Case Law Update: Elisha v Vision Australia Limited [2024] HCA 50

On 11 December 2024, the High Court of Australia published its decision in Elisha v Vision Australia Limited [2024] HCA 50, overturning a 115-year legal precedent and opening the door for workers who have been terminated in breach of their employment contract to claim damages for psychiatric injury.

The Facts

From 2006, Mr Elisha was employed by Vision Australia Limited pursuant to a written employment contract. Elisha’s employment duties required him to visit homes and workplaces around Australia.

On 23 and 24 March 2015, Elisha was involved in an incident while he was staying in a hotel during travel for work. This incident involved allegations that Elisha had telephoned the reception of the hotel at 12:30am and complained of excessive noise. The hotel moved Elisha to another room but later told other employees of Vision that Elisha was being aggressive and intimidating during the incident. The matter was escalated to Elisha’s manager.

On 19 May 2015, Vision provided Elisha with a letter which set out the decision to stand him down, alleged that Elisha had breached a number of Vision’s policies and required him to attend a meeting to respond to a complaint regarding “serious misconduct”. Elisha provided a response to this letter in which he denied any allegations of misconduct.

The disciplinary meeting was held on 26 May 2015 and on 29 May 2015, Elisha’s employment with Vision was terminated by letter which stated that Vision considered that “on the balance of probability you did behave in the manner described… [and Vision] considers this behaviour to be serious misconduct”.

Following the termination of Elisha’s employment, he was diagnosed with a major depressive disorder and an adjustment disorder with depressive mood. He was found to have no capacity for work in the foreseeable future.

The Claim

On 27 August 2020, Elisha commenced proceedings against Vision in the Supreme Court of Victoria. The primary judge made findings in favour of Elisha with respect to the hotel incident and held that the process which led to Elisha’s termination was “unfair, unjust and wholly unreasonable”, in addition to being in breach of Vision’s disciplinary policies (which were incorporated into the employment contract).

As to psychiatric injury, the primary judge found that the parties should be taken to have reasonably had in contemplation that the risk of distress or potential psychiatric injury was a serious possibility in the event that the terms of the contract were not followed. Accordingly, the Supreme Court of Victoria ordered damages for breach of contract in the sum of $1,442,404.50, including an amount for psychiatric injuries.

The Court of Appeal held that damages for psychiatric injury were not available for two reasons:

1. damages for psychiatric injury were unavailable for a breach of contract other than where the psychiatric injury was consequent upon physical injury or where the very object of the contract was to provide enjoyment or relaxation; and

2. damages for Mr Elisha's psychiatric injury could not be recovered because the psychiatric injury was too remote from the breach of contract.

Accordingly, the Court of Appeal allowed the appeal and set aside the orders of the Supreme Court, including with respect to the damages for psychiatric injury.

Elisha’s grounds for appeal to the High Court included that the Court of Appeal had erred in concluding that damages for psychiatric injury were not recoverable for breach of contract.

The Decision

In a joint judgment of Gageler CJ, Gordon, Edelman, Gleeson and Beech-Jones JJ and a separate judgment of Jagot J (Steward J dissenting), the Court found that Elisha was entitled to damages for psychiatric injury arising from the unlawful breach of his employment contract.

There were three key questions to be decided by the Court with respect to Elisha’s breach of contract claim. Each of these questions and the Court’s answers are as follows:

1. Did the particular contract of employment incorporate the employer’s disciplinary policies as terms of the contract?

Yes.

2. Is the liability for psychiatric injury caused by the employer’s breach of contract beyond the scope of the employer’s contractual duty concerned with the manner of dismissal?

Subject to the particular terms and context of any particular contract, liability for psychiatric injury is not beyond the scope of a contractual duty concerned with the manner of dismissal.

3. Is liability for psychiatric injury too remote in the circumstances of the particular contract?

Liability for psychiatric injury was not too remote, particularly in the serious circumstances of breach that were found by the primary judge.

In summary, the Court held that in circumstances of a serious breach, such as in this case, there is a serious possibility of causing the development of a psychiatric illness. Such possibility should have reasonably been contemplated by the parties at the time they entered into the contract and, as such, there is an entitlement to damages.

The Court also noted at [67] that “a person’s employment ‘is usually one of the most important things in his or her life. It gives not only a livelihood but an occupation, an identity and a sense of self-esteem.’ An unfair process of termination for alleged misconduct could affect all three of those interests; ie, a person’s livelihood, identity, and self-esteem”. 

The High Court allowed the appeal and made orders restoring the primary judge’s orders for damages for psychiatric injury suffered by the employee.

The Impact

This decision overturns the longstanding precedent set in the House of Lord’s decision of Addis v Gramophone Company Ltd [1909] AC 488 (Addis), that claims for emotional distress caused by the manner of an employee’s dismissal cannot be compensated unless expressly stipulated in the contract.

The High Court did not follow Addis for numerous reasons including that the case was decided over a century ago and in a different social context. The Court also recognised that the focus in the United Kingdom in recent years has generally been upon the boundaries of the implied duty of trust and confidence rather than upon the scope of the decision in Addis.

Employers should use this decision as a timely reminder to be aware of the risk of employees developing psychological injuries if the disciplinary and termination processes are unfair and in breach of the relevant contracts and policies.

The stance of the High Court in this case also demonstrates that the Court is alive to changing societal contexts and norms, a position which could continue to influence future decisions.