Employer found negligent for causing psychiatric injury during demotion

17 April 2025

 

On 2 August 2024, Judge Rosengren of the Brisbane District Court found an employer liable for negligence and was ordered to pay damages in the sum of $395,767 in the decision of Gairns v Pro Music Pty Ltd [2024] QDC 118. 

 This decision highlights the repercussions of mishandling employee demotions, or performance discussions, especially in open-plan offices. 

Workers compensation claims for pure psychiatric injury 

While psychiatric injuries at work are unfortunately common, it is rare for courts in Queensland to award damages in such cases, particularly concerning disciplinary actions or demotions. Most matters do not make it near a courtroom. 

The regime first tries to prevent a statutory claim for psychological injuries proceeding by implementing a 'reasonable management action' exclusion. Section 32(5) of the Workers Compensation and Rehabilitation Act excludes a worker with psychological injuries from receiving workers compensation if the injury was caused by management action done in a reasonable way. 

Many applications for workers compensation are rejected at this stage. WorkCover often determines (and the employers often argue) that the employer's conduct may not have met the standard expected of employers when dealing with disciplinary matters, but that an old line of authorities permit them to be imperfect.

The worker then either abandons a claim or decides to seek a review through the Workers Compensation Regulator. 

However, recent changes in community expectations, a High Court decision on psychological work injuries, and the implementation of codes such as the Managing the risk of psychosocial hazards at work Code of Practice 2022 have started to shift the landscape. These developments suggest that poor management in practices cannot always be dismissed as minor flaws or mere blemishes. 

If the injured worker is able to get over the reasonable management action threshold, then the door is open for the worker to seek damages if the actions of the management breached a duty of care owed to the worker and that breach caused an injury. 

Case background: An unreasonable approach  

The injury to Mr Gains occurred against the following background: 

1. Work Environment: The workplace was an open plan office, with partitioned areas for senior staff, making conversations easily overheard. 

2. New Hire: A new employee, intended to become the National Sales Director, was introduced without warning, effectively rendering the plaintiff's role as a supervisor of sales unnecessary. 

3. Lack of performance metrics: The employer did not have any performance systems or metrics in place to monitor performance of the injured worker. 

4. Previous issues: The injured worker, with 14 years at the company, had not been clearly informed about any significant performance issues. 

5. Employee's vulnerability: The employer knew about the worker's emotional struggles and past psychological treatments.

6. Poor timing: The demotion was communicated just a day before the new National Sales Director role was due to start. 

On 1 February 2019, without warning, the boss called the worker into his partitioned 'office'. The boss told the injured worker that from the following Monday, he would no longer be the company's internal sales supervisor and his salary would be reduced. The plaintiff alleged that the boss raised his voice and indicated there was nothing the plaintiff could do about his decision. Other staff could hear what was said and could see him leaving in a shocked and upset state. 

How should the employer have conducted the meeting with the worker? 

The injured worker argued that a reasonable employer would have taken the following steps to mitigate the risk of injury:

1. Before the meeting:

• Providing to the plaintiff written notice of the specific performance concerns. 
• Investigating these concerns and communicating the findings. 
• Allowing the worker to respond before making decisions. 

2. During the meeting:

• Allow the presence of a support person. 
• Conduct the meeting in a private setting to avoid public embarrassment. 

 The employer denied the necessity of these steps, claiming the worker was already aware of his performance issues. 

What is an employer's duty of care to workers? 

 Judge Rosengren confirmed that: 

 'It is well established that an employer's duty of care is not to provide a happy workplace, or to ensure that there is no conflict between employees, or that employees are always spoken to in a temperate way. Rather, it involves an obligation to take all reasonable steps to provide a safe workplace and to take reasonable care to avoid exposing the plaintiff to an unnecessary risk of injury whilst engaged in carrying out work in the defendant's business. This includes giving reasonable direction to an employee as to the way the employee shall perform work' (at [49]). 

Was a duty of care owed to this worker?

The employer argued that its knowledge of the worker's emotional tendencies was not sufficient to require them to take precautions to guard against a psychiatric injury. 

Judge Rosengren did not agree. There were clear signs that the injured worker was psychologically vulnerable in the lead up to the meeting. The employer had delayed the meeting because of it. 

Judge Rosengren held that a dury of care was owed. The employer was obliged to take all reasonable steps to avoid unnecessarily exposing the plaintiff to a risk of psychological injury. 

What if the employer did not know about the psychological vulnerability of the worker?

Judge Rosengren felt the conduct was so unreasonable it may have injured someone who was not psychologically vulnerable. 
'Even in the absence of the defendant's knowledge of the plaintiff's pre-existing psychological vulnerability, the abovementioned broader circumstances in which the meeting occurred and [the boss's] conduct at it, were sufficiently unreasonable as to bespeak the possibility of it causing psychiatric injury, even to an employee of normal fortitude. It was an inadequate and misguided approach to any sort of perceived performance issues. It would have been very distressing for any employee.' (at [74]). 

What would a reasonable employer have done? 

Judge Rosengren found a reasonable person would have:

1. Prior to the meeting, provided the worker with proper written notice of the specific concerns about his performance that would justify a demotion. 

2. Provided the worker with proper opportunity to respond prior to the meeting. 

3. Ensured the meeting was held in a more confidential and calm manner (not in an open plan office where other workers could hear). 

4. Provided an opportunity to bring a support person to the meeting. 

Judge Rosengren found that had the first three steps been taken, then the psychiatric injury might have been avoided, making the employer liable for the worker's loss and damages. 

How much damages did the worker receive?

The injured worker was awarded the following: 

	Head of damages	Award
	General damages	$4,350
	Past economic loss	$186,000
	Interest on past economic loss	$9,820
	Fox v Wood*	$20,028
	Past loss of superannuation	$18,600
	Future economic loss	$130,000
	Future loss of superannuation	$14,690
	Special damages (past expenses)	$7,279
	Future out of pocket expenses	$5,000
	Total	$395,767

* (tax paid receiving weekly benefits from WorkCover)

 Why this case might be helpful for Queensland statutory workers compensation claims? 

While this case dealt with a common law claim, it is a useful case to put in your armoury when making submissions to overcome an argument that reasonable management action has occurred. If courts are finding that an employer's processes are negligent (as occurred in Gairns' case), then surely it must also equate to 'unreasonable management action'. 

This points to a shift away from arguments often put forward by employers or insurers at the statutory claim stage that blemished disciplinary processes are still acceptable and reasonable. There are past decisions that have found that blemishes in the disciplinary process do not take the management action outside of the bounds of 'reasonable management action'. However, those decisions may not reflect current sentiment or expectations (by the community or the courts) of how employers ought to behave. Submissions pointing this out may assist in getting workers compensation benefits for workers injured by unthoughtful, lazy or sloppy management processes. 

The ALA thanks Anna Morgan for this contribution.

This is an edited version of an article first published by Take Control Legal. 

The views and opinions expressed in this article are the authors and do not necessarily represent the views and opinions of the Australian Lawyers Alliance.

Learn how you can get involved and contribute an article.