The Victorian Supreme Court has recently found that Vision Australia’s dismissal of a consultant for alleged repeated aggressive behaviour was a “sham and a disgrace” and contributed directly to the employee’s “very serious” psychiatric injury.

The employee previously made an unfair dismissal application, which was settled with the employer five years prior to bringing this breach of contract claim.

The case presents an instructive lesson for employers that poorly worded employment contracts and workplace policies and procedures (and deeds of settlement) can have expensive repercussions. After finding the employer’s disciplinary policy and procedure documents were incorporated into the employee’s contract by virtue of their wording and language, the Court held that the employer failed to comply with those disciplinary policy and procedure documents. The Court accepted the employee’s claim for damages relevant to the psychiatric injury, which it accepted was caused by the failure to comply with the policy.  As a result, the employer was ordered to pay $1.73 million in damages.

Background

In March 2015, the consultant attended the Bairnsdale International Hotel for work purposes. Months later, the employee’s manager became aware of a complaint made by one of the hotel staff who said the employee had been aggressive towards her when he called her to his room for maintenance reasons.

The manager alerted Vision Australia’s HR manager, who expressed the incident was “not surprising” as she had received a number of verbal complaints regarding the same employee’s “aggressive” and intimidating behaviour. The HR Manager said she had made the employee aware of these complaints, yet he had always “explained away” the issue.

Upon returning from annual leave, the consultant was informed that he was being stood down. Allegations of serious misconduct were then put to him in a meeting, where the manager made allegations that the employee “verbally attacked” the hotel employee, questioned whether she was capable of doing her job and blocked her from exiting the room.

Although the consultant denied the allegations, the manager and three HR professionals who attended the meeting found that the employee should be dismissed due to his conduct, and on the basis that his conduct damaged the company reputation, failed to uphold company values, and risked the hotel staff member’s health and safety.

In his decision, Justice O’Meara found that the hotel incident was “considerably less” dramatic than the employer alleged, and that there was no evidence the consultant was anything more than irritated by the hotel staff’s earlier refusal to “fix” an issue in his hotel room.

Further, Justice O’Meara found no evidence that the employee had any history of aggression in the workplace. Instead, his Honour remarked that the HR manager’s “prejudicial” characterisation of the consultant’s behaviour was purposely “planted” in the minds of the decision makers. As a result, the employer’s claims that the employee was serially aggressive and an unrepentant bully lacked any substance, particularly as these allegations were never raised with the employee for response.  It was these procedural failures that led to the Court finding that the employer breached its own disciplinary policy and procedures.

Unfair Dismissal Claim & Deed of Settlement

On 19 June 2015, the employee commenced unfair dismissal proceedings in the Fair Work Commission. The employee discontinued the proceedings following a settlement agreement between the parties, which involved the employer making a payment to the employee of $27,248.68, which was the equivalent to the unfair dismissal compensation cap of 26 weeks’ pay.

The parties entered into a settlement deed on 9 July 2015, which included a mutual release and provided a bar to the employee commencing any further actions, including “in respect of [the employee’s] employment, the proceedings and/or termination of his employment.” To determine whether that settlement deed prevented the employee’s claim in this matter, Justice O’Meara applied established principles relating to the judicial interpretation of release clauses, and which examined what was within the contemplation of the parties at the time the release was given.

Despite the fact that the employee had already attended sessions with a clinical psychologist, and in which he complained of concerns about “unfair dismissal”, at the time of entering into the settlement deed, the Court held that the breach of contract claim could not “reasonably have been within the contemplation of the parties”, because (among other things) the employee did not (and indeed could not) have made a claim for damages in respect of psychiatric injury in that unfair dismissal proceeding. Further, the Court interpreted the release clause’s reference to the employee’s “termination” as being intrinsically linked to the unfair dismissal proceedings, and to the exclusion of other claims that might arise from the dismissal.

The result of these findings was that the Court rejected the employer’s argument that the release clause and bar to proceedings prevented the employee from bringing this breach of contract proceeding. Concerningly for employers, the release clause in the settlement deed, which was disregarded by the Court, was similarly worded to the Fair Work Commission’s “standard” settlement terms document, which is often adopted in the resolution of unfair dismissal applications.

