WRITTEN BY John Wilson & Kieran Pender
Perhaps the most stressful thing an employee can face at work is being investigated for allegations of misconduct. If sustained, the misconduct may lead to dismissal. For many employees, a job is more than just a salary – someone’s identity is often wrapped up, to some extent, in their professional life. Misconduct findings can therefore be disastrous – personally, professionally and financially.
What obligations, then, rest on employers to get disciplinary processes right? What duties does an employer owe to its employees to ensure a safe system of investigation and decision-making as to discipline and potential dismissal? And what happens if those obligations or duties are not met?
Those are the questions currently before the High Court in Elisha v Vision Australia.[1] If the Court rejects the appeal, it will limit the obligations of employers to provide safe disciplinary processes, minimising the risk of liability. But if the appeal is accepted, it could open a new frontier for employees or ex-employees to litigate dismissal processes. It could see the High Court overturn a century-old precedent that has prevented recovery for contractual damages for the mental health impact of wrongful dismissal.
It is, in other words, an important case to watch, consequently worthy of analysis in this article. The significance of the case is its common law basis – while employer obligations to provide safe workplaces and fair dismissal processes are already clearly defined under the Fair Work Act, workplace health and safety law and workers’ compensation law, changes to an employer’s underlying duty of care in contract and tort would add additional layers of responsibility and potential liability. Accordingly, all employers, and particularly employment lawyers, will wait in anticipation as the case is decided by the High Court – likely not until early next year (hearing dates are not yet set).
It is uncontroversial that employers owe to their employees a duty to provide a safe workplace. This duty covers potential injury to an employee’s ‘psyche, person or property’, provided the injury is reasonably foreseeable.[2] It is a duty ‘not merely to provide a safe system of work; it is an obligation to establish, maintain and enforce such a system … [taking into account] the power of the employer to prescribe, warn, command and enforce obedience to his commands.’[3] These duties arise in both contract (through an implied term) and tort. However, on current authorities, there are limits to the extent of these duties, and damages available for breach of them – limits which are squarely raised by Elisha.
In 1909, the House of Lords decided Addis v Gramophone Co Ltd.[4] In Addis, the plaintiff managed the defendants’ business in Kolkata, India. His employment contract contained a six-month notice period, but the employer removed him from his role in breach of contract – this had a significantly negative impact on his standing in the local business community, and he experienced considerable pain and distress.
The House of Lords held that damages for this non-financial impact on the plaintiff was not recoverable in contract. The headnote stated the ratio as follows: ‘Where a servant is wrongfully dismissed from his employment the damages for the dismissal cannot include compensation for the manner of the dismissal, for his injured feelings, or for the loss he may sustain from the fact that the dismissal of itself makes it more difficult for him to obtain fresh employment.’[5] (In Elisha, the appellant challenges the correctness of this statement of the ratio of the case).
This finding was built upon by the High Court in Baltic Shipping Co v Dillon,[6] a case which did not arise in the employment context, to confirm that, other than in exceptional cases, damages for breach of contract do not lie for disappointment, distress or injury to feelings. Together, these cases have significantly limited an employee’s recourse in contractual damages for the impact of an employer’s conduct in the disciplinary and dismissal process.
Australian common law has also limited the ability of employees to rely on an employer’s tortious duty of care in relation to the disciplinary process. While it is well-accepted that employers owe a generalised duty of care to provide a safe workplace, the extent of this duty in relation to disciplinary processes has been approached restrictively. In part, this arises from a desire for tort to conform with the limitations of contract, and the interface with statutory unfair dismissal schemes. As one judge has said, ‘if the common law recognises no claim for damages for personal injury based in wrongful termination of a contract of employment, how could a case in respect of the same events framed in the common law of negligence produce a different result?’[7]
Thus in the leading case of New South Wales v Paige,[8] a decision of the New South Wales Court of Appeal, it was held (with Spigelman CJ writing the lead judgment) that the state did not owe its employee a duty of care to conduct its disciplinary procedures so as to avoid psychiatric harm. As the Chief Justice observed:
First Instance
It is in this seemingly infertile soil that Elisha arose. Since 2006, Mr Elisha had worked at Vision Australia as an adaptive technology consultant, assisting people with vision impairment with their software and hardware systems. This required him to undertake home visits and travel regionally and interstate. Mr Elisha had a history of ‘competent and reliable performance’, albeit he had been subject to a disciplinary investigation for breach of IT policies, for which he was counselled.[10]
In the early 2010s, some tensions arose between Mr Elisha and his manager, and at one point he made a formal complaint about his manager. These issues led to anxiety and depression, and he received psychological treatment. One issue facing Mr Elisha was ‘significantly heightened sensitivity to particular sounds’, which led to ‘chronic workplace stress’.[11]
In March 2015, Mr Elisha was travelling for work in regional Victoria when he stayed the night at a hotel. Mr Elisha made a noise complaint to the proprietor. When other employees of Vision Australia stayed at the same hotel some months later, the hotel proprietor expressed concern about Mr Elisha’s conduct that evening (the Hotel Incident) – alleging that he had been rude and aggressive in complaining about the noise, late at night.
Subsequently, Mr Elisha was notified of the Hotel Incident, together with more generalised concerns about his workplace behaviour, and he was suspended while an investigation was undertaken. Mr Elisha denied the allegation. Vision Australia subsequently determined to accept the evidence of the hotel proprietor over Mr Elisha, and terminated his employment.[12]
Mr Elisha’s dismissal had a significant adverse psychological effect on him, and he was subsequently diagnosed with major depressive disorder. He lodged an unfair dismissal claim, which settled for payment of six months’ wages (the maximum available in the Fair Work Commission). Mr Elisha then lodged a claim in the Victorian Supreme Court for breach of contract and breach of duty in tort in relation to his dismissal, claiming ‘substantial damages’.[13] The crux of both claims were that Vision Australia had a duty to provide Mr Elisha with a safe system of work, and in respect to the Hotel Incident disciplinary process and dismissal, it had breached this duty.
