Important Employment Law Decisions That Will Affect Your Business (Part 2)

In our previous client alert, we extracted key learnings from a recent decision in the Federal Court that serves as a stark reminder of the protection’s employees are afforded and the Courts far reaching power. In this client alert we explore a case that has been litigated all the way to the High Court of Australia. The Court has been asked to answer a number of important questions that will affect employers across the nation:

1. Can an employee recover damages for psychiatric injury as a result of the employer’s breach of contract?
2. What duty do employers owe employees during the termination process?
3. Can an employee recover damages for psychiatric injury as a result of the termination of employment?

Facts

Mr Adam Elisha (“Mr Elisha”) commenced employment with Vision Australia Ltd (“Vision”) in 2006. However, allegations were made against Mr Elisha in relation to his conduct on a work trip, where Mr Elisha was accused of treating a member of the hotel staff, in an aggressive and intimidating manner, amounting to a serious breach of the companies’ values (“the Incident”).

In or around, 5 May 2015, Vision became aware of the Incident and began an investigation into the matter by conducting a number of interviews with all relevant parties besides Mr Elisha. On 19 May 2015, Mr Elisha was stood down and on 26 May 2015 he was invited to a meeting to respond to the complaints made against him in relation to the Incident. Mr Elisha’s employment was subsequently terminated on 29 May 2015, for serious misconduct.

On 19 June 2015, Mr Elisha commenced unfair dismissal proceedings against Vision in the Fair Work Commission. On 9 July 2015, the parties entered into a deed of settlement resolving the proceeding. Pursuant to that deed, Vision was required to make a net payment to Mr Elisha of $27,248.68 (said to be equivalent to 26 weeks of pay). The Deed of Settlement (“DOS”) stated that the Mr Elisha ‘releases and forever discharges’ the employer from all, claims, demands, actions, suits, costs interest, expenses or whatsoever kind which he has or but for the Deed of settlement would have had, arising out of or incidental to his employment, proceedings and the termination’.

Nevertheless, on 27 August 2020 Mr Elisha commenced proceedings against Vision in the Supreme Court of Victoria. Mr Elisha initiated proceedings claiming that he suffered psychiatric injury as a result of Vision’s conduct. He alleged that his employment contract, by virtue of Vison’s policies included a term requiring Vision to follow “due process” when investigating wrongdoing (“Policies”), and they had failed to do so. He also pursued an alternative claim in tort, alleging Vision owed and breached a duty of care to him, in respect of the process by which his employment came to be terminated.

Outcome

At First Instance: Elisha v Vision Australia Ltd [2022] VSC 754

Vision argued that Mr Elisha was prohibited from initiating proceedings because the DOS’s terms captured all proceedings in relation to termination, employment and their enterprise agreement. However, Justice O’Meara held that the terms of the DOS must be narrowly interpreted to prohibit only action the parties had reasonably contemplated at the time of signing the DOS. He also held the DOS linked the claims released to the “employment, termination and proceedings”, being the unfair dismissal proceedings. As such, the Court held that the effect of the release was to prevent only claims linked to the unfair dismissal proceedings, and was not effective to prevent the claim commenced by Mr Elisha in the Supreme Court. Whilst this is not a key component of the High Court case, it is an important reminder for employers that had the DOS been drafted appropriately, that would have been the end of the matter and a lot of time and money could have been saved.

The Contract Claim

Where the policies contractually binding?

Mr Elisha’s contract claim depended on the Company’s Policies and the requirements that the investigation and other matters be conducted in accordance with the Policies. He argued that Vison had failed to follow its own Policies and as they were part of his contract of employment, that failure allowed him to claim for breach of contract. Vision argued that the Policies were not contractually binding because they were merely aspirational guidance; however, Justice O’Meara did not agree.

When coming to this decision Justice O’Meara considered how Vision enforced policies designed to regulate employee conduct. Particularly, Vision used mandatory language such as ‘will’ which was read as more than merely aspirational but obligatory; and if an employee fails to adhere to Vision’s policies, they would be subject to disciplinary action. The employment contract also made clear that the Policies formed part of the Contract. In particular the contract contained a provision that stated: “Employment conditions will be in accordance with regulatory requirements and Vision Australia Policies and Procedures”. The Court held that as the employee was required to accept and abide by the Policies so too was Vision, and as such they were incorporated into the contract.

Did Vision breach?  

