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Friday Workplace Briefing

High Court Considering Damages Award for Bad Dismissals: Fundamental Change in the Law, What Does It Mean for Employers and Insurers

In this week’s Friday Workplace Briefing, Andrew and Nina discuss a significant case before the High Court considering the potential for damages for psychiatric damage from a flawed termination, investigation and disciplinary process.

To view the full episode and catch up with the week’s latest news and developments please visit this link.

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About the Hosts

Managing Principal - Victoria

Senior Associate - Workplace Relations

Episode Transcript

Andrew Douglas: Now this, can I say to you, the sky’s not falling. We’ve had closing the loop, we’ve had secure jobs, and I keep saying to you, these are not great big monstrous changes. If this case gets through the high court and they adopt the reasoning of the plaintiff, it will be a massive change.

Nina Hoang: Yeah.

Andrew Douglas: So let’s step back and say, what is this called? A malicious case in Vision Australia. This is a case where a person was sacked. It was shameful the method by which the investigative and termination process, the first…judge at first instance was appalled by it.

Nina Hoang: Yeah, because it wasn’t based on any facts.

Andrew Douglas: Yeah, so it was, so it’s a breach of contract and employment terms. The common law of breach of contract is this, to be a breach of contract to entitle you to damages, you have to not pay notices required, not fulfil a fixed-term contract. Which is, remember not an easy process to determine what is and what is not a fixed-term contract. Or, wrongfully alleged repudiation accepted when the conduct was not reputed or your own repudiatory contract–

Nina Hoang: Yeah.

Andrew Douglas: -leading to it. And that gives rise to damages with what are called, what’s been traditionally called, the limited damages claiming contract only in employment law. And this is the anomaly the high court is dealing with, which is the only entitlement to damages for employment law breaches, the proper notice period actual or implied, the payout of the fixed term. And if there is some procedural thing required to do before termination, the addition of that time onto the notice period.

Nina Hoang: So it’s very clearly in current case law limited to those things.

Andrew Douglas: It’s not fringed feelings, it’s not for psychological damage.

Nina Hoang: Yeah.

Andrew Douglas: It’s none of those things. So, the high court over the last five years is quite different. They’re black letter lawyers. We’ve seen them on every occasion. They can take hold of any part of established law and realign it across the field of that law. A hunger to do it, we saw it in casuals, we saw it in contractors.

Nina Hoang: Definition of employees.

Andrew Douglas: Yeah, we saw it in all those things. I think seeing as only about 5% of cases get special leave, that’s the high court saying we will entertain argument on it.

This is a plaintiff law firm that deals with damages, not traditionally with employment matters, okay? So that should send alarm bells to you right away. But if they adopt this and say, “No, you can get psychological damage from employment law.” Which fits with a whole lot of other cases in other types of contractual breach, then the world changes for us very dramatically.

So, particularly for people who are common law employees and they’re expensive people, they’re people who are above the high income threshold, not caught by an award or EA, those people might not have once brought a contractual breach because it’s such an expensive process. But knowing now that they can go to a common law or Shine or… one those type of firms–

Nina Hoang: Mhm.

Andrew Douglas: They can go no win, no fee. They can run it. We’ll see a lot more claims being run. But equally, if we look at a more unionised labour force and professional services place, there’ll be a lot where, you know, professional services being award free. We’ll start to see claims being run for damages, not unfair dismissal.

Now there’s a case called Russell and the Archdiocese of Sydney, which says, you can’t have your cake and eat at too, you can’t get a remedy–

Nina Hoang: But now you will be able to.

Andrew Douglas: You can’t get your remedy in unfair dismissal land and then go and seek damages. Russell was knocked over in a high court case, slightly unrelated, which was a CBO case about two years after that.

But what I think we’ll end up seeing is a jurisdiction that says, look, if you go and get remedy in unfair dismissal land, bad luck for common law. Well, so they won’t do that. What they’ll do is, they’ll hit you with a letter of demand saying they’re going to bring a damages claim. Now at that stage, you’re going to try and solve it, but the difference is it’s not six months.

Nina Hoang: Yeah it’s not, it’s not going to be capped.

Andrew Douglas: Yeah, so different. And so I think we’ll start seeing if it goes through an emergence of a new style of plaintiff lawyer taking on these claims, which means many, many more claims, often really dodgy claims, but being hit with letters of demand, but having significant risk for those who are insured in that place. It’s mandatory notification, it’s premium risk. But there is a simple way through, isn’t there? And the simple way through is to objectively fair, procedurally fair investigations.

Nina Hoang: Yeah, because what you said is, it’s not automatic, it’s not like workers’ comp where it’s going to be the perception of the employee that they think it’s hurt them.

Andrew Douglas: Yeah.

Nina Hoang: There has to be a breach, right?

Andrew Douglas: Yeah.

Nina Hoang: They have to meet that threshold before they could claim for damages.

