In part one we examine compensation payments for non-economic loss following a General Protections claim.

In part two we examine a damages award of $1.44m for a Psychiatric injury following a flawed investigation and termination.

Non-Economic Loss

What is a ‘non-economic loss’ under the Fair Work Act (2009) or other employment law legal proceedings?

Let’s start with what is an ‘economic loss’. Economic loss is a calculable loss such as loss of wages after a termination of employment. There are some principles around how this loss is calculated but often it’s stated as a lump sum based on number of weeks of wages (lost).

In defining non-economic loss let’s look at the QANTAS baggage handlers case. You may recall during COVID QANTAS terminated a large number of baggage handlers. Their positions were made redundant with the task being outsourced to various contractors. We won’t examine the details here, but this case made its way through the Courts to the High Court which decided in favour of the employees. QANTAS had breached the General Protections-Adverse Action provisions of the Fair Work Act (2009).

The matter was then referred back to the Federal Court to decide on a compensation formula using three typical (former) employees. In relation to economic loss the Court awarded substantial compensation payments for direct calculable economic loss – i.e. wages lost.

The Court also awarded compensation for non-economic loss based on the three employee’s personal experiences following the termination.

The three employees gave the following non-economic impacts of their termination of employment. Decision extracts:

• ‘Mr Carney gave evidence of feelings of loss of security, anger, hurt, humiliation and distress from his employment being terminated, which manifested itself in an inability to sleep, racing thoughts, and panic attacks.

• ‘Ms Piggott gave evidence of experiencing significant distress and emotional hurt. ‘…her suffering did cause her to experience irritability, frustration, a loss of motivation, anxiety, a decline in her physical health, and an inability to eat, feelings of nausea and trouble sleeping

• ‘Mr Bennett suffered acute symptoms arising from major depression, including suicidal ideation, low mood, anxiety, sleep disturbance, depleted motivation and increased problematic alcohol use.

The Court Awarded the above employees $30,000 and $40,000 and $100,000 respectively for non-economic loss resulting from their termination.

What is also very important to note here is that there was no requirement to test the above evidence in these cases – it was accepted by the Court from their written affidavits.

The above amounts were payable in addition to substantial compensation for economic loss. A hefty compensation bill for QANTAS.

In the last ER Update newsletter we mentioned a General Protection-Adverse Action claim where Hunter Employee Relations defended a small business employer. The solicitor for our client’s 25-year-old ex-employee (terminated for falsely claiming to be trade qualified), informed us the ex-employee was distressed, unable to look for work and under medical care following his termination.

Can You Prevent Non-Economic Loss Payments in a General Protections Claim?

The best way for employers to defend against the increasing likelihood of non-economic compensation (see distress examples given above – no medical evidence required), in addition to economic loss (lost wages etc), is to make sure they can fight any such claim with the facts and good processes. Fighting the claim does not necessarily mean Court proceedings.

As explained in the last ER Update you as the employer cannot stop these General Protections applications – the employee (their solicitor) can push this to full hearing in the Fair Work Division of the Federal Circuit and Family Court of Australia. If the defence is strong we can take a hard tactical approach in response before that happens.

While your decision may be correct and reasonable – you must be able to PROVE your decision was factually sound and that you followed a proper process.

Off the cuff management decisions might solve the problem right now, but they can cause one significant (and co$tly) headache several months later.

Does This Mean That I Have to Endure a Difficult Employee or Substandard Performance

No. If you have a potentially difficult termination get professional advice in advance. I firmly believe no employer should accept reduced performance or a bad attitude and the associated stress. In such situations we will carefully assist the employee to seek another position more suited to their personal attributes and desires. ER Update

High Court Awards Damages for Psychiatric Injury Following Flawed Termination

In late 2024 the High Court overturned a century old legal principle allowing a former employee to claim psychiatric damage for a breach of his employment contract. Following is brief summary of a very technical High Court decision.

