Why now is a great time to review your contracts of employment

In Elisha v Vision Australia Limited [2024] HCA 50, the High Court of Australia considered whether an employer could be held liable for psychiatric injury resulting from a breach of an employment contract.

This landmark decision focused on the implications of an employer's failure to follow the disciplinary procedures outlined in the contract, ultimately holding that damages for psychiatric injury are recoverable in such cases.

In this matter, the employee was awarded $1.44 million in damages for lost earnings and pain and suffering after being diagnosed with a psychiatric injury caused by the company’s breach of the employment contract.

What this means for employers:

The Court's ruling underscores the critical importance of employers strictly adhering to the disciplinary procedures specified in employment contracts. When these procedures are incorporated into an employee’s contract, the employer is contractually bound to follow them.

Failure to do so can lead to significant liability, particularly for psychiatric injuries sustained by employees as a result of breaches of these procedures.

Where possible, contracts should be reviewed and amended to ensure policies and procedures are not incorporated as contractual terms.

Employment law has evolved rapidly over the past two years, and landmark rulings like Elisha v Vision Australia highlight the need for clarity and fairness in workplace practices. As mental health awareness continues to grow, companies must also take extra care in managing disciplinary matters to avoid unintentionally causing psychological harm to employees. We help organizations navigate these challenges by crafting flexible contracts and policies that minimize risk and support a positive workplace culture.