Employers Face Risk of Damages for Psychiatric Harm Caused by Wrongful Dismissals

A High Court majority has found that employers now owe a duty of care to their employees to exercise reasonable care to avoid psychiatric injury when they are terminated or disciplined in the workplace. This finding against Vision Australia has overturned the previous decision by the Victorian Supreme Court of Appeal. Vision Australia was found to have breached a contract of employment when they failed to follow their disciplinary process which resulted in the employee suffering a major depressive disorder. The decision has seen the employee returned the $1.44 million in damages they were previously awarded for wrongful dismissal following an altercation with a hotel owner during a work trip.

The decision in Vision Australia Ltd v Elisha [2023] VSCA 265; 328 IR 299 was overturned by the High Court in Elisha v Vision Australia Ltd [2024] HCA 50 (11 December 2024) on the grounds that the Court of Appeal had erred in its decision against providing damages for psychiatric injury that resulted from the employer’s approach to an employee’s dismissal. The Court found that as the employment contract included Vision Australia’s disciplinary processes, they had breached contract and their duty to take reasonable care to avoid injury when undertaking disciplinary and dismissal processes extended to psychiatric injury.

The Court ruled that the employment contract incorporated Vision Australia’s disciplinary policies, as the “Vision 2015 Disciplinary Procedure” was explicitly included in the employment contract and not followed by the organisation. The procedure stated “‘where the concern is of a more serious nature’ a specific procedure will be followed, including convening a ‘formal disciplinary meeting’ prior to which ‘the employee will be provided with a letter containing a written outline of the allegations’ and, subsequently, ‘[a]t the meeting, a discussion will occur and the employee will be given an opportunity to respond to the allegations'”. The failure to follow the disciplinary process included in the contract was the catalyst for breach.

The Court also decided that liability existed for the psychiatric injury as it was considered a conceivable outcome of the breach and therefore within the scope of Vision Australia’s contractual duty when it came to the manner of dismissal. Given the serious nature of the breach the liability for the psychiatric injury was also found in the circumstances to not be too remote.

The Court also departed from the previous decision in Addis v Gramophone Company, Ld [1909] UKHL 1; (1909) AC 488 (26 July 1909) that held damages relating to the manner of dismissal were not available for wrongful dismissal, determining the reasoning had over the past century been substantially “overtaken” in the United Kingdom.

After being diagnosed with a major depressive disorder following his dismissal for an altercation with a hotel owner during a work trip the employee was awarded $1.44 million damages for lost earnings and pain and suffering on the basis of Vision Australia’s failure to follow the disciplinary processes set out in its contract.

This decision was overturned by the Victorian Supreme Court of Appeal who ruled Justice Stephen O’Meara made an error in awarding damages to the employee. They determined that psychiatric injury resulting from a failure to follow disciplinary processes in the contract could not have been in contemplation of the parties at the time of making the contract in 2006. The Court relied partly on the reasoning in Addis v Gramophone Company, Ld [1909] UKHL 1; (1909) AC 488 (26 July 1909), which precluded damages relating to the manner of dismissal as a remedy for wrongful dismissal. The Court acknowledged that while this judgement has faced criticism, it had not been overturned.

With the decision in Addis v Gramophone Company, Ld [1909] UKHL 1; (1909) AC 488 (26 July 1909) now overruled, this sets a precedent that damages are no longer precluded for psychological harm resulting from an employee’s manner of dismissal.

The chief factors in determining the decision were:

• The employee was not informed of key allegations that the employer relied upon in deciding whether to terminate the employee’s employment;
• The organisation failed to provide the employee an opportunity to respond to the undisclosed allegations or a real opportunity to respond to the allegations he was made aware of; and
• The flawed disciplinary process and subsequent wrongful dismissal resulted in serious psychiatric harm.

This decision ultimately means organisations now bear a duty of care to reasonably safeguard the psychological safety, when dismissing or disciplining them and highlights the need for employers to rigorously follow the disciplinary processes they set out.

If you are concerned about the psychological safety of your employees or need to navigate an employee dismissal at the Commission – Mapien can provide consultancy and training on identifying and managing psychosocial risks, as well as advocacy at the Commission. Our Workplace Strategists can also support your business to take proactive, strategic steps to implement company policies effectively, to avoid legal costs and reputational damage Contact us here!