The NSW Personal Injury Commission (‘Commission’) accepted a psychological injury claim arising out of a disciplinary meeting, holding (amongst other things) that the meeting should have been adjourned after the Employee’s mental health disclosure (that she had been discharged from a medical facility the night before) and the fact that she was obviously very distressed.

In this Employment Update we will discuss the matter of Cowley v Builders Trade Centre (NSW) Pty Ltd (‘Cowley’), what it tells us about employer obligations, and some general meeting tips and traps for employers carrying out disciplinary meetings.

Cowley in a nutshell

The Employee (applicant) alleged that she sustained a psychological injury as a result of various factors including a lack of training, not being advised of her responsibilities, excessive work, lack of support and assistance, and being investigated and accused by the Employer in respect of allegedly fraudulent transactions.

Two meetings were held with the Employee: one on a Thursday (‘Initial Meeting’), and a second on the following Monday (‘Show Cause Meeting’). The allegations were of fraudulent behaviour (stock sold under margin), but were not provided to the Employee ahead of the Initial Meeting. The Employee also disclosed in the Show Cause Meeting that, between the Initial Meeting and the Show Cause Meeting, she had not slept or eaten and had been discharged from a medical facility the night before. The Employee was highly emotional in the Show Cause Meeting and asked for it to stop on various occasions before then changing her mind and stating she wanted to continue, saying it would be worse if they did not continue.

Ultimately, it would be the Employee’s evidence that the discounted transactions were the result of agreed staff discounts. The Employee stated that she believed there was an agreement between the Employer and another staff member for the staff member to obtain building materials at a discounted rate. On this basis, the Employee said, she authorised the orders. The Employer denied that any such discount agreement was in place but did not investigate the claim.

Legal issues & legislation

Under the NSW Workers Compensation Act, no compensation is payable in respect of a psychological injury “wholly or predominantly” caused by reasonable management action in respect of various issues including transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal of workers or provision of employment benefits to workers (s 11A). Accordingly, the issue before the Commission was (for the purpose of this article) whether the:

“psychological injury […] was wholly or predominantly caused by reasonable action taken or proposed to be taken by or on behalf of the respondent with respect to performance appraisal and/or discipline”.

For completeness, we note that the exact legal treatment of this issue will vary from state to state, though usually with a similar result. By way of example, the Victorian Workplace Injury Rehabilitation and Compensation Act similarly excludes compensation in set circumstances (s 40), while the Queensland counterpart excludes psychiatric or psychological disorders arising out of ‘reasonable management action taken in a reasonable way’ from the definition of ‘injury’ (s 32).

Meeting mishaps

In Cowley, the Commission accepted that the alleged conduct was serious, and that the Employer was entitled to investigate it. An employer is, after all, entitled to protect the interests of their business. However, regardless of this right to investigate, the Commission found that the Employer’s actions were unreasonable. There were various reasons for this, but amongst others it was noted that:

1. The Employee was not given the details of the alleged transactions until at the first meeting. This, the Commission said, denied the Employee the opportunity to consider the transactions; make any investigations into the transactions which she may have thought were required; or gather any relevant evidence. Rather, the Employee was (effectively) unable to provide evidence in response until the Show Cause Meeting (which she had only 2 days’ notice of), at which point her guilt had already been determined by the Employer;
2. The Employer failed to investigate matters raised by the Employee in the Initial Meeting (e.g. the alleged staff discount agreement with the staff member the subject of the transactions) which, given the seriousness and nature of the allegations, the Commission viewed ought to have been considered;
3. The show cause letter (sent the morning following the Initial Meeting) did not advise what the allegations were, which allegations had been substantiated, or the basis on which they had been found to be substantiated;
4. The time given was inadequate to respond to the show cause letter; the first meeting was held on a Thursday, the show cause letter issued on the Friday; the show cause meeting was held on the following Monday; and the Employee worked a 12 hour shift in the intervening period;
5. The show cause letter was deficient in that it referenced an employee assistance programme (EAP) but failed to provide details (the Employer’s head office was also unable to provide the details when contacted by the Employee).

Importantly, the Commission also held that the Show Cause Meeting should have been adjourned when the Employee first requested for the meeting to stop, stating:

“The applicant at that stage was obviously distressed and at least by that point according to the evidence of Ms Coupez [HR Manager] the applicant had disclosed that she had been discharged from a medical place the night before and that she had not slept or eaten since she had received the show cause meeting letter on Friday morning.”

The Commission rejected the Employer’s contention that the meeting should continue where the Employee wished for it to do so, stating:

“Whilst the applicant may have wished to proceed, the respondent should have been concerned about her condition to do so and furthermore it was not fair to the applicant to do so. In the circumstances, given the applicant’s distress and the information provided to the respondent [Employer], the applicant’s mental wellbeing should have been a concern, and serious consideration given to the applicant attending on an appropriate medical practitioner for treatment and guidance as to when the meeting could be resumed. In addition, the applicant’s capacity to function and to effectively participate in the meeting and show cause was clearly compromised.”

And further:

“If there were concerns as to the applicant’s functional ability to undertake [the show cause meeting] there was no point in the meeting continuing. The process was unfair.”

Employer Takeaways

While the tests set out in Cowley are specific to NSW case law and legislation, there are common themes that are valuable regardless of the location of your business:

1. It is usually the reasonableness of the action(s) that allegedly caused the psychological injury that are relevant. It was not disputed that the Employer in Cowley had the right to carry out an investigation – it was the conduct of the Employer in the manner in which the investigation was carried out that was found lacking and to be unreasonable;
2. Reasonableness is judged having regard to fairness in the circumstances – what is fair and reasonable may differ from case to case; and
3. The question of reasonableness is objective – a mere belief that an action was fair or necessary does not mean a court, tribunal, or commission will agree.

Regardless of your location, best practice dictates that you should ensure, to the best of your ability, that the process is objectively fair. Ideally, this means carrying out processes in a way that would not draw criticism from an objective third party assessor (i.e. your State or Territory Commission).

Measures that may assist in shielding your business include:

1. providing clear details of the allegations ahead of meetings, as this allows the employee a proper opportunity to prepare for the meeting;
2. allowing employees a full opportunity to respond to the allegations and provide any evidence in support of their response that they may wish to present;
3. properly investigating issues raised by employees in response to the allegations;
4. appointing parties unrelated to the allegations to manage and investigate the matter (including external investigators where appropriate); and
5. conducting meetings responsively by responding to the situation, and making necessary adjustments for information as it arises (as opposed to conducting the meeting in an inflexible manner, in accordance with a predefined script or to reach a specific outcome).

As seen in Cowley, if an employee becomes overly emotional or distressed during a disciplinary meeting, or discloses information that questions their ability to have properly prepared for or their ability to take part in the meeting, it may be appropriate to adjourn the meeting to a later date rather than risk forging ahead with what may later be deemed to be an unfair process (should legal proceedings result).

If you have any questions about this Employment Update, or if you require assistance with a workplace investigation, please do not hesitate to reach out to our experienced employment law team.