At trial, Mr Elisha was subjected in cross examination to what the trial judge, O’Meara J, described as ‘a root and branch style destruction of his credibility as a witness.’ This was ‘essentially unsuccessful.’[14] Ultimately, the judge concluded that the hotel proprietor’s allegations of what transpired that night were exaggerated, and that what had in fact occurred was ‘considerably less objectively dramatic than later suggested.’ His Honour held: ‘I cannot accept that in the course of the events in Bairnsdale the plaintiff was anything more than irritated and insistent (and therefore irritating). He was not objectively aggressive, threatening or frightening.’[15]
O’Meara J held that vague and unsupported allegations from Mr Elisha’s manager about his general behaviour adversely influenced the disciplinary process decision-making, ultimately leading to a process and outcome that ‘was unfair, unjust and wholly unreasonable.’[16] The judge described the process as ‘a sham and a disgrace’,[17] largely relating to the way in which a particular, contested incident had been used as a fig leaf to justify generalised concerns by Mr Elisha’s manager – concerns which were not put to Mr Elisha and had no documented basis. His Honour concluded his findings of fact in this respect on an eye-catching note:
O’Meara J accepted Mr Elisha’s principal claim in contract, awarding almost $1.5 million in damages, but found that he failed in tort due to the absence of a duty as alleged, consistent with Paige.
Appeal
Vision Australia appealed. On appeal, the Victorian Court of Appeal affirmed the trial judge’s findings as to contract, but held that damages for Mr Elisha’s psychiatric injury were unavailable for a breach as to the manner of his dismissal, in light of the principle in Addis and the remoteness of the damages. The Court of Appeal also rejected the existence of a duty in tort.[19] Mr Elisha was ordered to repay the damages award with interest, and pay costs at first instance and most of the costs of the appeal.
High Court
And so the battle-lines are drawn on appeal to the High Court. Is there a duty in tort for an employer to provide a safe system of investigation and decision-making in relation to its disciplinary processes (including possible dismissal)? And does Addis preclude recovery of damages for psychiatric injury resulting from wrongful dismissal which otherwise grounds a successful claim in contract?
The appellant argue that Addis has been overstated and does not in fact preclude such damages, or, in any event, should no longer be followed. They also argue that a tortious duty of care should be recognised in relation to the disciplinary and dismissal process. In written submissions, the appellant argues that the current limitation is incoherent and must be addressed.[20]
The respondent, conversely, argues that Addis is well-established and should not be overturned, particularly given the statutory overlay – including the Fair Work Act – which has allowed for a proper balancing of the conflict interests of employees and employers in this context. They warn of far-reaching consequences:
The respondent also argues that extending the existing duty of an employer to provide a safe workplace to cover disciplinary processes would lead to incoherence between tort law and contract and statutory employment law, and be incompatible with the existing duty of care owed by employers to other employees. On this latter point, the respondent argues that an expanded duty of care would give rise to a tension in an employer’s need to discipline incompetent or misconducting employees where they are creating a source of danger to other employees (to whom the employer also has a duty of care).
The High Court’s ultimate decision in Elisha will be significant. Strong policy grounds cut in both directions, which is why the case will be one for employers and employment lawyers to watch with interest. But if the appellant’s case is accepted, it would reflect a notable development in the High Court’s understanding of the modern reality of the employment relationship, and the substantial impact that botched disciplinary processes can have on employees. As the appellant’s argue in their submissions:
John Wilson is the Managing Legal Director of our Employment Law & Investigations team and an accredited specialist in industrial relations and Employment Law.
Kieran Pender is an honorary Lecturer at the ANU College of Law and a consultant at BAL Lawyers.
If you have any questions or queries about this information, please contact the BAL Lawyers, Employment Law & Investigations team on 02 6274 0999.
First published 22 May 2024 ACT Law Society Journal – ‘Managing Disciplinary Processes and the Impact on Employees‘
[1] M22/2024 (‘Elisha’).
[2] Tame v New South Wales (2002) 211 CLR 317 [140] (McHugh J).
[3] McLean v Tedman (1984) 155 CLR 306, 313 (Mason, Wilson, Brennan and Dawson JJ)
[4] [1909] AC 488 (‘Addis’).
[5] Ibid.
[6] (1993) 176 CLR 344.
[7] Elisha v Vision Australia Ltd [2022] VSC 754 (13 December 2022) [515].
[8] [2002] NSWCA 235 (19 July 2002) (‘Paige’).
[9] Ibid [154]–[155].
[10] Elisha v Vision Australia Ltd [2022] VSC 754 (13 December 2022) [1]–[6].
[11] Ibid [18].
[12] Ibid [8]–[41].
[13] Ibid [48].
[14] Ibid [63].
[15] Ibid [147].
[16] Ibid [226].
[17] Ibid [238].
[18] Ibid [246]–[247].
[19] Vision Australia Ltd v Elisha [2023] VSCA 265 (1 November 2023).
[20] Adam Elisha, ‘Appellant’s Submissions’, Submission in Elisha v Vision Australia, M22/2024, 22 April 2024.
[21] Vision Australia, ‘Respondent’s Submissions’, Submission in Elisha v Vision Australia, M22/2024, 22 May 2024.
[22] Adam Elisha, ‘Appellant’s Submissions’, Submission in Elisha v Vision Australia, M22/2024, 22 April 2024.