On 11 December 2024, a majority decision of the High Court in Elisha v Vision Australia Ltd [2024] HCA 50 (‘Elisha’) overturned the century-old House of Lords case Addis v Gramophone Ltd [1909] AC 488 (‘Addis’). The precedent established in Addis has served as an impediment to an employee’s claim of contractual damages for psychiatric injury resulting from a breach of the employment contract by the employer, and in this case breach of contract arising out of an unfair disciplinary process.
Employers must now be aware of this recent decision of the High Court, drastically impacting their employment relationship with their employees.
This article provides a summary of the High Court’s decision in Elisha and its impact on the future of employment laws within Australia.
The longstanding position of Addis
Until recently, Addis remained the major impediment to the award of contractual damages for loss in respect to the mental distress, trauma and injury caused by the manner of dismissal of an employee.
In Addis, the court held that damages in contract must ‘flow naturally from the breach’. As such, contractual damages for psychiatric injuries were not available for the manner in which a contract had ended, as these damages were determined to be too remote to the breach.
The award of damages is an integral part of the fair and just processes of the legal system in Australia. There have been few attempts to overturn the principals of Addis throughout the Australian courts, notably in the case of Burazin v Blacktown City Guardian Pty Ltd [1996] IRCA 371, 156. The constraint Addis placed on the courts was significant, meaning contractual damages for unfair dismissal cases were not available in Australia for over 100 years.
To read more about the Addis decision and its implication on the award of damages, please click here.
Understanding Elisha v Vision Australia
The majority decision in Elisha marks the beginning of judicial acceptance of mental stress and injury for an employee following an unfair dismissal.
Facts
- Mr Elisha, a former employee of Vision Australia, sustained a psychiatric injury after he was dismissed from his role in May 2015.
- Vision Australia stood down Mr Elisha, after sending him a stand down letter. The letter invited Mr Elisha to a meeting in which he could provide his response to allegations of improper workplace conduct.
- Vision Australia made findings that Mr Elisha had engaged in aggression while staying at a hotel whilst carrying out work duties. It was described as the ‘latest example in a pattern of aggression’.
- Vision Australia then terminated his employment due to the alleged serious misconduct claim made by the hotel owner.
- The abrupt termination of Mr Elisha’s employment never gave him an opportunity to respond to the allegations. This constituted a breach of the Company’s disciplinary policies which were found to form part of the terms of the employment contract.
- Mr Elisha developed a major depressive and adjustment disorder and he lost his capacity to work for the foreseeable future.
Mr Elisha commenced proceedings in the Supreme Court of Victoria against Vision Australia.
Preliminary issues discussed by the High Court
Did Vision Australia breach Mr Elisha’s employment contract by failing to abide by their Disciplinary Procedure?
The High Court noted that Mr Elisha’s employment contract outlined that his employment conditions will be in accordance with the employer’s policies and procedures, and any breach will result in disciplinary action.
Vision Australia made assurances that if there was a concern of a serious nature, a specific procedure will be followed. The employment contract contained a clause outlining the incorporation of the disciplinary procedure into Mr Elisha’s contract.
The relevant clause stated:
‘Other Conditions: Employment Conditions will be in accordance with regulatory requirements and Vision Australia Policies and Procedures. Breach of the Policies and Procedures may result in disciplinary action.’
The ‘Other Conditions’ clause would suggest to a reasonable person that the intention of this clause was to be contractually binding.
Seeing as the disciplinary procedure formed part of the employment contract, as shown above, Vision Australia had a contractual obligation to follow its own disciplinary procedure.
The High Court explained that Vision Australia’s reliance on the principles of Addis was misplaced, stating that the Addis case never explicitly stated that contractual damages were not available for unfair dismissal claims.
Is liability for a psychiatric injury too remote, nullifying the award of damages?
The High Court affirmed that psychiatric injury falls under a type of injury that can result in damages being awarded to employees for breach of their employment contract. This identifies a major change from the previous position that psychiatric damages were too remote to attract compensation.
