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Corporate Liability for Psychological Injury

Employers, including corporations, may be found to be liable for psychological injuries sustained by employees in a similar manner to physical injuries. For example, if an employee is bullied and harassed by their supervisor and develops a recognised psychiatric illness such as depression, the employer may be found liable to pay workers compensation benefits and, potentially, damages. In contrast to workers compensation benefits, which are payable irrespective of fault, damages are only payable in circumstances where the employer intentionally or negligently caused harm to the employee. A corporation may be found to be liable for the harmful conduct of its employees, particularly management, depending upon the position of the employee that perpetrated the harmful conduct and the context in which it occurred. The recent judgement in the District Court of Ward v Allianz Australia Services Pty Limited [2019] NSWDC293 (5 July 2019) provides a good example of how the law deals with these issues.

The Plaintiff, Mr Ward worked for Allianz, the Defendant, as an accounts manager for several years. In 2003, a new state manager, Mr Smith was appointed shortly following the collapse of HIH Insurance Group. Allianz had taken on a number of policies issued by HIH and the period was very significant within the insurance industry and particularly for Allianz employees. Mr Smith managed a team of about 100 employees, including Mr Ward, for about 14 months.

It was unchallenged at trial that Mr Smith's management style was aggressive. He told account managers, including Mr Ward, that they had failed and that he would drag them before Human Resources to have them walked out of the building. In one meeting, he declared before account managers who had been collected in a boardroom, that a new era had begun and that he had been "brought in to kick (them) in the head." Mr Smith yelled at Mr Ward on many occasions, telling him he was hopeless at his job and berated him in front of other employees, telling him he was a poor worker. On one occasion, Mr Smith forcefully slapped Mr Ward in the back of the head so hard his head nearly hit the keyboard of his computer. He would barge Mr Ward with his shoulder from time to time.

Mr Ward developed PTSD and depression from Mr Smith's conduct and eventually was unable to work. He brought a claim for damages in the District Court.

Mr Ward's lawyers asked the Court to find Allianz liable for Mr Smith's conduct on the basis that Mr Smith was, in fact, the corporation (Allianz). Some employees of a company, particularly senior management, may be regarded to be the company itself. In those circumstances, the conduct of the individual represents the conduct of the company, which is important in cases where the harmful conduct is argued to be outside the scope of the perpetrator's employment duties. If the individual is the company, then it does not matter whether the conduct arose from their employment duties. The Court found Mr Smith was not, in fact, the company, however, fortunately for Mr Ward, it did find that the harmful conduct was sufficiently connected to Mr Smith's employment to render Allianz liable for his conduct.

A corporation is not necessarily liable for all conduct of its employees. Firstly, an employer is only potentially liable for the actions of employees that it authorises. However, of those actions it does authorise, it may be found liable for actions undertaken by employees by improper means. The legal distinction can be very fine. In Mr Ward's case, the Court found that although Mr Smith's conduct toward him was clearly improper, it was in pursuit of actions authorised by the employer. The Court accepted evidence to the effect that Mr Smith had been elevated to his management position with the express mandate to 'shake up' and improve the performance of his team. In those circumstances, even though Mr Smith effectively assaulted Mr Ward, Allianz was still found liable for Mr Smith's conduct.

Mr Ward was awarded damages of $1,394,421.91 together with interest and legal costs. If you find yourself unable to work due to the conduct of others in the workplace, it is important you obtain legal advice from a law firm who specialises in the field, such as Turner Freeman.

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