members.
On 23 and 24 March 2015, Mr Elisha was staying in a hotel in rural Victoria for work. During the night he complained to the hotel’s proprietor that his sleep was disturbed by noise and consequently he was moved to a different room. During a subsequent visit by other employees of Vison, the hotel’s proprietor complained that Mr Elisha had been rude and aggressive to her.
Following this complaint, Mr Elisha was stood down pending an investigation. During this investigation, Mr Elisha was presented with allegations that he had been rude and aggressive to the hotel proprietor. One of Mr Elisha’s superiors made several statements to those investigating and deciding on his fate that this was part of a pattern of rude and aggressive behaviour by Mr Elisha. But that allegation was not put to him. On 29 May 2015, following the completion of the workplace investigation, Mr Elisha’s employment was terminated on the basis of matters that included those that were not put to him, despite Vision having disciplinary policies in place that required such matters to be put to him in writing.
After the termination of Mr Elisha’s employment, he was diagnosed with a major depressive disorder and an adjustment disorder with depressed mood, which the evidence of his psychologist attributed to the manner of his termination. Mr Elisha was also found to have no capacity to work in the foreseeable future.
Background to the High Court case
On 9 July 2015, Mr Elisha brought an unfair dismissal claim against Vision in the Fair Work Commission. This claim settled on 9 July 2015 by way of a deed of settlement and release. Normally, a deed would release the other party from any and all claims. However, here, the terms of the deed were to ‘settle all claims in relation to the employment, termination and proceedings’[2]. This clause was interpreted to mean Vision was released from claims only in relation to the Fair Work Commission proceedings (the unfair dismissal claim) – rather than, as they no doubt assumed at the time, any and all claims available to Mr Elisha relating to his employment.[3]
At first instance in his claim in the Supreme Court of Victoria, the primary Judge found that Vision breached their enterprise agreement and disciplinary policy, which were incorporated into Mr Elisha’s employment contract.[4] The primary Judge then determined that the termination of Mr Elisha’s employment was “unfair, unjust, and wholly unreasonable” and that the process was “nothing short of a sham and a disgrace”[5]. Further, the primary Judge found that Vision anticipated the risk that their actions would cause psychiatric harm, and that that risk was a “serious possibility”[6]. Reference was also made to the fact that the employer provided EPA services to employees, which indicated an awareness that distress could be caused by such disciplinary processes. Mr Elisha was then subsequently awarded $1.5 million in damages.[7]
That decision at first instance and the damages awarded were overturned on appeal.
High Court proceedings
Mr Elisha appealed the Appeal Court’s decision to the High Court of Australia. In the High Court, Vision argued that the widely applied decision of Addis precluded Mr Elisha from receiving damages for breach of contract.[8]
The High Court relied on another authority which did not concern employment contracts, but a claim against a cruise liner by a disappointed passenger, Baltic Shipping Co v Dillon (1993) 176 CLR 344, where the Court recognised ‘psychiatric harm’ as a form of physical or personal injury for which damages were recoverable. Consequently, in that decision, damages were awarded for psychiatric injury caused by a breach of contract.[9] The High Court observed that Baltic made no exception for employment contracts. The High Court said that employment contracts were subject to the same principles and that psychiatric injury was in the scope of damages for a breach of an employment contract.
Significantly, in determining whether damages for psychiatric injury for breaching Mr Elisha’s employment contract were too remote, the High Court referred to the ‘social reality’ of how a person’s employment is pivotal to their livelihood, identity, and self-esteem and recognised that an unfair process for termination for alleged misconduct has the capacity to affect these interests.[10]
From these considerations, the High Court determined that it would have been reasonable to expect that Mr Elisha would have been distressed by the manner in which Vision breached his employment contract.[11] Further and as a consequence, there would have been a serious possibility that Mr Elisha would suffer a serious psychiatric injury from Vision’s actions.
As a result, the Appeal Court decision was overturned and Mr Elisha’s original award of damages of $1.5 million was upheld.
Take-aways for Employers
- Loose wording of the settlement clause was a problem for the employer here. Make sure the release clauses in your deeds of settlement release you from all claims – not just claims in relation to particular proceedings.
- It was also highly significant here that the disciplinary procedure in Vision’s policies was incorporated into the contract, meaning that a breach of the policy was also a contractual breach. This is quite unusual in most employment contracts today. Employers can generally minimise this risk by stating in the employment contract that the employer’s policies and procedures are not incorporated into employee contracts.
- Employers should ensure that when conducting disciplinary or termination proceedings, they comply with the business’ policies and procedures.
If you intend to terminate an employee’s employment, ensure the termination follows any contractual provisions (including any contractual policies and procedures), whether or not statutory unfair dismissal protections apply to that employee.
Please do not hesitate to contact MDC Legal on (08) 9288 4000 or via [email protected] for assistance or additional information in relation to the issues raised in this article.
[1] Addis v Gramophone Company Ltd [1909] AC 488, at 490-491.
[2] Elisha v Vision Australia Ltd [2022] VSC 754, at [289].
[3] Elisha v Vision Australia Ltd [2022] VSC 754, at [289]-[292].
[4] Elisha v Vision Australia Ltd [2022] VSC 754, at [410].
[5] Elisha v Vision Australia Ltd [2022] VSC 754, at [226].
[6] Elisha v Vision Australia Ltd [2022] VSC 754, at [236].
[7] Elisha v Vision Australia Ltd [2022] VSC 754, at [643].
[8] Elisha v Vision Australia Ltd [2024] HCA 50, at [51].
[9] Elisha v Vision Australia Ltd [2024] HCA 50, at [59].
[10] Elisha v Vision Australia Ltd [2024] HCA 50, at [67].
[11] Elisha v Vision Australia Ltd [2024] HCA 50, at [69].
