Foye Legal’s Special Counsel and Personal Injury Accredited Specialist Emma discusses a landmark decision of the High Court of Australia, a terminated employee has been awarded damages for psychiatric injury caused by his employer’s breach of contract.
The parties to Elisha v Vision Australia Limitedwere Mr Adam Elisha and his long-term employer, Vision Australia.
Mr Elisha commenced employment with Vision Australia in 2006. The employment relationship was governed by a written agreement. The written agreement confirmed that Mr Elisha’s employment conditions would be in accordance with inter alia, ‘Vision Australia Policies and Procedures’.
In or around 2015, Vision Australia introduced a ‘Disciplinary Procedure’ in order to regulate its processes for disciplinary action.
Unfair dismissal
It was alleged by Vision Australia that, during a stay at a rural Victorian hotel as part of his employment on 23 and 24 March 2015, Mr Elisha humiliated and intimidated an employee of the Hotel after he complained about loud noises outside his hotel room preventing him from sleeping. Vision Australia contended that Mr Elisha’s behaviour amounted to serious misconduct.
Mr Elisha was issued a stand-down letter which outlined the allegations against him and a disciplinary meeting was arranged. Mr Elisha vigorously denied the allegations against him and two days after the meeting, he was summarily dismissed without payment in lieu of notice.
It was clear from the evidence before each Court that in deciding to dismiss Mr Elisha, Vision Australia had regard to information and allegations which Mr Elisha was not privy to and as such, was unable to respond to, namely the opinion of his manager about an alleged history of aggression and lack of accountability.
Mr Elisha commenced unfair dismissal proceedings against Vision Australia and his claim was settled for payment of the statutory maximum amount he was entitled to, being $27,248.68.
Procedural history
Mr Elisha further made a claim in the Supreme Court of Victoria (‘VSC’) for breach of contract, pursuant to Vision Australia’s failure to follow the Disciplinary Procedure as well as the Enterprise Agreement which applied to its employees. In relation to the damages sought for psychiatric illness, it was noted relevantly at [568] of the VSC judgement, that the parties 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 contract were not followed and (Mr Elisha’s) employment was therefore wrongly terminated”
The VSC decision was subject to a successful appeal by Vision Australia, in which it was decided that although the Disciplinary Procedure (but not the enterprise agreement) had been incorporated as terms into the employment contract, damages for psychiatric injury were only available as remedy for breach of contract where the psychiatric injury was consequential to a physical injury arising as a result of the breach or where the object of the contract was for the provision of enjoyment or relaxation and further, that psychiatric injury was too remote to be claimed as damages for the breach.
Mr Elisha appealed to the High Court.
Decision of the High Court
Was the Disciplinary Procedure an incorporated term?
The High Court found that the Disciplinary Procedure contained ‘very specific assurances and promises’ made by Vision Australia in relation to the actions that would be taken in relation to disciplinary matters and that in-built into the contract was a term that if the relevant policies were not followed by the employee, he could be subject to disciplinary action. As such, it was decided that ‘the common intention of the parties’ was that the Disciplinary Procedure ‘would be contractually binding to the extent to which (it) imposed obligations’ and that the Procedure was a term of the agreement.
Could damages be claimed for psychiatric illness?
In relation to the claim for damages for psychiatric illness, the Court found that there was no relevant authority which precluded a claim for psychological illness in relation to breach of contract. With respect to Vision Australia’s claim that the psychiatric illness was too remote, the Court found that there was a social reality that ‘an unfair process of termination for alleged misconduct could affect… a person’s livelihood identity, and self-esteem’ and that ‘it was reasonable to expect that Mr Elisha would have been so distressed’by the manner of the breach that ‘there was a serious possibility’ he would suffer a serious psychiatric injury.
The appeal was allowed by the majority of the High Court, with Steward J in dissent.
Key take-aways
This decision makes clear that damages for psychiatric illness can be awarded for breach of contract, specifically in relation to employment agreements.
It is vital that employers are aware of the disciplinary procedures that ought to be followed pursuant to their employment contracts and any company policies that may become incorporated terms of those contracts. Further, it is important that those procedures are accurately followed to avoid potentially extensive liability.
