A recent decision of the District Court of Western Australia provides some positive news for employers facing a workers’ compensation claim for a stress-related injury caused by disciplinary action.
At first instance in Woodside Energy v Kieronski  WADC 144 the arbitrator held that Ms Kieronski was entitled to compensation for a psychiatric condition caused by stress from being stood down pending an investigation into allegations of serious misconduct. Woodside successfully appealed this decision to the District Court.
The case turned on the interpretation and application of an important carve-out that exists in other jurisdictions across Australia. The carve-out places the onus on employees to demonstrate that their psychiatric injury did not result from “reasonable management action”.
In Western Australia, the carve-out is found in the definition of ‘injury’ in section 5(1) when read with section 5(4) of the Workers’ Compensation and Injury Management Act 1981. It applies when an employer dismisses, retrenches, demotes, redeploys or disciplines an employee. Provided the disciplinary process is not “unreasonable and harsh”, employers will not be required to compensate employees for stress-related conditions that an employee develops as a result.
Decision of arbitrator
Ms Kieronski was stood down on full pay at a meeting on 13 August 2013 pending an investigation into allegations of serious misconduct.
The arbitrator found that Woodside’s conduct in calling Ms Kieronski to this meeting without prior notice of what it was about, telling her that there were preliminary findings on allegations against her, failing to give her written notice of the allegations until one month after she had been given verbal notice of the allegations, and having her collect her personal belongings when she was observed by her co-workers to be in a distressed state and accompanied by the Employee Relations Manager, all in the context of Woodside’s knowledge of her existing psychiatric disease, was unreasonable and harsh.
Importantly, the arbitrator held that events and circumstances occurring after the stand down meeting were irrelevant to the question of whether Woodside’s conduct on that particular day was unreasonable and harsh.
District Court decision
The District Court disagreed and held that the arbitrator had analysed Woodside’s disciplinary and investigative process too narrowly. Parry DCJ said that the entire disciplinary process must be taken into account, from the time Ms Kieronski was informed of the allegations against her to the time she was dismissed, and that the arbitrator had overlooked the opportunity Woodside had provided to Ms Kieronski to be heard. At [64-65] His Honour stated:
“Given that each of the participants at the meeting on 13 August 2013, including Ms Kieronski, understood that the meeting was merely a step in the investigative and disciplinary process, the subsequent steps in the process were foreshadowed at the meeting, and the process was in fact followed by Woodside, evidence of events occurring in the investigative and disciplinary process in relation to the allegations against Ms Kieronski after 13 August 2013 is relevant to a determination of whether Woodside’s conduct in the discipline of Ms Kieronski on 13 August 2013 was unreasonable and harsh. In my view, the arbitrator erred in law in determining otherwise.
Had the arbitrator considered as relevant events in the investigative and disciplinary process after 13 August 2013 and had she considered, as she should have, Woodside’s conduct on 13 August 2013 in the context of the investigative and disciplinary process as a whole, she may well have determined that Woodside’s conduct in the discipline of Ms Kieronski on 13 August 2013 was not unreasonable and harsh.”
Key lessons for employers from this decision include:
- an employer may be able to stand down an employee during an investigation into allegations of misconduct notwithstanding that this may in itself cause the employee stress;
- an employee must be given prior notice, receive adequate disclosure of the allegations, have an opportunity to be heard and receive a proper hearing process – but these do not all need to occur at the first meeting;
- where the employer has conducted a preliminary investigation prior to informing the employee of its concerns, and the employee has not yet had an opportunity to put their side of the story, the employer should refer to “allegations” rather than “preliminary findings”; and
- the entire process , rather than one isolated step in the process, that an employer follows in investigating, and then disciplining, an employee for misconduct is relevant to the question of whether that employee’s psychological injury is compensable under workers’ compensation legislation.
 Workers Compensation Act 1987 (NSW), s 11A(1); Workplace Injury Rehabilitation and Compensation Act 2013 (VIC), s 40(1) read with s 40(7) (definition of management action); Workers’ Compensation and Rehabilitation Act 2003 (Qld), s 32(5); Return to Work Act 2014 (SA), s 7(2) and (4); Workers Rehabilitation and Compensation Act 1988 (TAS), s 25(1A); Return to Work Act (NT), s 3A(2) read with s 3(1) (definition of management action); Workers Compensation Act 1951 (ACT), s 4(2) (definition of mental injury).