There has been significant interest in a recent Judgment of the High Court of Australia where the majority found an employee was entitled to compensation for sustaining a psychiatric injury that was caused by an employer’s breach of the employment contract. 

While the decision has been of interest to lawyers because it overturns a long-held understanding about contract claims and damages for psychiatric injury, it has also been used to prompt employers to quickly review and amend their contracts and policies.  

However, press pause before you send them to us – we consider that jumping straight to that point misses the real takeaway. 

Background and findings 

By way of brief background, the employee was involved in a verbal exchange with a hotel manager while staying at a hotel during a period of work-related travel.  

The employee was later informed that a serious complaint had been made, he was stood down from duties and was provided with a letter that contained allegations that, in summary, the employee had spoken to the hotel manager in an aggressive and loud tone causing the hotel manager to feel humiliated. The employee verbally denied the allegations during a meeting in which the employee was stood down. 

A further meeting was held with the employee so he could respond to the allegations. The employee had vigorously denied the allegations in writing, as well as verbally. After this meeting, the employee’s manager and the decision makers of the employer met to discuss the matter. Influenced by the manager’s negative views of the employee the decision makers considered: 

• the hotel manager’s version of events should be preferred over the employee’s denials; and 

• the employee had engaged in “a pattern of aggression” which in light of his apparent lack of insight into this behaviour posed unacceptable risk. 

The employee’s “pattern of aggressive behaviour” was not put to the employee as the decision makers considered the employee had engaged in the pattern of aggressive behaviour, a finding which was based primarily on the manager’s views. 

At the next meeting, the employee’s employment was terminated for serious misconduct.   

The employee was subsequently diagnosed with a major depressive disorder and adjustment disorder with depressed mood. It was accepted that this psychiatric injury was caused by the manner of dismissal and breach of the employment contract, specifically the employer’s failure to provide the employee with a letter containing the allegations of “a pattern of aggression” in accordance with its 2015 Disciplinary Procedure, being a policy incorporated into the employee’s employment contract. 

Key lesson for employers 

The employer’s 2015 Disciplinary Procedure sets out a process which is more prescriptive than procedures in most organisations, but we have also seen much more onerous processes too. Further, it is not usually recommended to have policies or enterprise agreements incorporated into employment contracts. 

As a result, the call to action by much of the guidance already out there is that employers must undertake an urgent review of policies, procedures and employment contracts. While sensible and encouraged, these actions miss the real takeaway for employers – the purpose of a disciplinary process is about enshrining and affording “procedural fairness” or “due process”.  

We consider that this case reinforces how a lack of procedural fairness has the potential to undermine a dismissal decision. A topic we have written about before in our past blog here. 

What is dependent on the specific circumstances and context is what affording procedural fairness looks like and the consequences of failing to apply those principles.  

To launch PCS’s 2025 Education & Thought Leadership program, Joydeep Hor will be running half-day Masterclasses in Sydney and Melbourne in February on “How to Conduct Workplace Investigations”. Joydeep will be sharing his most valuable and thought-leading insights and guidance for conducting workplace investigations. Register here