Landmark ruling examines when flawed termination procedures trigger employer liability
The High Court of Australia recently dealt with a case about whether an employer should pay damages for a worker's psychiatric injury after his employment ended.
The worker argued that his employer's failure to follow proper disciplinary procedures and subsequent termination led to a serious psychiatric condition.
The case addressed whether employers could be liable for psychiatric injuries resulting from breaches of disciplinary procedures in employment contracts.
The decision examined the scope of damages available when termination processes fail to meet contractual requirements.
According to records, the worker was employed as an adaptive technology consultant from 2006, setting up software and hardware systems for vision-impaired individuals. His employment contract incorporated the employer's disciplinary procedures, which required proper notification of allegations and a fair opportunity to respond before any disciplinary action.
Between December 2014 and July 2015, medical records showed the worker was treated for anxiety and depression. His psychologist noted he had "significantly heightened sensitivity to particular sounds," "chronic workplace stress" and "interpersonal difficulties with particular staff members."
In March 2015, while staying at a hotel for work duties, an incident occurred involving a complaint about noise. The hotel proprietor alleged the worker had been aggressive and intimidating, which the worker denied.
The worker's manager, who had a strained relationship with him since 2011, learned of the hotel incident. The manager told human resources she "had verbal reports... about aggressive behaviour in the past," though these allegations were never formally presented to the worker.
The employer provided the worker with a stand-down letter that only outlined allegations about the hotel incident. The primary judge found that the employer had "already decided to accept" the hotel proprietor's version of events before the disciplinary meeting.
The process was found to be "unfair, unjust and wholly unreasonable" and "nothing short of a sham and a disgrace."
The worker was "not given any notice of, or opportunity to respond to, the allegation of a history of aggression and excuse making and was not told of the role of that allegation in the decision to terminate his employment."
Following termination, the worker was diagnosed with "a major depressive disorder, as well as an adjustment disorder with depressed mood." Medical evidence showed he had "no capacity for work in the foreseeable future."
The primary judge found that "the unfathomable nature of what had occurred contributed very significantly to the disturbance of [the worker's] mind and, consequently, the chronic psychiatric illness of which various medical witnesses gave evidence."
A treating psychiatrist testified that the worker "had not given any indication of issues with anger and frustration prior to the termination of his employment."
The High Court addressed a fundamental question about employer liability, determining that "subject to the particular terms and context of any particular contract, liability for psychiatric injury is not beyond the scope of a contractual duty concerned with the manner of dismissal."
This established that psychiatric injuries could be compensable when they result from breaches of contractual disciplinary procedures.
Applying this principle to the facts, the Court found that if proper processes had been followed, the allegations of past aggressive behaviour would not have influenced the disciplinary meeting, and the worker's employment would not have been terminated.
The Court concluded that "liability for psychiatric injury was not too remote, particularly in the serious circumstances of breach that were found by the primary judge."
The Court allowed the appeal with costs, setting aside the Court of Appeal's orders and restoring the primary judge's original damages award of $1,442,404.
