In a landmark decision, Australia’s High Court has recently delivered a judgement that has sent ripples through the HR and employment law community. This ruling overturns long-held assumptions and potentially exposes businesses to significant financial risks. The court ordered an employer to pay nearly $1.5M in damages to an employee who developed a psychiatric illness following an unfair disciplinary procedure that led to his dismissal. However, with careful contract drafting by experienced employment solicitors, much of this risk can be mitigated.
Case Overview
The case involved Mr Elisha, an adaptive technology consultant employed by Vision Australia Ltd, a not-for-profit organisation. Following allegations of aggressive behaviour during a work trip, Mr Elisha was subjected to a disciplinary process that the High Court later deemed a “sham” and a “disgrace”. The employer failed to follow its own disciplinary procedures, which were contractually binding, leading to Mr Elisha’s unfair dismissal and subsequent development of a major depressive disorder.
Key Legal Points
Contractual Nature of Policies: The High Court found that the employer’s policies and procedures were contractually binding, as both parties had agreed to comply with them.
Breach of Disciplinary Procedure: Vision Australia failed to follow its own procedures, denying Mr Elisha the opportunity to respond to all allegations against him.
Damages for Psychiatric Illness: Overturning previous assumptions, the High Court ruled that employees can recover damages for psychiatric illness resulting from unfair dismissal processes.
Foreseeability of Harm: The Court held that it was reasonably foreseeable that a flawed disciplinary process could lead to psychiatric illness in an employee.
Implications for Employers
This ruling highlights the potential for substantial damages awards arising from improper termination procedures. However, the significant damages in this case stemmed from the employer’s disciplinary procedure being incorporated into the employment contract.
- To protect themselves, employers should:
- Review employment contracts to ensure policies are not inadvertently incorporated.
- Build flexibility into workplace policies and procedures to allow adaptation to specific circumstances.
- Ensure disciplinary processes are fair, transparent, and adhered to strictly.
- Seek expert legal advice when drafting employment contracts and conducting disciplinary procedures.
While this ruling presents potential risks for employers, careful contract drafting and adherence to fair procedures can significantly mitigate these risks. As employment law continues to evolve, businesses must stay informed and seek professional legal guidance to navigate these complex issues effectively.