the environment in which there were too few, inadequately trained social workers; the information management had received from other sources; and

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1 MAY 2005 EMPLOYMENT TEAM MEMBERS STRESS AND PSYCHIATRIC INJURY THE NEW ZEALAND APPROACH Psychiatric injury stemming from workplace stress is a fast-developing area of law, and one which all employers should monitor. A series of recent stress cases has given some insight into the different factual situations that may lead to a successful stress claim. Quick Reference Stress and Psychiatric Injury In New Zealand... 1 In England.. 4 In Australia.. 4 First Stress Conviction Payback Time Notice Provisions... 6 Proposed Legislative Changes Overseas Snippets National Party s Employment Law policy. 8 Further Information.. 9 Quigg Partners Level 7, The Bayleys Building 28 Brandon Street P O Box 3035, Wellington Phone: Fax Whelan - the latest successful claim Whelan v Attorney-General concerned a Risk Assessment Supervisor working for what was then known as the Children and Young Persons Services (CYPS). Ms Whelan brought an action against CYFS for breach of contract and breach of statutory duty after she retired for medical reasons in 1998, aged 47. CYPS denied breaching any duty, and claimed that it had always acted consistently with its obligations, taking all reasonably practicable steps to ensure Ms Whelan s safety. CYPS claimed it had no warning of her stressrelated illness. While declining to rule on whether CYPS had breached its statutory duty, the Employment Court held in Ms Whelan s favour on the breach of contract issue. Injury Despite some conflict as to the nature of Ms Whelan s injuries, the Judge considered the two expert medical witnesses to be in substantial agreement, and concluded that Ms Whelan suffered a psychiatric illness caused by stressors experienced in her employment at CYPS. Michael Quigg Partner DDI: michaelquigg@quiggpartners.com Jol Bates DDI: Sean Heywood DDI: Deirdre Marshall DDI: Tim Sissons

2 Foreseeability the warning signs Ms Whelan s main role was to investigate notifications received by CYPS in relation to children and young persons and to assess the risks involved. The assessed level of risk would determine the urgency of CYPS s response. Frequent resignations and sick leave taken by the employees Ms Whelan was responsible for meant that at times she carried the caseloads of five full time workers and several contract workers. Motivated by a desire to have a total break from risk assessment, Ms Whelan took study leave in 1994 and During this leave, she informed her supervisor that she had a medical condition (which turned out to be a heart condition) and that on her return she wished to leave front line social work. However, no transfer ever occurred, even after Ms Whelan made further requests in 1996, and a complaint to the area manager about her immediate manager, her workload (which she considered unsafe), and the blocking of her transfer out of risk assessment. Ms Whelan claimed that in late 1997 she twice collapsed in the office, in events she described as panic attacks. After a final collapse and the raising of a personal grievance, Ms Whelan s application for retirement on medical grounds was accepted in March In accordance with the experts views, the Court concluded that Ms Whelan suffered a psychiatric illness caused by stressors she experienced in her employment at CYPS. It further found that her managers supervised her inadequately, and were aware well in advance of her final collapse that stress and overwork were having a gravely adverse effect upon her. In finding that the injury was foreseeable, the Judge took into account: the nature of risk assessment work; the environment in which there were too few, inadequately trained social workers; the complaints made by Ms Whelan; the information management had received from other sources; and the number of other workers who were suffering from stress and leaving CYPS employment. Available practicable steps Having established that reasonably foreseeable injury occurred to Ms Whelan as a result of her employment, the Court also held that there were reasonably practicable steps that could have been taken by CYPS to at least lessen the risk of harm, but that these steps were not taken even after Ms Whelan repeatedly proposed them. Damages The requirements for finding liability having been satisfied, the Court left it to the parties to discuss the level of damages to be paid to Ms Whelan. Given the award in Gilbert, given the fact Ms Whelan was only 47, and given that she was seeking in excess of $500,000, it seems likely that the amount was in the many hundreds of thousands of dollars. 2