Andrew Douglas: Yeah, so look it’s, I think the important part of this for us is do the process right. There’s no doubt there’s procedural fairness required in the Fair Work Act when you are doing discipline termination. That’s not a requirement of the common law at all.

What this case effectively will do will be implant that procedural fairness for you in the common law employment as well. So the answer is just do it right and document it. And yes, claims will come, but you’ll be in a defensible position. You’ll be able to say to your insurer, if you’re insured, here’s our documentation, we’re not going to pay anything. The insurer will go, yeah don’t.

Nina Hoang: Hmm.

Andrew Douglas: The world goes back to normal. But it just means doing things well. So I think of all the changes that we’ve talked about in the last year, if this case comes through–

Nina Hoang: We’ll be lucky.

Andrew Douglas: This is genuine change.

Nina Hoang: Yeah.

Andrew Douglas: And this is not employer friendly change. Let’s hope the high court goes (makes a sound), knocks out the door.

Okay, let’s go to our case study. I’m sure it’s a case study now.

Nina Hoang: Yes.

Andrew Douglas: Look at that. Okay, over to you.

Nina Hoang: Darren was a senior accounts manager at Transparent Pane, should be TPane instead of TP.

A windows and shower screens manufacturer, wholesaler and retailer. Darren’s territory was the Melbourne CBD and he had clients like Mirvac. His boss at Edwina was under pressure. Darren had an incentive deal of selling windows and shower screens in volume to large developers.

As a result, he cut his cost to minimum cost to win work within incentive rules. But his measurement work was poor, requiring significant rework. He relied too heavily on his contractor installers because of the volume of work he sold. TP was losing money on his sales because of waste and rework, and paying him more under his incentive programme.

Edwina spoke to Darren on the 12th of January, 2024 and explained the problem. He was on 225,000 dollar base and the upside on incentives was an extra 300,000 in the last nine months. Edwina said to Darren that everyone knows he’s cosy with developers and is showing his lax work practises. Darren explained he must be close to get the work and he was just doing what they incentivized him to do. Edwina cracked it and called him a cynical a******.

Darren was deeply hurt, he explained at any time he was working on 100s of installations and had no support but the contractors. It was them she should be telling off. He was doing what they asked.

Afterwards, every morning Edwina sent him a message reminding him about accuracy. He was now working 14 hours a day and still reliant on contractors. He tried to work out who was trustworthy. Not an easy job.

Two days before his next incentive payment was due to be calculated, Edwina and her boss Marion called him into a meeting and showed him eight errors in measurements requiring rework. Edwina handed him a letter saying he had repudiated his contract and that they accepted it. His employment was summarily terminated. Marion said an odd quip as he walked out the room. She muttered, “So much for clipping both sides of the ticket.”

In the days that followed, Darren collapsed into a distressed mental state. He suffered significant depression. When he applied for work at another business, he was told that his past employer had told them he was taking cash from developers and he commenced a common law damages claim. And in discovery, found a note from Edwina to Marion saying the word on the street was Darren was taking bribes from their major clients.

Marion wrote back saying he has to go, and two days later he was sacked. No investigation was undertaken. The clients were never asked.

Darren is beyond the classification of the Award and there was no EA.

Andrew Douglas: All right. Did Darren have a good defamation claim?

Nina Hoang: Look, I think he did. But the likelihood that the potential employer was going to give him the evidence is very unlikely.

Andrew Douglas: Yeah. Look, I reckon it’s not a bad defamation claim. I reckon it’s shake the tree. Because what you’ve got to show in defamation is that something was said that was untrue.

Nina Hoang: It was published, yeah.

Andrew Douglas: Yeah, that it was–

Nina Hoang: And his cause lost.

Andrew Douglas: Published.

Nina Hoang: But he’s going to have evidence like, I don’t think they are going to stand up and do it for him.

Andrew Douglas: Oh no. Look, I’d run it. I reckon it’s worth it. With the changes to the, the new discrimination law code that goes across Australia, you’d have to show loss. He can certainly show his loss.

Nina Hoang: Yes.

Andrew Douglas: So he’s got–

Nina Hoang: But the private note between the two, that wouldn’t be captured under private.

Andrew Douglas: No, that’s caught on what’s called a harm and undertaking. You’re not allowed to utilise something… one proceeding for the benefit of another one. But it wouldn’t matter because you’d issue proceedings and seek discovery and defamation and you bring it out.

Nina Hoang: But isn’t that a private note, it’s not published?

Andrew Douglas: No, no, no. No for the, so, that wouldn’t in itself not be defamatory.

Nina Hoang: Yeah.

Andrew Douglas: But in discovery it’d pull out as to a state of mind.

Nina Hoang: Yeah, and intentionally–

Andrew Douglas: And lead them to an inquiry. So, when we look at this, you know, the thing that makes defamation claims expensive is malice. That is–

Nina Hoang: Oh yeah, there’s definite malice.

