14 Feb Case Brief: Poorly drafted employment contract and deed leaves employer exposed to significant financial consequences

The recent case of Elisha v Vision Australia Ltd [2024] HCASL 60 highlights the risks associated with poorly drafted employment contracts and deeds which left an employer exposed to significant financial consequences.

The Facts

In this case, a long-standing employee (“Applicant”) was involved in an incident at a hotel where the hotel owner alleged the Applicant was aggressive and intimidating towards hotel staff.  A disciplinary process was subsequently conducted and the Applicant’s employment was ultimately terminated for serious misconduct.

After the termination of their employment, the Applicant was diagnosed with major depressive disorder and an adjustment disorder with depressed mood.

The Applicant filed an unfair dismissal claim in the Fair Work Commission, arguing that the termination was unjust and the disciplinary process was contrary to the employer’s policies and procedures.  The employer had an extensive set of workplace policies which outlined the employer’s disciplinary process.  In addition, the Applicant’s employment contract stated:

“In addition, Employment Conditions will be in accordance with…Vision Australia Policies and Procedures. Breach of the Policies and Procedures may result in disciplinary action”; and

“I agree to comply with…all other Company Policies and Procedures.”

As a result of the unfair dismissal proceedings, the employer and the Applicant entered into a Deed of Settlement (“Deed”).  The Deed included a financial settlement of $27,248.68 in exchange for the Applicant waiving any further claims arising out of “employment, proceedings and the termination”.

The Applicant then pursued a separate breach of contract claim in the Supreme Court of Victoria, asserting that the employer’s binding policies created enforceable obligations that had been breached during the termination process.  Whilst the employer argued that the Applicant was barred from bringing a breach of contract claim due to the signed Deed, the Supreme Court found that the Deed was not drafted comprehensively enough to preclude the Applicant from pursuing a breach of contract claim due to the word “and” in “employment, proceedings and the termination”.  The Supreme Court found that the Deed precluded the Applicant from bringing any claims arising out of the unfair dismissal proceedings only.

After proceedings in the Supreme Court and Court of Appeal, the matter was ultimately appealed to the High Court.  In relation to the substance of the breach of contract claim, the High Court found that:

1. the employer’s policies (including those relating to disciplinary processes) were contractually binding on the employer;

• the employer’s policies relating to disciplinary processes had not been followed appropriately by the employer; and

• there had been a breach of contract.

As a result, the Applicant was awarded further damages of $1,442,404.50, including compensation for psychiatric injury caused by the mishandling of the dismissal.  

In awarding damages for psychiatric injury, the High Court found that the damage caused by the psychiatric injury was “not too remote”, allowing compensation to be awarded.  The High Court stated, at [137]:

“It is apparent that a serious breach of disciplinary procedures involving serious unfairness to an employee of a kind that occurred in this case involved a serious possibility of causing the development of a serious psychiatric illness, which should reasonably have been contemplated by the parties at the time they entered the contract.”

Key learnings

1. Policies should be guidelines, not binding terms

Employment contracts should explicitly state that company policies are not incorporated into the contract and do not confer any contractual rights on employees.  This will assist in preventing policies and procedures from being incorporated into the contract and/or being used as the basis for a breach of contract claim.

• Deeds must be comprehensive

Deeds must be drafted to cover all necessary protections.  In this case, the Deed’s shortcomings allowed the Applicant to receive compensation under both an unfair dismissal claim and a breach of contract claim.  Proper drafting should prevent such overlapping liabilities to the extent permitted by law.

• Ensure a fair process is followed

When conducting a disciplinary process, ensure a fair process is followed.  This includes providing clear communication of the allegations, allowing the employee an opportunity to respond, conducting an impartial investigation, considering all relevant evidence and applying consistent and proportionate disciplinary measures.  We also recommend that employers adhere to any disciplinary processes or procedures outlined in their policies.

Conclusion

Employers should regularly review their employment agreements and other legal documents to ensure their interests are appropriately protected. 

If you would like us to review your company’s employment contracts or other template documents, please contact HR Law via info@hrlaw.com.au and we will provide you with a fee estimate

To read the High Court case, click here.