Damages for Psychiatric Injury in the Workplace: Elisha v Vision Australia

Last December, the High Court handed down a decision with significant implications for both employers and employees. In Elisha v Vision Australia Ltd [2024] HCA 5, the Court held that damages for psychiatric injuries may be payable as part of breach of contract claims, overturning longstanding legal precedent.

What happened?

Mr Elisha had been employed by Vision Australia Ltd (“Vision”) since 2006. During work-related travel in 2015, he was involved in an incident at his hotel, in which he allegedly displayed aggressive and intimidating behaviour towards a hotel proprietor.

Vision subsequently commenced disciplinary action in accordance with its enterprise agreement and internal policy manual, which included the “Vision 2015 Disciplinary Procedure”. Mr Elisha was provided with a “stand down letter” requiring him to attend a meeting two days later and detailing the allegations against him, which were confined exclusively to the hotel incident. Mr Elisha denied the allegations in the meeting. However, the hotel proprietor’s account was ultimately accepted on account of previous allegations of aggressive behaviour by Mr Elisha, which were not put to him in the meeting.

Vision terminated Mr Elisha’s employment in May 2015 and he was subsequently diagnosed with a major depressive disorder. Mr Elisha started proceedings claiming damages for this psychiatric injury in 2020.

At trial, it was held that Vision had breached its own Disciplinary Procedure in a disciplinary process described as a “sham and disgrace” – particularly as Mr Elisha was not provided with a letter outlining the allegations which actually led to his termination. The risk of psychiatric illness as a result of this was considered not to be too remote, and Mr Elisha was therefore awarded damages for breach of contract. Although Vision appealed these points, the High Court agreed that the disciplinary procedure was a part of Mr Elisha’s employment agreement, and that by not following it, Vision was in breach of the employment contract. The High Court also upheld that the psychiatric injury suffered by Mr Elisha was not too remote and, crucially, determined that psychiatric injury is a kind of personal injury for which damages are claimable for breach of contract.

Key Takeaways

Damages for psychiatric injury

• The courts have generally been reluctant to recognise damages for psychiatric injury being claimable in breach of contract cases. However, the High Court’s decision now opens the possibility of damages for psychiatric injury being claimed if it is actually suffered, not too remote and causally linked to the breach of contract.
• In this particular case, the High Court found that Mr Elisha’s depressive disorder should have been, at the time of the contract, within the parties’ reasonable contemplation as a serious possibility if the employment contract and procedures were not followed correctly. The Court also found that the failure to follow workplace policy and procedure was the direct cause of Mr. Elisha’s psychiatric injury.

Failure to follow policies and procedures can be a breach of employment contracts

• In this case, Vision had incorporated the Disciplinary Procedure into its enterprise agreement and internal policy manual. The Procedure was also found to be expressly incorporated into Mr. Elisha’s employment agreement. As a result, if workplace policies are included as part of an employment agreement, an employer could be in breach of contract if they fail to follow such policies and procedures.

What do I need to do?

• Review employment agreements and workplace policies and procedures: Review agreements and policies to ensure that policies do not form part of employment agreements. Also review policies to ensure familiarity with processes and ensure procedural fairness is afforded to employees.
• Be aware of the risk of psychiatric injury: Remember to consider the likelihood and impact of psychiatric harm to employees when going through disciplinary procedures or ending employment, especially if you are aware of any pre-existing vulnerabilities or extenuating circumstances relevant to an employee.

Read the judgment summary here.

At Digby Law, we’re here to help you with your employment law and contract matters. If you have any queries about this recent case and how it might affect you, please don’t hesitate to get in touch.

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