Twenty years earlier, Baltic Shipping Co v Dillon (1993) 176 CLR 344 (‘Baltic’) held that damages for psychiatric injury were available for breach of contract claims. The four members of the High Court in Baltic did not outline any exception to this decision for employment contractual claims.
The test for remoteness considers the general type of damage that occurred, and the general manner in which the damage occurred. The High Court described the circumstances of the breach as ‘serious’, as the real reasons for Mr Elisha’s dismissal were not mentioned in the dismissal meeting.
The High Court determined that Mr Elisha’s loss was not too remote. The psychiatric injuries he suffered could have been reasonably contemplated by the parties as a serious possibility, given the disciplinary processes he was subject to.
The High Court found that it is therefore reasonable to expect Mr Elisha would suffer a psychiatric injury as a result of Vision Australia’s actions.
Can damages obtained by breach of contract extend to psychiatric injury?
The High Court decided that psychiatric injury falls under a determination of physical or personal injury of which damages can be recovered for a breach of contract claim.
The High Court upheld that the $1.5 million awarded to him at first instance confirmed the availability of psychiatric damages for breach of employment contract claims.
Scope of employer’s duty of care concerning the manner of dismissal
The majority of the High Court determined the reliance of Vision Australia on the long-standing principles of Addis was “misplaced.”
Alongside his breach of contract argument, Mr Elisha argued Vision Australia should be liable for damages under the tort of negligence. Mr Elisha argued that the duty of care required by a company extends to taking reasonable steps to prevent an employee suffering a psychiatric injury from a disciplinary process.
The modern approach in society would suggest a person’s employment is an integral part of their life, and an unfair dismissal can not only affect a person’s income, but their identity and self-esteem necessary to persevere through the daily troubles of life. The Addis case was decided upon in a different social context over 100 years ago.
Recognising psychiatric injury stemming from breach of contractual claims modernises employment law, and allows employees to pursue claims that may not have previously been available.
How does this affect employers/employees?
The future of employment law has been shaped by the High Court’s overturning of the long-standing Addis principle, with consideration to the changing workplace attitudes from when the House of Lords made the decision in Addis in 1909, to now.
The Australian courts may consider whether companies have followed their own written policies, and whether an employee’s manner of dismissal expressly falls under the contractual obligations outlined in their employment contract.
Employers should review existing employment contracts to ensure that any reference to a policy or procedure is not incorporated as a contractual term. Amending outdated contractual terms is important, as there are now numerous avenues for employees to obtain contractual damages.
Employers must also now consider the possibility of psychiatric illness or mental harm during the termination process of an employee. This is particularly applicable if a medical vulnerability relating to an employee is known to the employer.
Employers may consider reviewing their disciplinary processes to ensure fairness to employees remaining consistent with the organisational policies and procedures.
Employees will now be able to seek damages for a psychiatric injury arising from an employer’s breach of their employment contract. This means that they are now entitled to seek compensation because of their manner of dismissal, allowing them to hold their employers accountable for unfair dismissals.
Mr Elisha’s successful appeal to the High Court of Australia marked a significant shift in social attitudes regarding psychiatric illnesses, and the importance of the employment relationship in the scope of modern-day employment.
This marks a significant step towards the destigmatisation of psychiatric injury as the new employment law precedent reflects the changing social attitudes.
Conclusion
The inability of previous cases to over-turn Addis prior to Elisha reiterates the stranglehold the Addis case had over the availability of damages for psychiatric injuries. The entitlement to damages for psychiatric injury can now be regarded as a further exception to the general contractual principles which apply because of the unique nature of the employment relationship.
The Elisha case marks the beginning of a new era for employment law.
Disclaimer: Nothing in this article should be relied upon as legal advice. The contents of this article should be regarded as information only, and for specific legal matter, independent advice should always be sought.
