A recent High Court decision has set a significant precedent, making Australian employers potentially liable for psychiatric injuries arising from contract breaches. This development emphasises the critical importance of adhering to employment contracts and disciplinary procedures.
Disciplinary Processes and Contractual Obligations
Employers frequently manage employee performance and conduct through established disciplinary procedures. These can range from counselling and formal warnings to, in severe cases, termination of employment. Often, employment contracts include clauses tying employee conduct to the company’s policies and procedures:
“Employment Conditions will be in accordance with [the Employer’s] Policies and Procedures. Breach of these may result in disciplinary action.”
“[The Employee] agrees to comply with all Company Policies and Procedures.”
The implications of these clauses were recently scrutinised in a High Court case that has captured the attention of HR professionals and business leaders alike.
The Case in Focus
On 11 December 2024, the High Court ruled that an employer’s failure to adhere to their own disciplinary procedures could result in significant damages. The ruling awarded $1.44 million to a former employee for psychiatric injuries linked to a flawed dismissal process.
Background: The employee, who had worked for an Australian charity since 2006, faced allegations of aggressive behaviour during a hotel stay in 2015. Despite denying the allegations, the employee was stood down and later dismissed without being given the chance to respond to all the accusations, including a purported history of aggression.
Following this dismissal, the employee was diagnosed with major depressive and adjustment disorders, rendering him unable to work. This case underscored the severe impact that procedural lapses in disciplinary actions can have on employees’ mental health.
High Court’s Key Findings
The High Court’s judgment was a landmark in recognising that:
- Employment contracts incorporating disciplinary procedures are binding.
- Employers must strictly follow these procedures.
- Psychiatric injuries resulting from procedural breaches are not too remote for damages claims.
Practical Implications for Employers
This ruling serves as a cautionary tale for organisations. Here’s a practical checklist to ensure compliance and minimise risks:
- Review and Update Policies: Regularly assess your disciplinary and termination procedures for clarity and flexibility.
- Amend Contracts: Ensure employment contracts are carefully worded to prevent potential breach claims.
- Follow Procedures Diligently: Adhere to prescribed steps in your policies and offer employees a fair opportunity to respond to allegations.
- Develop Comprehensive Guides: Equip managers with detailed guidelines to handle investigations and disciplinary actions fairly.
- Maintain Procedural Fairness: Ensure all allegations are clearly communicated, allowing employees to respond adequately.
By embedding these practices, employers can foster a fair and supportive work environment, mitigating legal risks and promoting trust within the organisation.
Conclusion
The High Court’s decision has profound implications, highlighting the necessity for employers to respect contractual obligations and conduct disciplinary actions with utmost fairness. Vigilance in these areas not only safeguards organisations from legal pitfalls but also contributes to a healthier workplace culture.
Visit The Proven Group’s website for more insights and expert advice on navigating employment law.