The Policies detailed a process for how employees can expect complaints would be investigated. Particularly, Vision was expected to approach any investigation with an open mind and only make decisions to terminate after a thorough fact-finding expedition. However, in the case of Mr Elisha the Justice O’Meara referred to the process as a sham, fraught with bias and opportunities for Mr Elisha to respond were pointless as Vision had already come to the decision that he was guilty. In the circumstances, the Court held that Vison had breached the Policies and thus the employment contract.

Damages

Evidence revealed that Mr Elisha suffered from post-traumatic stress disorder, anxiety and depression as a result of the breach. Justice O’Meara made orders requiring Vision to pay Mr Elisha damages in the sum of $1,442,404.50 for his claim in contract.

The Tort Claim

Did Vision owe a duty?

Mr Elisha claimed that Vision owed him, and breached, a duty of care ‘in respect of the process by which his employment came to be terminated’ and which led to psychiatric injury. However, Justice O’Meara held that Vision did not owe a duty of care to avoid causing Mr Elisha injury during the termination process because no such duty of care is presently recognised by the common law.

On Appeal: Vision Australia Ltd v Elisha [2023] VSCA 265

Vision was granted leave to appeal to the Supreme Court of Victoria Court of Appeal on the grounds that:

1. Justice O’Meara erred in finding that Vison’s policies formed part of Mr Elisha’s contract of employment;
2. Justice O’Meara erred in finding that Vison breached Mr Elisha’s contract of employment; and
3. Justice O’Meara erred in awarding damages.

Grounds One and Two:

The Court agreed with Justice O’Meara findings that Vision’s Policies did amount to contractual obligations. It also agreed that Vision’s conduct in the manner it dealt with the investigation constituted a breach of the Policies and contract of employment.

Ground Three:

The Court discussed the principle of remoteness of damages for breach of contract, with reference to the leading case of Hadley v Baxendale (1854) 9 Exch 341, which state that damages are recoverable, if the damage suffered arise naturally from the breach or could reasonably have been contemplated by both parties at the time of entering into the contract. The Court examined evidence of Mr Elisha’s pre-existing mental health conditions and held Vision could not have reasonably foreseen the psychiatric injury suffered by Mr. Elisha as a result of their breach of contract. Whilst the Court of Appeal agreed that Vision knew that there was a possibility of psychological impact from the breach, Vision had no knowledge of Mr. Elisha’s health condition at the time of commencing the employment relationship, and nothing on the facts to suggested they contemplated the extent of harm he experienced. Therefore, the damages awarded were set aside because they were held to be to remote to the breach itself.

Further, the Court assessed whether damages can be awarded for psychiatric injury for breach of contract resulting in termination, with reference to Addis v Gramophone Co Ltd [1909] AC 488. In that case the House of Lords established that damages for injured feelings and loss of employment prospects, due to a harsh dismissal, could not be recovered for breach of contract.

In conclusion, the Court held that Justice O’Meara’s erred in awarding damages as they are not available under current common law principles for psychiatric injury, and set them aside because they were unlawful.

Finally, the Court of Appeal examined Mr Elisha’s tort claim and agreed with Justice O’Meara, concluding that the duty of care Vision owed Mr Elisha as his employer, did not extend to ensuring Mr Elisha was unharmed by their termination process and is not a duty recognised at law.

The High Court of Australia: Elisha v Vision Australia Ltd [2024] HCASL 60

On 7 March 2024, Mr Elisha was granted leave to appeal to the High Court of Australia. The High Court will answer the following questions:

• Whether the Court of Appeal erred in concluding damages for psychiatric injury suffered by Mr Elisha was not recoverable for breach of contract; and
• Whether the Court of Appeal erred in concluding Vision did not owe a duty to take reasonable care to avoid injury to Mr Elisha in its implementation of processes leading to and resulting in termination of his employment.

Learnings

As this case continues to unfold it is a firm reminder to employers of the importance of ensuring:

• any settlement documents are drafted to effectively cover any claims that may be contemplated by the parties;
• ensuring that termination procedures are robust and accord with the law;
• that investigating complaints should be impartial and align with company policies;
• contracts of employment do not have language that incorporates the company’s policies and procedures;
• the company policies and procedures documents are drafted with aspirational rather than obligatory language.

The High Court of Australia will answer questions that have caused significant debate amongst the legal world. Their decision may result in allowing employees to sue their employer if they have suffered psychiatric harm or distress as a result of the termination of their employment.

If you wish to discuss any aspect of this client alert, require specialist advice in relation to determining whether your business will be affected by these amendments, or assistance reviewing current employment practices or processes, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.