Background
In 2006, Mr Elisha commenced employment with Vision Australia as an adaptive technology consultant. Mr Elisha’s employment was governed by a written contract which outlined Mr Elisha’s duties (Contract).
In March 2015, Mr Elisha was alleged to have been aggressive and intimidating to a staff member at a hotel while on a work-related trip (Alleged Incident). Upon being notified of the Alleged Incident, Vision Australia provided Mr Elisha with a stand down letter which invited him to respond to allegations regarding the Alleged Incident and attend a disciplinary meeting two days later.
Relevantly, the stand down letter noted the investigation would be conducted in accordance with Vision Australia’s enterprise agreement (Vision EA) and disciplinary procedure. The Vision EA required (among other things) due process, such that employees would be advised of any concerns with their conduct or performance and be provided with an opportunity to respond to those concerns.
Mr Elisha denied the allegations in a written response and during the meeting. However, Vision Australia’s management team preferred the evidence of the hotel staff, in part due to an apparent “pattern of aggression” by Mr Elisha. The allegation regarding a previous pattern of aggression was not put to Mr Elisha in the stand down letter or during the disciplinary meeting.
On 29 May 2015, Vision Australia terminated Mr Elisha’s employment for serious misconduct arising from the Alleged Incident. Mr Elisha was subsequently diagnosed with a major depressive disorder, as well as an adjustment disorder with depressed mood and found to have no capacity for work in the foreseeable future.
In June 2015, Mr Elisha commenced unfair dismissal proceedings in the Fair Work Commission (FWC) against Vision Australia. Those proceedings were resolved in July 2015, with the parties entering into a deed of settlement, pursuant to which Mr Elisha would receive the equivalent of twenty-six weeks’ pay (the maximum amount to which he was entitled).
Notwithstanding the deed of settlement, on 27 August 2020, Mr Elisha commenced proceedings in the Supreme Court of Victoria, alleging he suffered psychiatric harm as a result of Vision Australia’s dismissal process. To that end, Mr Elisha alleged Vision Australia breached its contractual obligations and duty of care to Mr Elisha.
First instance decision
The primary judge held that Vision Australia had breached the Vision EA and disciplinary procedure by failing to provide Mr Elisha with an opportunity to respond to all allegations upon which Vision Australia chose to dismiss him.
While the primary judge did not accept Vision Australia owed Mr Elisha a duty of care (such that his claim in negligence failed), it was held Mr Elisha’s dismissal was “unfair, unjust and wholly unreasonable” and awarded damages for breach of contract of more than $1.4 million.
In relation to the deed of settlement executed by the parties in relation to the FWC proceedings, the primary judge found that the deed did not prevent Mr Elisha from commencing proceedings for psychiatric injuries suffered as a result of breach of contract, including because:
- the recitals to the deed –
- referred specifically to the unfair dismissal proceedings brought in the FWC, and defined that as the ‘proceedings’;
- characterised the compromise between the parties as being to ‘settle all claims in relation to the employment, termination and proceedings’
- the terms of the deed should not be construed as having effected a release of claims beyond those made in the unfair dismissal proceedings;
- the claims for breach of contract and negligence could not reasonably have been within the contemplation of the parties when settling the unfair dismissal proceedings because:
- no claim in respect of psychiatric injury was made in the unfair dismissal proceedings;
- pursuant to the Fair Work Act 2009 (Cth), the FWC does not have power to award any component of compensation in respect of ‘shock, distress or humiliation, or other analogous hurt’.
Court of Appeal
Vision Australia appealed the Supreme Court’s decision on a number of grounds, including that there was no breach of contract in circumstances where the Contract did not incorporate the Vision EA or disciplinary procedure.
Vision Australia also submitted that an employer does not owe an employee a duty of care in relation to the investigation and termination of their employment and damages were therefore unavailable for any psychiatric harm that may have been suffered.
The Court of Appeal disagreed with those propositions and found that Vision Australia had breached a contractual term by failing to allow Mr Elisha due process. However, the Court of Appeal relied on the long-standing principle that damages were only recoverable in circumstances where the psychiatric harm is a result of physical injury caused by the contractual breach, or where the object of the contract was to provide enjoyment or relaxation. On that basis, the Court of Appeal held that damages for psychiatric harm were not available for Vision Australia’s breach of contract and that the psychiatric harm was too remote.
High Court
Mr Elisha was granted leave to appeal the decision to the High Court in relation to the breach of contract and negligence claims.
The majority ultimately upheld the primary judge’s decision by finding:
- It was the common intention of the parties that Vision Australia’s policies and procedures would be contractually binding, particularly given Mr Elisha’s “acceptance”, by which he undertook, in promissory terms, to “comply with … all other Company Policies and Procedures“.
In this regard, the majority rejected Vision Australia’s submissions that the commercial object of the Contract was to create an employment relationship with a “one sided obligation on Mr Elisha” to obey lawful directions. Instead, the Contract did incorporate Vision Australia’s disciplinary procedure as terms of the Contract, which Vision Australia failed to comply with;
- Liability for psychiatric harm was not too remote in the circumstances of the particular contract as it was reasonable to expect Mr Elisha would have been so distressed by the manner in which Vision Australia had breached the Contract (and by its consequences, including his dismissal) that there was a “serious possibility that Mr Elisha would suffer a serious psychiatric injury”.
This was particularly so in light of Mr Elisha’s almost ten-year tenure, and given Vision Australia had established processes of support, including counselling for employees, to anticipate and address risks of psychiatric harm, including in relation to the process of dismissal;
- As compensation was available to Mr Elisha for the breach of contract, it was unnecessary to consider whether Vision Australia owed Mr Elisha the duty of care in negligence as alleged (though the majority did observe a lack of comprehensive submissions on this issue).
In light of the majority’s findings, Mr Elisha was awarded more than $1.4 million in damages.
Take-away points for employers:
Employers must ensure that dismissal processes are procedurally fair. Even when employees are not protected from unfair dismissal, this case establishes that there may be other avenues of redress available to employees.
When negotiating the terms of a deed of settlement or deed of release with a departing (or departed) employee, the employer should ensure the deed includes a release from any liability for breach of the employment contract.
Employers should ensure that all policies and procedures, and all employment contracts, include an express provision stating that employees are obliged to comply with policies and procedures as a matter of lawful and reasonable direction, but that policies and procedures are not incorporated into the employment contract.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
