A landmark decision by the High Court of Australia has, for the first time, confirmed that employees can claim compensation for psychiatric injury sustained due to unfair dismissal. Commercial Litigation Senior Associate Jade Carlson examines the case of Elisha v Vision Australia Ltd and the circumstances surrounding the plaintiff’s dismissal, while Compensation Law Senior Associate Henry Garrett explores the ruling that allowed the plaintiff to receive compensation for a psychological harm caused by the dismissal process.
The case of Elisha v Vision Australia Ltd [2024] HCA 50 was widely anticipated to clarify whether a court would permit damages for breach of contract and/or negligence for a psychiatric injury claim because of termination of a worker’s employment.
In December 2024, the High Court of Australia allowed an appeal from a judgment in the Court of Appeal of the Supreme Court of Victoria. The High Court ruled that psychiatric injury can result in damages being awarded to employees for a breach of contract when previously, it did not.
In doing so, the High Court has set a precedent of vital significance in employment law and subsequent compensation for damages for a psychiatric injury at work.
Elisha v Vision Australia Ltd [2024] HCA 50 had initially commenced as an action against Vision Australia in the Fair Work Commission and its subsequent journey to trial, Court of Appeal and now the High Court is a timely reminder for employers and employees that the employment landscape has changed.
The case has been seen as a recognition of employer/employee relations modernising to reflect greater balance and equality. This decision now emphasizes how employers must be cautious about how they terminate contracts, and employees have increased rights to claims for psychiatric injury caused at work.
The Case – Fair Work Commission
Mr Elisha had been employed by Vision Australia since 2006. In 2015, Mr Elisha stayed at a hotel for a work-related trip, where allegations were made about his behaviour and conduct towards hotel staff.
Vision Australia subsequently dismissed Mr Elisha after an investigation into his conduct. Mr Elisha then started unfair dismissal proceedings against Vision Australia with the Fair Work Commission.
However, one of the reasons alleged to have contributed to his dismissal was evidence of prior misconduct and this had not been put to Mr Elisha.
This was contrary to Vision Australia’s disciplinary procedure, and it was argued that Mr Elisha did not have a proper opportunity to respond to all allegations against him.
Mr Elisha subsequently settled proceedings with Vision Australia at the Fair Work Commission.
Court proceedings in the Supreme Court of Victoria
Following his dismissal, Mr Elisha was diagnosed with major depressive disorder and adjustment disorder with depressed mood, with no capacity for employment in the near future.
Mr Elisha’s Fair Work claim had been settled with a deed of settlement and release. Usually, a deed would release the other party from any and all claims. However, the stated terms of the deed were to ‘settle all claims in relation to the employment, termination and proceedings’.
At the Supreme Court, this clause was deemed to signify Vision Australia was released from claims only in relation to the Fair Work Commission proceedings (the unfair dismissal claim), not all claims available to Mr Elisha relating to his employment.
This was pivotal to Mr Elisha’s claim for psychiatric injury.
The judge ruled that Vision Australia had breached its Enterprise Agreement and disciplinary procedure, which was included in Mr Elisha’s employment contract, by failing to provide Mr Elisha with the allegations it had relied upon to dismiss him.
Crucially, the judge acknowledged the possibility that dismissal could result in distress or even psychiatric injury and awarded Mr Elisha damages of more than $1.4 million for breach of contract.
Court of Appeal
The Court of Appeal overruled the judgement in Mr Elisha’s original case against Vision Australia. They based their judgement on an old English contract law and UK labour law case, Addis v Gramophone Co Ltd [1909] AC 488.
The English labour case is renowned for establishing a principle that damages that apply in any breach of contract in wrongful or unfair dismissal cases are limited to lost earnings and poignantly, damages are not due for how somebody was dismissed, any mental anxiety, injured feelings, distress, anguish or frustration.
As such, the Court contended Mr Elisha’s psychiatric injury was too remote from Vision Australia’s breach for damages to be recoverable.
Elisha’s Next Step – The High Court
Mr Elisha then applied to the High Court to overturn the Court of Appeal’s decision and asked them to reinstate the original trial judge’s decision.
The High Court concluded that damages are recoverable for psychiatric injury caused by an employer’s breach of the employment contract and how an employee is dismissed.
The High Court decided Addis v Gramophone Co Ltd [1909] AC 488 was not applicable in the case of Mr Elisha, and the psychiatric injury he suffered was within the reasonable contemplation of the parties at the time of entering into the contract.
As a result, Mr Elisha’s distress due to the manner of his dismissal was reasonably foreseeable and not too remote a possibility. This made way for the High Court to conclude that the breach of contract could give rise to damages for psychiatric injury.
Key Takeaway
The Elisha case has brought to the forefront the need for employers to be mindful of following their disciplinary procedures, allowing employees the right to reply to allegations about their conduct.
More poignantly, perhaps, the Elisha decision now means employers need to recognise their obligations to consider their employee’s psychological health during an investigative or disciplinary process.
Attwood Marshall Lawyers – helping people through life’s toughest times
If you need help with an employment law dispute or an injury sustained at work, including psychological injuries, we have dedicated legal teams who practice exclusively in these areas.
To discuss an employment matter, please contact our Commercial Litigation Department Manager, Georgia Trapp, on direct line 0498 499 122, email gtrapp@attwoodmarshall.com.au or free call 1800 621 071
For personal injury enquiries, please reach out to our Compensation Law Department Manager Tyra Hall on direct line 07 5506 8261, email thall@attwoodmarshall.com.au or call our 24/7 phone line on 1800 621 071 to find out where you stand.
Our Lawyers are available for appointments at any of our conveniently located offices at Coolangatta, Robina Town Centre, Southport, Kingscliff, Brisbane, Sydney, and Melbourne. Book online now.
