“No longer stuck like a gramophone record”- Unfairly sacked workers can claim damages for psychiatric injury

In December 2024, the High Court of Australia overturned a 115-year-old precedent by an overwhelming majority 6-1.  It ruled that unfairly dismissed employees can now claim compensation for psychiatric injury which now broadens the scope of employer’s duties to employees at dismissal.

The precedent was the United Kingdom case Adis v Gramaphone Company Ltd in 1909 which restricted wrongfully terminated employees from seeking damages for psychiatric injury.   Upon reconsideration, the High Court held that “a great deal of water has passed under the bridge of Addis” and that psychiatric injury was “an illness which is a different type of damage from mere mental distress” (see Elisha v Vision Australia Limited [2024] HCA 50 at [54] and [66]).

It is evident that Australian society no longer accepts employment as a master-servant relationship which was the precisely the case in Addis.

In 2006, the Appellant Mr Elisha was an employee of the Respondent, Vision Australia Limited as an adaptive technology consultant. In his role, Mr Elisha was to set up and assist with software and hardware systems for the vision impaired in their home and workplaces across Australia. The Appellant had a history of receiving treatment for anxiety and depression due to chronic workplace stress which was significantly heightened sensitivity to particular sounds and interpersonal difficulties with particular staff members.

In March 2015, the Appellant had been involved in an incident he was staying at a hotel in rural Victoria for work purposes. The Appellant telephoned the hotel reception around 12:30am and complained of noises coming from outside his room.  The hotel employee’s reported that the Appellant was aggressive and intimidating during the incident and at his check-out.  The hotel ultimately filed a complaint with the Appellant’s employer, Vision Australia.

Elisha then went on leave and upon his return, he was provided with a “stand down letter”.  The letter identified various allegations of misconduct during his stay at the hotel and the Appellant denied the allegations in writing and at a meeting with his managers. Without any further investigation, Vision Australia terminated the Appellant’s employment on the balance of probabilities as it considered that Elisha behaved exactly put by the hotel and this constituted serious misconduct.

Following his dismissal, the Appellant was diagnosed with major depressive disorder and adjustment disorder with depressed mood and with no capacity to work in the future.

At first instance, the Appellant was awarded damages for breach of contract as it was a serious probability that the employee would suffer distress and psychiatric injury if the employee was unfairly terminated.

The Victorian Court of Appeal upheld Vision Australia’s appeal and held that damages for psychiatric injury are not available for a breach of the employment contract and that an employer does not owe a duty of care to avoid injury to its employees during the implementation of investigative or disciplinary processes which result in the termination of that employee.

The High Court held that the Court of Appeal erred in criticising the primary judge’s reliance on the evidence from the psychiatrist and that the evidence supported that the Appellant’s psychiatric injury was too remote to give rise to damages.

The High Court upheld the primary judge’s findings which labelled the internal disciplinary process as “a sham and a disgrace” and set aside the Court of Appeal’s decision by reinstating the first instance order that Vision Australia pay the Applicant the sum of $1.4 million in damages.

It is clear that employers must have disciplinary procedures which are clear, fair and transparent, and which provide the employee with real opportunity to respond to the allegations put against the employee.  These procedures can be incorporated into the employment contract and it can be constituted by the organisation’s policies which can be updated from time-to-time.  The employer’s failure to follow its disciplinary procedures –either spelled out in the employment contract or in its policies, is a breach of the employment contract.

The majority in the High Court emphasised that “a person’s employment is usually one of the most important things in his or her life”, giving “not only a livelihood but an occupation, an identity and a sense of self-esteem” (at [67]). The unfair termination for alleged misconduct could affect all three of those interest.

Arnold Thomas Becker who represented the successful party stated to the Sydney Morning Herald:

“Community expectations around rights to psychological safety at work and the de-stigmatisation of psychological injury means that the time was right for the law to recognise the requirement of an employer to consider their employee’s psychological health in the course of investigative and disciplinary processes.”

We concur.

We expect to see an increase in claims for distress by employees who are unfairly dismissed.