Contract of Employment breach linked to psychiatric injury
A recent High Court ruling has emphasised the importance of employment contracts but for reasons quite different to why we generally encourage clients to ensure they have clear, comprehensive contracts for compliance purposes.
In a recent case involving an unfair dismissal, the employee was awarded $1.44 million for psychiatric injuries caused by the employer’s failure to adhere to the disciplinary procedures outlined in the contract.
The employee brought an unfair dismissal claim against the former employer in the Fair Work Commission, where the employer settled for the maximum amount to which the employee was entitled ($27,248.68). Following this the employee then brought another claim to the Supreme Court of Victoria on the basis that he suffered a psychiatric injury caused by his former employer’s breach of his employment contract. The court found:
That the employer had breached the employment contract, including the Disciplinary Procedure, which was found to be incorporated as a clause in the employee’s employment contract, and
That the disciplinary procedure had not been complied with as the employer had failed to provide the employee with all the allegations prior to the meeting, including the alleged “pattern of aggression”.
The Supreme Court ruled that the potential for distress or even psychiatric injury resulting from the termination was recognised by "the relevant witnesses at trial." The Court noted that potential for psychiatric harm was a serious possibility if the "protective processes directly outlined in the terms of the contract [the Disciplinary Procedure] were not followed, and the employee was wrongly terminated." As a result, the Court awarded the employee $1.44 million in damages.
This ruling highlights that employers could now be liable for psychiatric injuries that arise from contract breaches due to contractual processes, such as disciplinary procedures, not being followed. This results in employees potentially being able to successfully claim damages for psychiatric harm.
Employers should ensure that their contracts do not include overly rigid clauses that may inadvertently result in a breach, safeguarding both the organisation and employees from costly legal repercussions. Where employers would like to have detailed procedures, around areas of discipline these should be included within company policies and procedures and not contracts.
With the outcome of this ruling, we recommend that employers review their employment contracts and ensure they are clear and avoid overly precise policies and procedures that could give rise to a possible breach of contract if not followed exactly. Policies and procedures should also be reviewed to ensure there is sufficient scope and discretion to depart or vary any prescribed steps.
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