Flawed Dismissals Can Now Cost You More Than Just an Employee
If you thought firing an employee was just about handing over a termination letter and calling it a day, think again! The High Court of Australia has made a game-changing ruling that could see businesses paying damages for psychiatric harm caused by a poorly handled dismissal. Yes, you read that right – an unstructured, botched termination could cost you more than just an unfair dismissal claim!
What Happened?
In a landmark decision, the High Court of Australia has affirmed that employees may seek damages for psychiatric injuries resulting from an employer’s breach of contract, including unfair dismissal. This ruling, stemming from the case of Elisha v Vision Australia Limited [2024] HCA 50, marks a significant shift in employment law, underscoring the growing recognition of mental health in the workplace.
Case Overview
Mr Elisha commenced employment with Vision Australia Limited in 2006. His employment contract required adherence to the organisation’s policies and procedures, including those related to disciplinary actions, as outlined in its Enterprise Agreement. In March 2015, during a work-related trip, allegations arose that Mr Elisha had exhibited ‘aggressive and intimidating’ behaviour towards another hotel guest.
Upon learning of the incident, Vision Australia initiated an investigation, inviting Mr Elisha to respond to the allegations. The organisation asserted that the meeting would align with its Enterprise Agreement and Disciplinary Procedure. However, Vision Australia considered prior instances of alleged aggressive behaviour by Mr Elisha in its deliberations regarding his termination-without providing him with an opportunity to address these past allegations before his dismissal.
The trial judge characterised Vision Australia’s internal investigation as a “sham” and a “disgrace.” It was determined that both the Enterprise Agreement and the Disciplinary Procedure were integral components of Mr Elisha’s employment contract, and the organisation’s failure to adhere to these procedures constituted a breach.
Subsequently, it was established that this breach led to Mr Elisha developing a severe psychiatric illness, specifically major depressive disorder. As a result, Mr Elisha was awarded the maximum entitlement of $27,248.68.
Legal Implications
What makes this case particularly significant is that damages from wrongful dismissal have traditionally not included compensation for injured feelings or diminished employment prospects. Historically, psychiatric injuries were deemed beyond the scope of an employer’s contractual obligations.
The Elisha decision challenges this precedent, recognising that, at least in cases involving recognised psychiatric injuries such as major depressive disorder, liability for such harm falls within an employer’s contractual duties. The Court emphasised that the scope of contractual duty should be interpreted based on the liabilities that the parties, considering their agreement, might reasonably be deemed to have accepted.
Additionally, the Court considered the principle of remoteness, concluding that psychiatric injury was a foreseeable consequence of a serious breach of contract at the time the employment agreement was established between Mr Elisha and Vision Australia.
Why This Matters and How to Protect Your Business
Mishandling employee terminations can lead to legal, financial, and reputational risks. To avoid these issues:
- Follow Policies and Laws: Ensure compliance with documented policies, enterprise agreements, and employment laws.
- Ensure Fair Processes: Give employees a genuine opportunity to respond before making a final decision.
- Consider Employee Well-being: Poorly managed dismissals can contribute to psychiatric injuries and legal claims.
- Mitigate Risks: Unfair terminations can result in financial penalties and damage to your company’s reputation.
- Best Practices: Adhere to fair and transparent processes, prioritise compliance and employee well-being, and seek HR expertise before making termination decisions.
Need Help? We’ve Got You Covered!
The last thing you want is a costly court case because of a mismanaged termination. Strategic HR Australia specialises in helping businesses navigate tricky HR situations, ensuring your policies and processes keep you compliant, professional, and out of trouble.
Don’t wait until it’s too late-get the right advice now and protect your business! Contact us today.
