Elisha High Court Case Significantly Impacts Employer-Employee Contracts

The High Court has recently handed down a landmark ruling in the case of Elisha v Vision Australia Limited [2024] HCA 50, which will considerably impact the landscape of employment law. This decision marks a departure from over 100 years of entrenched case law (case law which informed the genesis of the Fair Work Act 2009 (Cth)) and highlights the need for employers to carefully consider their existing Employment Agreements and Policies and Procedures as they relate to both legal drafting and actual business practices.

Case Background

Mr Elisha brought a breach of contract claim against Vision Australia, arguing that Vision Australia failed to adhere to its own disciplinary policies. Vision Australia denied this and also argued that their disciplinary policies were not incorporated into the employment agreement in any event.

The High Court rejected Vision Australia’s position and held relevantly that:

1. Vision Australia's policies were incorporated into the employment agreement (stating that ‘it would defy both logic and common sense to suggest that an employer who was subjecting an employee to disciplinary action according to contractual policies would not similarly be bound by those policies’);
2. the subsequent deviation from its own disciplinary policies constituted a breach of contract; and
3. that employers could be held liable for psychiatric injury suffered by employees as a result of such breaches.

Overturning Long-standing Precedents

The decision to award damages for psychiatric injury overturns the widely relied upon and long-held principles established in Addis v Gramophone Co Ltd [1909] AC 488 and Baltic Shipping Co v Dillon (1993) 176 CLR 344. The common law position established by these cases prevented employees from any entitlement to compensation for ‘shock, distress, or humiliation’ in employer-employee relationships. Furthermore, the Elisha ruling contradicts the Fair Work Bill 2008's Explanatory Memorandum (which cites the above case law) which specifically states that compensation awarded under the Fair Work Act should not include elements for emotional harm resulting from dismissals.

Implications of the Ruling

The implications of this ruling are profound:

(1) Need for Updated Employment Agreements and Policies and Procedures:

• This ruling highlights the critical importance for employers to carefully review and update their Employment Agreements and Policies & Procedures.
• Quite often, Employment Agreements are drafted to specifically ‘separate out’ Policies & Procedures from the contractual nature of the Employment Agreement, but this decision affirms that Policies & Procedures can have a contractual effect.
• Whether Policies & Procedures will be contractual in nature remains dependent upon specific circumstances and in particular the parties’ objective intentions and the specific wording and language used.
• As such, employers are advised to review both their Employment Agreements and Policies & Procedures, to ensure they are appropriately drafted from a legal perspective but also to ensure they follow the practical steps that an employer will and do follow.

(2) Psychiatric Damages Now Claimable in Breach of Contract Claims:

• This ruling confirms that employees can claim damages from employers for psychiatric damage that flows from a breach of contract.
• This emphasises the importance of ensuring Employment Agreements are properly drafted to mitigate any risk of breach by the Employer.
• Apart from any legal drafting, employers need to be very conscious of the process and procedure their employees are subjected to in any disciplinary proceedings, as it can have a profound effect on the health and wellbeing of the employee (as evidenced in this case).

Key Takeaways

Given the significant changes brought about by this decision, it is essential for employers to proactively review and update their employment documentation and take steps to ensure the psychological safety of their employees is considered and accounted for in any actual implementation of company policies.

Enterprise Legal is fully equipped to assist employers in this vital review process. We can help ensure that your Employment Agreements and Policies & Procedures are properly drafted to give effect to their intended purpose and effectively shield your organisation from potential breaches, all while conforming with actual processes and procedures deployed by the company when they need to be complied with.

Contact us today to schedule a comprehensive review of your existing employment agreements and policy documents. Protect your business from unforeseen liabilities, keep your employment practices up to date and your employees safe.