The High Court’s decision in Elisha v Vision Australia Limited (2024) is a timely reminder to employers that even if they have reasonable and defensible grounds to dismiss an employee for poor performance, misconduct or redundancy, they must still comply with any contractual obligations set out in any relevant employment contract during the disciplinary process.
Employees who have been dismissed may still seek damages for breach of contract if the employer failed to comply with express provisions set out in the employment contract – for example, failing to comply with terms setting out a specific disciplinary procedure by which the employer will exercise its rights to dismiss an employee.
The High Court allowed for the recovery of damages for breach of a contractual duty owed by the employer to the employee where the terms of the contract were fairly contemplated by the employer and employee when the contract was made, and the parties accepted their respective liabilities. That is, any failure by the employer to follow any disciplinary processes or procedures contemplated by the employment contract would attribute some liability to the employer for damages flowing from that breach. In the aforementioned case, the High Court went further to say that the parties reasonably contemplated that it was possible for the breach to result in the employee suffering psychiatric injury, as the disciplinary procedure imposed requirements for procedural fairness and also offered support services to address the risk of psychiatric injury associated with the dismissal process.
This may also serve as a reminder to employers to avoid including strict policies and procedures within employment contracts (which create a contractual obligation) and instead include such processes within separate policies and procedures that are not incorporated into the employment contract. That is because the question of whether an employer’s policies and procedure are enforceable obligations remains unanswered in Australia. However, this is not to be interpreted as a mechanism to avoid liability entirely, as employers should still act in good faith in the performance of a contract. Employers who fail to apply policies fairly or evenly may still be at risk of an adverse unfair dismissal determination.
If you would like to discuss any contract issues, please contact our team today.
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