ARTICLE
17 August 2025

Dismissal Decisions And Mental Health Issues – What Do You Need To Be Aware Of As An Employer?

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Pointon Partners

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Pointon Partners is a medium-sized legal firm known for its full-service offerings to businesses and stakeholders. With a focus on building long-term relationships, the firm helps clients achieve successful outcomes. They provide top-tier expertise with a personalized touch, serving a wide range of clients from Australian companies to private individuals. Additionally, they are a member of LAWORLD, offering international legal support.
Dismissal decisions can also become particularly sensitive where the employee concerned is also dealing with mental health issues.
Australia Employment and HR

For employers, mental health conditions are among the most costly types of workplace injuries, often resulting in significantly longer absences from work and higher compensation compared to other injuries or illnesses. Dismissal decisions can also become particularly sensitive where the employee concerned is also dealing with mental health issues.

Safe Work Australia's 2024 statistics reveal a continued rise in workplace claims related to mental health conditions during 2022–23, with such claims accounting for 10.5% (14,600) of all serious claims. This represents a 19.2% increase from 2021–22 and a staggering 97.3% increase compared to 10 years ago. 1

Drawing on recent cases considered by the Fair Work Commission (FWC), this article explores some of the key risks employers should be aware of when dismissal decisions intersect with mental health concerns.

  1. Be aware of risks of discrimination when mental health concerns are involved

Mental health conditions are generally recognised as disabilities under anti-discrimination laws, which prohibit discrimination against an employee on the basis of their disability. If an employee can demonstrate that their workplace performance was impaired by a diagnosed mental health condition, and that their employer failed to make reasonable adjustments and relied on the condition as a ground for dismissal, the termination may contravene discrimination laws.

In the recent case of Andreana Kassab v Ability Action Australia Pty Ltd,2 the employee, Ms Kassab, argued that her PTSD, depression, and anxiety contributed to her performance difficulties and that her dismissal constituted discrimination based on her mental health status. She claimed that her condition, along with the limitations it occasionally caused, had been disclosed to her supervisors, who agreed to implement reasonable adjustments, such as allowing her to work from home and reduce her hours on challenging days. However, Ms Kassab claimed that these adjustments were not adequately provided, and she was subsequently dismissed for failing to attend the office and not fulfilling her required hours.

The legal obligation to make reasonable adjustments for employees with disabilities was reiterated in Panazzolo v Don's Mechanical and Diesel Service Pty Ltd.3 The Court stated at [137] that Section 5(2) of the Disability Discrimination Act 1992 'in general terms, creates a positive obligation' on employers to make reasonable adjustments that enable an employee with a disability to perform the requirements of the role, except where such adjustments would impose an 'unjustifiable hardship'.

It is therefore prudent for employers to carefully assess the risk of potential discrimination claims, before dismissing an employee who is dealing with mental health challenges.

  1. Mental health challenges may justify a late general protections or unfair dismissal claim, if 'exceptional circumstances' are established

There is a 21-day limitation period for dismissed employees to lodge an unfair dismissal application or a general protections claim with the FWC. If an application is filed outside this period, the FWC may allow an extension of time if it is satisfied that there are 'exceptional circumstances'. These are defined as 'circumstances that are out of the ordinary course, unusual, special or uncommon but the circumstances themselves do not need to be unique nor unprecedented, nor even very rare.'4

In the case discussed earlier, Ms Kassab lodged her general protections application 22 days after the standard deadline and sought an extension of time on the basis of exacerbated mental distress. However, the FWC found that there was no acceptable explanation for the delay and concluded that Ms Kassab had simply chosen not to comply with the limitation period. Of particular significance was the evidence that she had been fully aware of the availability of a general protections claim well before submitting her application late. The Commissioner also noted that Ms Kassab had not taken sufficient action to challenge her dismissal directly with her employer immediately after it occurred. She only submitted a grievance letter around a month later after the dismissal, which was also well outside the 21-day limitation period.

In the absence of any 'exceptional circumstances', the FWC declined to grant the extension. This decision illustrates that while the FWC may exercise some flexibility in cases involving mental health, the burden remains on the employee to demonstrate that their condition genuinely prevented timely action. Where there is no acceptable explanation for the delay and the employee was merely 'reignited in her desire to challenge the dismissal' at a later time,5 an extension of time is unlikely to be granted.

  1. Compensation may be awarded if the termination worsens the dismissed employee's mental health

Finally, employers should be aware that even if a dismissal is valid, an employee may still be entitled to compensation if the manner in which the dismissal was carried out aggravated their mental distress.

In Alex Yates v Stephanie Muir Ridge,6 the FWC ordered the employer to pay $9,880 in compensation after finding that the dismissal process had further exacerbated the employee's psychological distress.

The employer in this case argued that Mr Yates was not entitled to compensation because he had failed to take steps to mitigate his losses, and that in such circumstances, his incapacity for work meant he should not be entitled to compensation. This argument was rejected by the FWC, who accepted that Mr Yates's efforts to mitigate his losses had been negatively affected by his health issues. Of particularly relevance the letter from Mr Yates's treating psychologist, which detailed the impact the dismissal and the subsequent unfair dismissal proceedings had on his mental health and ability to work.

Given the complexity associated with the termination of an employee with mental health issues we recommend you seek legal advice specifically tailored to your situation and business.

If you have any queries on the above or require assistance with this, please contact Michael Bishop or Amelita Hensman of our Employment Law Team.

Footnotes

1 Safe Work Australia, Key Work Health and Safety Statistics Australia 2024, Safe Work Australia Data, (released 2 September 2024) https://data.safeworkaustralia.gov.au/insights/key-whs-statistics-australia/latest-release.
2 Andreana Kassab v Ability Action Australia Pty Ltd [2025] FWC 935.
3 Panazzolo v Don's Mechanical and Diesel Service Pty Ltd [2023] FedCFamC2G 665.
4 Andreana Kassab v Ability Action Australia Pty Ltd [2025] FWC 935, [3].
5 Andreana Kassab v Ability Action Australia Pty Ltd [2025] FWC 935, [14].
6 Alex Yates v Stephanie Muir Ridge [2025] FWC 733.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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