Australia: Disease caused by reasonable administrative action not compensable

Employers should not shy away from making decisions affecting an employee's employment where they have a sound basis for doing so and can clearly articulate the reasons for the decision.

Commonwealth departments and agencies can be more confident in taking reasonable administrative action including performance management of their employees, following the High Court's decision in Comcare v Martin [2016] HCA 43.

It has underscored that disease or injury caused by, or worsened by, reasonable administrative action will not be compensable under the Safety, Rehabilitation and Compensation Act 1988 (Cth) - a position which had been thrown into some doubt by the view of the Full Federal Court when it considered this case on appeal.

The reasonable administrative action and the disease

Ms Martin did not have a good working relationship with her manager (her formal complaint of bullying has been found to be unsubstantiated). She took a temporary acting position, reporting to another manager, and applied to be made permanent in that role. She was unsuccessful; hearing that news, and thinking she would return to her previous role and manager, she "broke down uncontrollably" and immediately went home. Ms Martin sought medical treatment the following day and was diagnosed as suffering from an adjustment disorder which made her unfit for work.

The High Court considered there was no question that she suffered from a compensable disease which had been aggravated following Ms Martin's unsuccessful application for a promotion. The key issue is the causal connection between the decision not to award her the promotion and the prospect of returning to her substantive position, and whether that entitles Ms Martin to compensation.

Carve-outs to compensation under Commonwealth Act

Under the Safety, Rehabilitation and Compensation Act 1988 (Cth), there is no compensation for a disease "suffered as a result of reasonable administrative action taken in a reasonable manner in respect of the employee's employment."

Comcare contended that the decision not to promote Ms Martin was reasonable administrative action, and the deterioration of her disease was caused by it, so she therefore was not entitled to compensation. This was rejected by the Administrative Appeals Tribunal (AAT) and Comcare appealed to the Federal Court, which found the view of the AAT that the decision not to award Ms Martin the promotion was not taken in a reasonable manner, amounted to an error of law. Ms Martin appealed that decision to the Full Bench of the Federal Court.

On appeal, the Full Federal Court found in favour of Ms Martin. It said that the Act required a common sense approach to causation; the news about her failed application preceded her breakdown but that does not mean it caused it.

"As a result" means reasonable administrative action was a cause

The High Court unanimously overturned the Full Federal Court's decision, saying that:

"an employee has suffered a disease 'as a result of' administrative action if the administrative action is a cause in fact of the disease which the employee has suffered."

The administrative action need not be the sole cause, as long as the employee's ailment or aggravation would not have been a disease without the administrative action.

In this case, Ms Martin's disease was worsened by the administrative action and what she perceived to be its consequences. That means it falls within the exclusionary provision of the Commonwealth's statutory compensation scheme.

Lessons for employers

This decision reaffirms that where employers take action in relation to a person's employment, including making decisions about whether an employee should be awarded a promotion, the employee's perceived consequence of that action is irrelevant, provided that the action is undertaken reasonably.

The test for determining whether the employee's injury is caused "as a result of" the action taken by the employer is to be assessed objectively. It assumes a plain meaning and is not influenced by an employee's subjective reaction to the action being taken.

Employers should not shy away from making decisions affecting an employee's employment where they have a sound basis for doing so and can clearly articulate the reasons for the decision. Where there is an unresolved personal workplace grievance or complaint, employers need to be mindful of ensuring they uphold their work health and safety obligations, to both employees and managers, by making reasonable adjustments where needed. This is particularly so in the context of potential reprisal action under the Public Interest Disclosure Scheme.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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