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And significantly, not for negligence, but for breach of the employment contract.

In Elisha v Vision Australia (O’Meara J, Supreme Court of Victoria, 13/12/22) the plaintiff had been stood down from his employment as a result of the defendant determining that he had behaved aggressively towards a hotel manager while on a work trip.  After a meeting with him, his employment was terminated for serious misconduct.

The plaintiff’s claim for psychiatric injury was brought in tort and contract, the latter alleging that certain policies of the defendant and elements of its enterprise bargaining agreement were part of his employment contract, and they had been breached.

The defendant contended that the plaintiff was a difficult and hard to manage employee, a position which His Honour found there was no evidence for and came to be “prejudicial and pernicious,” and “facilitated a self-reinforcing pattern of reductionist thinking.” He concluded that the process and outcome was “unfair, unjust and wholly unreasonable,” and that such was apparent from the defendant’s witness’s examination in chief.

As to the incorporation of the defendant’s disciplinary procedures into the plaintiff’s contract of employment, after considering all the authorities, His Honour stated the principles governing incorporation as being:

(a) whether or not the Vision EA or any of the policies or procedures upon which the plaintiff relies were incorporated into his contract of employment depends upon the parties’ intentions objectively ascertained;

(b) in that regard, the starting point may be said to be the language of the contract, but that must fall to be considered in context, including with reference to the object or purpose of the contract and the surrounding circumstances known to the parties;

(c) the parties may be bound by a meaning reasonably inferred in the circumstances;

(d) the language of the contract is important, especially if it is clear, although often, in such cases, the contract concerned is loosely drafted;

(e) in respect of whether a policy or other document is to be viewed as contractual, where the language is clear, compliance is emphasised and the consideration goes to a fundamental condition of employment, the parties would be expected to regard such terms as contractually binding;

(f) a consideration may be whether the contract and external documents present in the nature of a bargain;

(g) special considerations of context may affect whether an industrial agreement or instrument may be seen as incorporated into the contract;

(h) external documents may include parts of an ‘aspirational’ or ‘directive’ nature, but nonetheless may contain terms properly characterised as contractual or capable of being contractual;

(i) later created documents can be contractual – much depends upon the language of the contract; and

(j) in that regard, the fact that the employer has a power to alter policies and procedures may not necessarily indicate that that such documents are either not contractual or do not contain contractual terms.

He held that the language of the contract was such that the policy and enterprise bargaining agreement were incorporated to the extent that they were “contractual,” and that the procedure was very specific in its requirements for the defendant to undertake disciplinary action – indeed the defendant had relied upon its policies in terminating the plaintiff’s employment.

In turn, it had breached them by not furnishing the plaintiff with details of all the allegations made against him, and by not affording him an opportunity to respond to the allegations actually made against him.

In relation to the plaintiff’s claim in negligence, His Honour cited the strained relationship with his supervisor, his accessing of the employer’s assistance program, the circumstances of the confrontation at the hotel, and the manner in which the defendant approached the meeting as establishing reasonable foreseeability.

As to whether the duty was nonetheless precluded by the reasoning of the NSW and Queensland Courts of Appeal in the cases of Paige and Govier respectively, His Honour cautioned against any general proposition that a duty of care in respect of the termination of employment was incompatible with the statutory scheme established by the Fair Work Act, but noted that recent cases suggested that a duty could not be imposed in respect of “incidents of employment,” such as discipline, as opposed to the employment itself.

He however accepted that the “expression of principle” in Aldersea v Public Transport Corporation, that Australian law does not recognise an entitlement to damages for personal injury arising from termination of employment, should be followed, even though in the circumstances, “a cause of action in deceit may well have been unanswerable.”

He awarded the plaintiff $400,000 in general damages and significant loss of earning capacity damages, holding that “distress and potential psychiatric illness” ought to have been in the reasonable contemplation of the parties in the event that the protective processes established by the contract were not followed, and were therefore not “too remote.”

Unsurprisingly given the new ground broken by this decision, the defendant is seeking leave to appeal. Apart from a few isolated instances, claims for damages for psychiatric injury arising from an alleged breach of the employment contract had not gotten very far, for one reason or another.  There does appear to be significant tension between the modern expectation, and indeed statutory requirement, that the employment relationship be heavily regulated by documented policies and procedures, yet at the same time infringement of that regulation carrying such substantial sanctions for breach.