A recent decision of the High Court of Australia has significantly reshaped the legal landscape concerning an employee’s entitlement to damages for psychiatric illness resulting from the manner of their dismissal. This development—set against the broader backdrop of increased focus on psychosocial health in the workplace—may lead to a rise in breach of contract claims by employees.
Introduction
On 11 December 2024, the High Court in Elisha v Vision Australia Ltd [2024] HCA 50; (2024) 99 ALJR 171 confirmed that employees may recover damages for psychiatric injury arising from the manner of their termination, where such harm results from a breach of contract.
The Court reinstated the original trial judgment awarding $1.44 million in damages to Adam Elisha, a former adaptive technology consultant, holding that Vision Australia had breached its own disciplinary procedures—procedures which were found to be contractually binding.
This marks a departure from longstanding reliance on Addis v Gramophone Co Ltd (1909), which had been interpreted to bar such claims in Australia.
Background
In 2015, Mr. Elisha was terminated for “serious misconduct” following a noise complaint during a work trip. Vision Australia cited a prior “pattern of aggression” in its reasoning—allegations Mr. Elisha was never made aware of or given an opportunity to address.
Despite being told an investigation would be conducted in accordance with the organisation’s 2015 Disciplinary Procedure and its registered Enterprise Agreement, Vision Australia failed to follow its own stated processes. Mr. Elisha subsequently developed a psychiatric illness attributed to the flawed disciplinary process and his dismissal.
He initially lodged an unfair dismissal claim with the Fair Work Commission, which settled under a deed releasing Vision Australia from claims related to his employment and termination. However, five years later, he commenced proceedings in the Supreme Court of Victoria, alleging breach of contract and negligence.
Trial and Appeal Outcomes
The trial judge found Vision Australia’s disciplinary process to be “a sham and a disgrace,” concluding that:
- The 2015 Disciplinary Procedure and the Enterprise Agreement had been incorporated into Mr. Elisha’s employment contract.
- Vision Australia’s failure to follow due process constituted a breach of contract.
- If due process had been followed, the outcome likely would have been different.
$1.44 million was awarded in damages.
On appeal, the Victorian Court of Appeal overturned the decision, ruling that damages for psychiatric injury are not recoverable in breach of contract cases involving termination, and that no duty of care arose in tort.
Mr. Elisha successfully appealed to the High Court.
Key Findings of the High Court
The High Court overturned the Court of Appeal’s decision, restoring the trial judgment. Its key findings were:
1. Incorporation of Disciplinary Policies
Vision Australia’s policies were expressly incorporated into the employment contract through language indicating their binding nature. Specifically, the 2015 Disciplinary Procedure was enforceable and had been breached.
2. Psychiatric Injury Can Be Compensable in Contract
The Court held that Addis does not preclude recovery for psychiatric injury where the injury results from a contractual breach relating to the manner of dismissal. The Court emphasized that Addis has been overtaken by modern jurisprudence and social context.
3. Damage Was Not Too Remote
The psychiatric harm suffered by Mr. Elisha was held to be reasonably foreseeable. Given the seriousness of the breach and the impact of the dismissal, it was within the parties’ contemplation that such harm could occur.
4. No Decision on Duty of Care
Although the High Court did not determine whether employers owe a duty of care in tort in relation to disciplinary and termination processes, it left the door open for such arguments to be made in the future.
Implications for Employers
The Elisha decision represents a major shift. Employers may now face claims for psychiatric injury arising from a mishandled dismissal—not as a workplace injury, but as a breach of contract.
To mitigate risk, employers should:
- Review employment contracts: Ensure policies or codes of conduct are not inadvertently incorporated as contractual terms.
- Avoid contractual language suggesting policies are mandatory or binding.
- Re-draft or clarify disciplinary procedures to be aspirational rather than prescriptive.
- Ensure procedural fairness in all disciplinary and termination decisions—including full disclosure of allegations, opportunities to respond, absence of bias, and documentation of decisions.
- Audit enterprise agreements and awards for terms that may give rise to contractual obligations under the Fair Work Act 2009 (Cth).
- Review settlement deed templates to ensure they clearly extinguish all claims, including those not raised in unfair dismissal proceedings.
- Stay alert to legislative reform, especially possible changes to section 392(4) of the Fair Work Act, now potentially redundant in light of this decision.
Conclusion
Elisha v Vision Australia Ltd expands the scope of legal claims employees may bring in the context of dismissal. It underscores the importance of employers treating disciplinary policies with caution and maintaining high procedural standards. The decision signals a broader recognition of psychosocial risks in employment law and a legal system increasingly willing to hold employers accountable for harm caused by flawed workplace processes.