Andrew Douglas: There’s definite malice there so, this is a claim that if it got up is sort of a couple 100,000 dollar claim. But the running of the cost of, as you’ve seen from the ones that the channel nine cases, these are expensive proceedings. There are people who take no win, no fee on defamation work. You wouldn’t want to be receiving, be on the receiving end of this. You’d probably settle for about 40 or 50,000 very, very quickly after you got the concerns notice.

Nina Hoang: Yep.

Andrew Douglas: Did Edwina, Marion, and Transparent Pane commit a safety wrong and if so, what and who?

Nina Hoang: Yeah, there’s heaps of psychological hazards.

Andrew Douglas: Look, the repeated messaging, the wrongfulness, the pressure they put him–

Nina Hoang: Lack of support.

Andrew Douglas: Yeah, all those things are clear psychological hazards and–

Nina Hoang: And they yelled at him and tore at you.

Andrew Douglas: So I reckon they were all, they’re all on the go. There’s nothing there that’s reckless endangerment. There’s clear breach of primary duties.

Nina Hoang: Yeah.

Andrew Douglas: Okay.

Nina Hoang: And if they were officers as well.

Andrew Douglas: Yeah. Well I think Marion, if we elevate Marion to an officer under section 1-4, she does have a state of knowledge in Victoria.

Nina Hoang: Yeah.

Andrew Douglas: Objectively in every other state and territory, she ought to have the knowledge and she did participate. So she has actual knowledge. So it triggers the section 27–

Nina Hoang: Yeah.

Andrew Douglas: Due diligence obligation. So she’s gone. Three, has Darren got a good common law damages claim and what would be the impact of the new Elisha’s case if approved by the High Court? So–

Nina Hoang: Well there’s a breach because he didn’t repudiate–

Andrew Douglas: So yes, so there is a common law claim in respect of it’s a wrongful repudiation.

Nina Hoang: Yeah.

Andrew Douglas: Okay? So he’d be entitled to his notice. And if he wasn’t, didn’t have specific notice given his seniority and the nature of his job, he’d probably been told the six to nine months notice, okay?

Nina Hoang: Oh.

Andrew Douglas: So let’s remember if you don’t put a notice provision in your agreement–

Nina Hoang: Who doesn’t have a notice provision in their agreement?

Andrew Douglas: Oh. Yeah we got one through the other day where there’s no notice provision.

Nina Hoang: Oh my gosh.

Andrew Douglas: You’re back to common law notice, okay?

Nina Hoang: Wow.

Andrew Douglas: Elisha’s case changed so dramatically because you do have actual causative evidence. So direct causation of the wrongfulness and the psychological damage that was suffered. And then you’ve got the sequel of their misbehaviour that led to further unemployment. So his obligation when breached is to mitigate his loss, he’s prevented from mitigating his loss as a result of their conduct–

Nina Hoang: Yeah.

Andrew Douglas: Therefore his claim is in the millions. It’s a stinker claim under Elisha’s case, which is why we talked about it just to show you how something that went from a 100,000 dollars claim to north of a million dollars just because of one case–

Nina Hoang: Yeah crazy.

Andrew Douglas: Presently in the High Court. So it’s not the law at the moment. I want to be absolutely clear about that.

Nina Hoang: Yeah.

Andrew Douglas: But, it could become the law and if it was ever going to be, this is the High Court that will turn the corner on us, okay?

Nina Hoang: You’ll finally have your Chicken Little moment.

Andrew Douglas: I’ll have my Chicken Little, the sky is falling. All right–

Nina Hoang: I think one last question.

Andrew Douglas: One last question. Would Darren have a good workers’ comp claim and what would be the impact on premium?

Let’s just use Victoria as an example. Yes, the behaviour before. Yes, the termination process through his case law and workers’ comp that the wrongfulness of the termination process can, of the disciplinary process can give rise to workers’ comp claim.

Nina Hoang: Yeah.

Andrew Douglas: So yes and yes, and yes because he’s now out the door and he is unemployable. He maxes out premium on it.

Nina Hoang: Yeah, it’d be a substantial case.

Andrew Douglas: Yeah. So if you look at a 42% increase in base plus on top of that, a maximum cap gone from 30 to 75%. If this is a big business, you’re probably talking about a million and a half risk in premium, massive risk.

Nina Hoang: Yeah.

Andrew Douglas: Okay? So really good, I think that’s it, Nina.

Nina Hoang: Right, thanks everyone.

Andrew Douglas: I’m sorry we mucked up that case. It was terrible, wasn’t it?

Nina Hoang: Give us a thumbs up.

Andrew Douglas: But we’ll keep watching. Just remember we’ve filled our workers’ comp group, but keep sending into admin and we’ll do another one and we’ll stick you in there.

Nina Hoang: All right, bye.

Andrew Douglas: See you later, Cheers. Thumbs up guys, bye-bye.

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