No damages for psychiatric harm caused by dismissal

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No damages for psychiatric harm caused by dismissal

In a complex judgment involving a number of overlapping areas of law, the NSW Court of Appeal held that an employer did not owe a duty of care to conduct its disciplinary procedures so as to avoid psychiatric harm to an employee.

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Source: Australian Business Ltd

 

In a complex judgment involving a number of overlapping areas of law, the NSW Court of Appeal held that an employer did not owe a duty of care to conduct its disciplinary procedures so as to avoid psychiatric harm to an employee. The imposition of such a duty would clash with established employment law procedures.

This case considers the issue of damages arising from the dismissal of an employee and the manner of the dismissal. The courts in Australia (and in the UK) have been reluctant to open a new ground for damages (psychiatric or psychological damage) in employment law - as is confirmed by this case.

Background

The employee was the principal of a Sydney high school from 1992 to 1998. In 1992, he received complaints from students regarding sexual misconduct of a teacher at the school, which occurred before the principal's appointment. He notified the New South Wales Department of Education of some complaints, but dealt with the complaints by a direct approach to the teacher and arranged to have him transferred from the school. In 1997, the Director-General of the Department issued a statement requesting a re-notification of sexual misconduct cases that had not been adequately investigated. The principal re-notified the complaints and notified some other complaints for the first time.

The employee's conduct was investigated under the Teaching Services Act 1980. He was charged with a breach of his duties for non-compliance with departmental procedures in the way he had handled the complaints.

In 1997, the employee submitted, and subsequently withdrew, a notice of retirement. The Department of Education officer found the employee guilty of the charges and the Director-General purported to accept the original notice of retirement. The employee concluded his service on 2 March 1998.

The employee suffered psychiatric harm and lost income. The trial judge found that the department had breached its duty of care to the employee. He also found that the department had not effectively terminated the employee's contract of employment. The trial judge awarded damages in both tort (civil wrong) and contract.

Court of Appeal

The Court of Appeal split over a number of questions, but it did agree to refuse to find a new head of damages to cover psychiatric elements.

In deciding whether to impose a novel duty of care, issues of legal coherence (including the consistency and compatibility of a proposed duty of care with a statutory scheme) must be considered.

The Court of Appeal made the following findings:

  • A duty of care of this nature would involve an element of incompatibility with the statutory scheme. The imposition of such a duty would have an inhibiting effect on a speedy investigation and decision under the statute.
  • The duty involves incoherence with the law applicable to termination of employment. Statutes provide a well-developed mechanism for adjusting the interests of employer and employee. Johnson v Unisys [2001] 2 WLR 1076 applied.
  • The duty involves incoherence with administrative law, in which context compensatory damages are available only in limited circumstances. Recovery in negligence could, in substance, remove the substantive decision to the courts from the decision-maker with whom the decision rests.

The Court of Appeal allowed the appeal in part, reducing the judgment from $307,439 to $213,004 and ordering the employer to pay half the employee's costs.

See: State of New South Wales v Paige [2002] NSWCA 235 - Spigelman CJ, Mason P and Giles JA. - 19 July 2002.

 

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