Often an aggrieved or distressed employee will claim to have suffered psychological injury as a result of an employer addressing performance issues or concerns with the employee. However, these claims will fail where it can be shown that the employer’s action was reasonable in the circumstances.

For example, under the Safety, Rehabilitation and Compensation Act (Cth), referred to in the High Court case below, reasonable management action includes:

 

• Performance appraisal
• Counselling
• Suspension or standing down of duties
• Disciplinary action
• Anything done in connection with the employee’s failure to obtain a promotion or transfer.

This definition is consistent with the courts’ interpretation of other legislation including the Fair Work Act 2009 and state-based workers compensation legislation.

But the question of what is ‘reasonable’ and what is not is often unclear. Courts accept that management actions don’t need to be ‘perfect’, and  will take into account a number of considerations including the facts and circumstances that led to the need for action, how the action was carried out and the consequences that followed.

In a recent case[1], the High Court confirmed the general position that employees are not entitled to workers compensation if they develop psychological injuries as a result of reasonable management action. The case involved an ABC producer who was diagnosed with adjustment disorder, anxiety and depression after she failed to attain a position that would have removed her from being overseen by an allegedly bullying supervisor with whom she shared a ‘toxic relationship’. Interestingly, the supervisor was also a member of the selection panel for the position she sought. The employee claimed workers compensation for psychological injury yet was unsuccessful, with Comcare maintaining that her unsuccessful job application was a legitimate HR decision.

The employee sought an appeal with the AAT where it was found that the worker had suffered an injury within the meaning of s 5A(1) of the SRCA, and that Comcare was liable to pay compensation. The AAT also stated that the supervisor’s participation in the selection panel was action not reasonable way given his ‘highly negative views’ about the employee’s competence and integrity.

Comcare appealed the decision to the Federal Court where the decision was set aside. The FC found that the AAT made numerous errors of law including misconstruing the SRCA. Orders were made to have the matter remitted before the AAT. Comcare appealed this decision and the matter was then bought before the High Court. The High court construed the phrase “as a result of” in s 5A(a), as requiring the application of a “common sense” approach. The HCA restored the orders made by the FCA and remitted the matter to the AAT to determine the issue according to law.

Although this case provides little clarity as yet in terms of clarifying what is ‘reasonable’ on the particular facts of the case, the general position that no compensation is available as a result of reasonable management action remains intact.

Lessons for Employers

• Review your policy on dealing with underperformance and ensure that procedural fairness is afforded throughout the entire process.
• Review policies and procedures for handling bullying complaints. Where serious allegations are made, consider appointing an external investigator to determine whether the allegations are substantiated.
• Consider whether counselling or support services (e.g. beyond blue) might be necessary.