Procedural fairness in the spotlight: Key lessons from the High Court

In a landmark decision, the High Court of Australia has allowed an appeal awarding $1.4 million in damages to a former employee of Vision Australia for a psychiatric injury flowing from the termination of his employment.

The decision in Elisha v Vision Australia Limited [2024] HCA 50 overturns a longstanding position regarding psychiatric injuries in an employment context. Employees will now be able to seek compensation for a psychiatric illness caused by their employer's breach of the terms of their employment contract.

Mr Elisha was employed by Vision Australia. Following an overnight work trip at a hotel, Vision Australia received a complaint that he had engaged in aggressive and intimidating behaviour.

Vision Australia conducted an internal investigation into the alleged conduct at the hotel (which Mr Elisha denied). Vision Australia decided to summarily terminate Mr Elisha’s employment for serious misconduct. Its decision was based not only on the hotel incident but also a senior manager’s unsubstantiated opinion that Mr Elisha had a “history of aggression”. Mr Elisha was not notified of those allegations, or given an opportunity to respond to them, before his employment was terminated.

Following his dismissal, Mr Elisha was diagnosed with a psychiatric illness and was found to have no capacity for work in the foreseeable future.

The High Court determined that the wording of Mr Elisha’s employment contract meant that Vision Australia's disciplinary policy was incorporated into his contract. This meant that the disciplinary policy was contractually binding on Vision Australia.

Vision Australia’s disciplinary policy contained a prescriptive disciplinary procedure, and required Vision Australia to notify employees of all allegations made against them and provide employees an opportunity to respond to those allegations.

The High Court found that Vision Australia had seriously breached its disciplinary policy by failing to give Mr Elisha any opportunity to address the allegations concerning his apparent “history of aggression”.

It followed that Vision Australia had breached Mr Elisha’s contract of employment.

The High Court concluded that Mr Elisha would not have suffered a psychiatric injury but for Vision Australia’s breach of his employment contract (by virtue of its breach of the disciplinary policy).

The High Court confirmed that a psychiatric illness is a type of injury that can result in damages being awarded to employees arising from a breach of their employment contract. The longstanding view had been that psychiatric injury caused by a breach of an employment contract was not compensable.

This decision is a timely reminder that:

• Employment contracts should expressly state that workplace policies are not incorporated into the contract. Employers should review their current contracts and ensure they do not incorporate the terms of any policies or procedures.
• If workplace policies and procedures are incorporated into employment contracts, then they need to be followed.
• Disciplinary procedures should use aspirational language and avoid describing in detail the steps an employer will take when conducting workplace investigations.
• Employers should ensure employees are given a genuine opportunity to respond to all allegations that may be a basis for dismissal. A decision to terminate an employee’s employment should not be made before hearing and considering the employee’s response.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

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