Incorporating disciplinary policies into employment contracts can increase liability if they’re not followed
The case of Elisha v. Vision Australia Ltd [2024] HCA 50, highlights the importance of employers being mindful of the psychiatric impact of dismissals on their employees and adhering to company policies when disciplining them. This article aims to offer guidance on mitigating an employer's potential liability during the disciplinary process.
For over a century lawyers have observed the Addis v. Gramophone Co Ltd [1909] AC 488 precedent. Addis established that damages for psychiatric injury caused by wrongful dismissals were not available. However, the recent High Court decision in Elisha overturned this longstanding principle.
Adam Elisha was employed as an adaptive technology consultant by Vision Australia Limited from 2006 to 2015. In early 2015, Elisha allegedly acted aggressively toward a hotel employee during a work trip. Following Vision Australia's investigation of the incident, Elisha was presented with a letter directing him to stand down and attend a meeting to respond to a complaint regarding his alleged misconduct at the hotel.
During the meeting, Elisha denied the allegations, claiming he never behaved aggressively toward the hotel employee. Internally, Vision Australia favoured the hotel employee's accounts relying on a pattern of aggressive behaviour that had been mentioned by Elisha's manager. Elisha was then dismissed for serious misconduct in relation to the hotel event.
Following his termination, Elisha developed Major Depressive Disorder and Adjustment Disorder with Depressed Mood (Psychiatric Injury). He subsequently pursued legal action against Vision Australia on the basis that Vision Australia had breached the employment contract by not adhering to its disciplinary procedures, which caused the Psychiatric Injury.
When deciding this case, the High Court noted that employment contracts are intended to regulate employment relationships between employees and the company. This means that employees and their employers are both bound by the terms of the contract.
Elisha's employment contract expressly referenced Vision Australia's policies and procedures in both the body of the contract and the acceptance section. It was noted in the body of the contract that the employment conditions would align with the company's policies, and breaches of those policies would result in disciplinary action. The acceptance section of the contract also required acceptance and compliance with all the company's policies and procedures as part of Elisha's employment with Vision Australia. The court determined that these sections provided straightforward evidence that Vision Australia's policies and procedures formed valid terms in the contract, consequently binding both Elisha and Vision Australia.
The High Court determined that the real reason Elisha was dismissed was his pattern of aggressive behaviour, which lacked foundation and had never been previously raised with Elisha. In failing to include this as an allegation in the stand down letter provided to Elisha before the disciplinary meeting, Vision Australia breached their relevant disciplinary policies and procedures and subsequently breached the employment contract.
The court found that Vision Australia's breach of disciplinary procedures caused the Psychiatric Injury, as Elisha would not have been dismissed if not for the alleged misconduct. The court went on to note that this causal element was entirely foreseeable, as a flawed dismissal process is likely to cause significant distress to a person's livelihood, identity, and self-esteem.
This judgement represents a ground shift in the Australian employment law landscape.
Employers already understand the centrality of following company policies and procedures in making employment related and disciplinary decisions. Based on this decision, failure to do so may give rise to compensable psychiatric injuries in addition to economic compensation after disciplinary or termination decisions. If employers fail to follow their policies and procedures when undertaking disciplinary processes, particularly where the policies and procedures are binding through the contract of employment, significant risk will follow.
Employment contracts: employers should review their current employment contracts to ensure that policies and procedures are not inadvertently incorporated as terms of the contract of employment.
Educating and training: regularly train and educate employees, particularly managers, on company policies and procedures to ensure staff and managers know what your policies require, where they can get assistance in following the policies and the consequences of breaching those standards. This is particularly important for human resources staff and managers who participate in disciplinary processes.
Documenting: maintain detailed and accurate records of any allegations made against an employee, any evidence supporting those allegations, communications with the employee, and the disciplinary action taken against the employee. Having sufficient evidence for dismissals is essential in ensuring the company is mitigating its risk when terminating employment and will assist them in defending any claim that may arise as a result of the dismissal.
Megan Kavanagh is head of the Employment & Safety Queensland team at Colin Biggers & Paisley in Brisbane.