Psychiatric Injury Claim

In August 2020, more than five years after settling the unfair dismissal matter, the employee commenced breach of contract proceedings, relevant to an alleged breach of the employment contract (the breach being due to incorporation of workplace policies and procedures, and then breach of those policies and procedures).  The employee also alleged a breach of a purported duty of care in respect of the processes of termination of employment. In regard to the dismissal, the employee stated, “without any exaggeration, it has been catastrophic, there is not one single aspect of my life that hasn’t been either destroyed or obliterated”.

The employer denied the claim, and argued that psychiatric injury was not reasonably foreseeable, and that the employee’s poor condition had instead resulted from his “inherently brittle nature” and general personality traits.

The employer was ultimately unsuccessful in arguing that its policies and procedures were not incorporated into the employee’s contract, and that it did not breach any obligations contained in those policies and procedures. However, the employer was successful in establishing that it did not owe a duty of care to the employee in respect of the process of termination of employment.

Due to the employee’s medical history and serious psychiatric state, which flowed from the established breach of contract, the Court awarded him $1,733,119 in general damages, a figure which accounted for future economic loss, and noting that a successful return to work following the injury was a “very remote” prospect.

Incorporating Documents into Employment Contract

Crucial to the employer’s downfall was that the Court found that the employer’s disciplinary procedure was incorporated into the employee’s written contract of employment, and so the employer was contractually obligated to act in accordance with those processes.

The employment contract included the following clauses:

Conditions of Employment

Your engagement will be governed by the terms of this letter and the Community Employment, Training and Support Services Award 1999.

…

Other Conditions

In addition, Employment Conditions will be in accordance with regulatory requirements and [the employer’s] Policies and Procedures. Breaches of the Policies and Procedures may result in disciplinary action.

ACCEPTANCE:

…

I have read and fully understand the terms and conditions of employment detailed in this contract. I agree to comply with these terms and conditions of employment and all other Company Policies and Procedures.

In addition, the employer’s disciplinary policies used “contractual” and “mandatory” language rather than  “discretionary”, “aspirational” or “equivocal” language. The Court found that this had the effect of giving the policies contractual force because they constituted a mandate to do things a particular way, rather than being a statement of intention.

Accordingly, it was then open to the Court to find that the employer had directly breached the employment contract by failing to follow the disciplinary procedure. The Court characterised the process followed by the employer as “nothing short of a sham and disgrace”.

Duty of Care – Termination of Employment

Judge O’Meara embarked on a lengthy analysis of legal authorities to determine whether the employer owed a duty of care to the employee in respect of the processes it undertook relevant to the termination of employment.

If such a duty existed, it would operate to require employers to take care while undertaking termination of employment processes (including the performance management steps in the lead-up to termination) to safeguard against causing psychological harm and injury to the employee.

The employer’s argument that such a duty did not exist was ultimately accepted following the Judge’s analysis of the relevant authorities. Judge O’Meara found that while the question in each matter would be answered by a “quintessentially factual” analysis, care must be taken with any proposition that those authorities operate as a broad rule that cannot be overcome.

The existence of such a duty was rejected because of the incompatibility that such a duty would have with the common law and statutory frameworks in the Fair Work Act. The common law has long held that an award of damages for breach of contract involving termination of employment cannot include “injured feelings”.  That  principle is replicated in the Fair Work Act, which prohibits compensation in unfair dismissal applications for “shock, distress or humiliation, or other analogous hurt”.

Other incompatibilities that also arise with the Fair Work Act include that the unfair dismissal framework requires a claim to be filed, in the usual course, within 21 days of dismissal and awards of compensation are subject to a cap of 6 months’ pay. Should such a duty be accepted, claims could be made for a number of years after dismissal (subject to limitation period legislation) and with unlimited scope.

Unfortunately, the Judge was not so equivocal as to shut the door on the duty existing completely, stating that the authorities being followed only “seem to … presently to constitute an obstacle to at least a significant part” of the employee’s claim.

Key take-aways for employers

This case makes it plainly clear that employers facing unfair dismissal applications should take expert advice from specialist employment lawyers, particularly in the drafting and execution of settlement deeds, because the consequences of being flippant and non-particularised in the conduct of such matters (and preparation of settlement deeds relevant to same) can be costly.

In addition, this decision presents a hard-learned lesson for this employer, being that a failure to invest in properly drafted employment contracts, and workplace policies and procedures, can have expensive ramifications.

Contact one of Aitken Legal’s specialised employment lawyers today for guidance and assistance with any employment related matter.