Introduction
On 11 December 2024, the High Court of Australia delivered a landmark decision in Elisha v Vision Australia Ltd [2024] HCA 50. For the first time, the decision recognises that psychiatric injury in employment contracts can give rise to damages for breach. The judgment overturned more than a century of common law authority, rejecting the long-standing principle from Addis v Gramophone Co Ltd [1909] AC 488, which had excluded compensation for non-pecuniary loss, such as mental distress, in contractual claims. This case marks a significant shift in Australian employment and contract law.
This article examines the facts, legal reasoning, and broader implications of Elisha for employers, employees, and the legal landscape.
Background
Mr Elisha was a long-serving employee of Vision Australia Ltd. In 2016, he was dismissed from his role under circumstances he claimed were procedurally unfair and constituted a breach of his employment contract. Following his dismissal, Mr Elisha developed a major depressive disorder, including symptoms of depression and anxiety.
At trial, he proved that his dismissal breached an implied contractual obligation of trust and confidence. He sought damages for both economic loss and the psychiatric injury he suffered. The trial judge awarded damages for both claims. However, the Victorian Court of Appeal overturned the award. It held that damages for mental distress are not available in breach of contract claims, reaffirming the principle in Addis v Gramophone Co Ltd.
Mr Elisha appealed to the High Court.
The High Court’s Decision
In a 5:1 majority, the High Court allowed the appeal, finding that the rule in Addis no longer reflects modern employment relationships or contemporary expectations of fairness.
The majority (Gageler CJ, Gordon, Edelman, Gleeson and Beech-Jones JJ)
held that:
- An employer may be liable in contract for psychiatric injury caused by its breach of contract, provided the injury was within the reasonable contemplation of the parties when they entered into the contract.
- The artificial exclusion of damages for mental distress is no longer justifiable, especially where the contract is one of employment, inherently involving personal relationships, mutual trust, and the potential for emotional consequences.
- The implied obligation of trust and confidence is a valid basis upon which contractual damages, including for psychiatric injury, can be awarded.
In dissent, Justice Steward argued that such awards risk conflating tort and contract law principles and would destabilise established legal doctrine.
Significance of Recognising Psychiatric Injury in Employment Contracts
This decision marks a turning point in Australian employment law, for several key reasons:
- Recognition of Modern Employment Dynamics
The Court acknowledged that employment relationships today extend beyond economic exchange and include psychological and emotional components. The judgment reflects a more realistic understanding of the workplace and the profound impact that mistreatment or unfair dismissal can have on mental health. - Expansion of Damages in Contract Law
The ruling broadens the types of damages available in breach of contract actions. Plaintiffs are no longer restricted to financial loss and can now seek compensation for psychiatric harm, provided they meet the usual foreseeability and causation tests. - Blurring of Contract and Tort Boundaries
Critics may argue that this undermines the distinction between contract and tort. The majority emphasised that courts must address real consequences of breaches. This is especially relevant where parties understand that emotional harm may result from a contractual breach. - Greater Employer Accountability
Employers must now be more attuned to the manner in which dismissals and disciplinary procedures are conducted. Even if a termination is lawful, the process leading up to it may give rise to liability if it breaches the duty of trust and causes foreseeable psychiatric harm. - Implications for Employment Contracts and Policies
This decision will likely prompt employers to revise contracts and internal policies to manage potential liability. Training for HR personnel on procedural fairness and mental health considerations will become even more critical.
Limitations and Safeguards
The Court was careful to maintain traditional limitations on contractual damages:
- Damages will only be available where the psychiatric harm was reasonably foreseeable at the time the contract was formed.
- Plaintiffs must prove a recognised psychiatric injury, not just stress or emotional upset.
- The injury must be caused by the breach, not merely associated with it.
These requirements aim to prevent speculative claims and ensure that liability remains bounded.
Conclusion: A New Era for Psychiatric Injury in Employment Contracts
Elisha v Vision Australia Ltd ushers in a new era in Australian contract law, particularly in the context of employment. By recognising psychiatric injury as a compensable loss in breach of contract claims, the High Court has realigned legal doctrine with modern social and workplace realities.
Employers must consider the human impact of their actions and ensure procedural fairness in all dealings with employees. The case will likely prompt further discussion about the boundaries of contract law. It may also influence how courts protect mental health in employment relationships.
The decision reflects a broader shift towards a more holistic view of justice. It rejects reducing people to economic units. Instead, it recognises emotional and psychological dignity as essential to the employment relationship.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