Let’s begin by explaining that everyone who is an ‘employee’ technically has an employment contract. This could include a formal contract, a letter of appointment or an unwritten contract based on legal principles. See ER Update

In addition, most employees are covered by the Fair Work Act (2009) and other employment related Acts – one example being the Sex Discrimination Act 1984 which is designed to protect employees from harassment and discrimination.

The employment contract sits alongside the Fair Work Act (2009) in what I call ‘a separate stream of law’. Where the Act prescribes a better ‘right’ for the employee the Act will overrule the contract.

Previously employers had (generally) been able to rely on the clause in the employment contract which states the employer’s policies themselves did not become part of the employment contract but employees will be held accountable (even terminated) for breach of the those policies.

The High Court Decides That Employers Cannot Have it Both Ways

In short, the High Court decision states the employment contract can no longer: In short, the High Court decision states the employment contract can no longer: 

• refer to policies as not being part of the contract; while also
• allowing for a term that the employee to be disciplined (including termination) for the breach of a policy. 

The majority stated that it would “‘defy both logic and common sense’ to suggest an employer who was subjecting an employee to disciplinary action according to policies would not similarly be bound by those policies.”

You will find many employment contracts have such a clause – either direct or indirectly implied through several clauses.

In the above case the High Court determined that the employment contract between the parties incorporated the organisation’s disciplinary policy which contained quite specific disciplinary procedures.

The employer in this case did not properly follow their own policy and disciplinary processes and terminated the employee. One of the Justices (as the case went to Appeal in the Victorian Supreme Court) – referred to the disciplinary process as ‘unfair, unjust and wholly unreasonable’. This included a botched investigation process conducted by the employer.

While a reasonable sized employer it appeared as though lack of knowledge (and probably lack of following good logic) led to the termination decision and the manner in which it was carried out.

The case shows how careful employers must be in:

• following their own policy/procedures; AND
• undertaking sound investigations; AND
• ensuring they follow general legal principles on fair, just and reasonable terminations.

 Further the Court looked at the ‘Remoteness of Damages’. This means would the parties have considered, when the contract was originally made, that a botched termination process could lead to a psychiatric injury.

The Court found that it was reasonable to expect that the employee would have been so distressed by the manner in which the employer breached the employment contract and the consequences of the breach for him, that there was a serious possibility that the employee would suffer serious psychiatric harm. This overturned a long-established House of Lords legal principle from 1909.

The Court added that it was not necessary to determine the precise type of psychological injury did not need to be addressed. This could be interpreted that a psychological injury which was had a lessor impact than a ‘psychiatric injury’ (which is usually more severe) would be sufficient. Consider the above decision in QANTAS where employees talked of distress anger hurt humiliation etc.

With this principle reinterpreted, the employer’s actions (the botched investigation and flawed termination), made it liable for the employee’s psychiatric injury. The employee was Awarded $1.44M in compensation.

The line highlighted above ‘and the consequences of the breach for him’ will likely be explored in future Court decisions in relation to terminating older employees (50+) which involved finding new suitable employment in a world where we know there is often discrimination for older job seekers. This must be taken into account in any termination process.

Key learnings for employers

• Comprehensive and well drafted contracts of employment are essential. Employers need to conscious of terms of contract which bind them to undertake certain actions such as a disciplinary clause.  ER Update Staff Contracts and ER Update Employment Contract Templates
• Policies and procedures should stand alone and not be referred to in an employment contract. The contract should exclude the incorporation of such policies. 
• Further to the above I would caution against including termination and disciplinary procedures in Enterprise Agreements. 
• Ensure disciplinary and termination procedures are thorough in relation to internal processes and general legal principles of being just, fair and reasonable. 
• Ensure that investigations are undertaken in a professional manner.  

Please contact Hunter Employee Relations for assistance with the above steps. 

Kind Regards
Michael Schmidt
M 0438 129 728
[email protected]
www.hunteremployeerelations.com.au

Industrial Relations - Employment Law - Workplace Performance

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