3 Gilbert the benchmark case The decision of the Employment Court in Whelan v Attorney-General drew on the leading Court of Appeal decision in this area: Attorney-General v Gilbert, which concerned a probation officer who had resigned after serious coronary and psychiatric health problems left him 90% disabled. The Court in Gilbert had found that a duty to take reasonable steps to maintain a safe workplace is a term implied into all employment agreements, and that the Department of Corrections had breached this duty. The Court found, amongst other things, that there had been severe understaffing, excessive workloads without adequate supervision and failure to act on reports that identified problems and recommended solutions. Mr Gilbert had been required to do the jobs of two people only days after he was discharged from a period in hospital for coronary problems, his request for a transfer after a diagnosis of angina was refused, and he had been placed on full duties against medical advice immediately following a further period of hospitalisation. While the award to Mr Gilbert was reduced somewhat by the Court of Appeal, Mr Gilbert was awarded 14 years lost wages, together with $75,000 for humiliation, anxiety and distress, and $14,000 for medical expenses Nilson-Reid employees don t always get what they want The recent Employment Court decision of Nilson-Reid v Attorney-General may give employers some comfort in showing that stress claims do not inevitably lead to large payouts. The case concerned Elayne Nilson-Reid, who was employed as a conservation officer/ranger at the Aoraki/Mount Cook visitor centre by the Department of Conservation (DoC). Ms Nilson-Reid unsuccessfully appealed from a determination of the Employment Relations Authority that her resignation did not constitute unjustified constructive dismissal and that DoC had not failed to provide her with good, safe working conditions. Claiming that her depression and severe stress were caused by her employment, foreseeable by DoC, and preventable, Ms Nilson-Reid maintained that DoC did not effectively deal with a backlog that had built up during the summer of 2000, and that they had failed to make timely stress management provisions. Lack of foreseeability The Judge found that it was not reasonably foreseeable by DoC that any of Ms Nilson-Reid s work related activities could have led to the stress related illness that she experienced. While she was stressed, much of this stemmed from her personal life, mostly concerning financial issues with her husband s new business. The job was not inherently stressful, and Nilson-Reid had attempted to conceal the stress, and did not tell management that it was work-related. DoC s failings not causative While DoC was found to have unjustifiably disadvantaged Ms Nilson-Reid in its handling of a conflict of interest matter, this was found not to be causative of the harm she suffered. No breach of the sort present in Whelan or Gilbert having been found, Ms Nilson-Reid s only success was an award of $3,000 in respect of her disadvantage grievance. 3

4 THE ENGLISH APPROACH In a recent decision combining appeals against stress claim decisions, the English Court of Appeal applied the principles from the leading English Court of Appeal decision in Hatton v Sutherland to six decisions of lower courts. Two of the decisions in the combined judgment illustrate important points in this field: Hartman injury not foreseeable In Hartman v South Essex Mental Health and Community Care NHS Trust, an employee had disclosed her history of depression and stress, including a nervous breakdown, to her employer s Occupational Health Department. After her hours increased significantly, and after her involvement in the aftermath of an accident involving a child s death, Ms Hartman s employment ceased as a result of psychological illness. The Court of Appeal found that the injury to Ms Hartman was not foreseeable as the knowledge of the Employer s Occupational Health Department was not to be imputed to the Employer as a whole: the Department considered her fit for employment, (as she indeed was for nine years) and in accordance with its ethical obligations, did not pass on other information to the employer. Melville failure in high risk occupation Melville v the Home Office concerned a healthcare officer at a prison, whose duties included recovering the bodies of prisoners who had committed suicide. The officer developed a stress related illness and retired on the grounds of ill-health. Documents prepared by the Home Office (his employer) showed that it recognised that people in Mr Melville s position might sustain injury to their health, and that such people should receive support from prison care teams following incidents. Mr Melville acknowledged that these procedures were adequate, but claimed that the implementation of these procedures at the prison he was working at was lamentable: he knew of the existence of a care team, but did not know what it did, and had had no contact from it. The Court of Appeal held that if there is something specific about the job or the employee or the combination of the two that means that the risk of injury is higher, then there will be greater responsibility on the employer. In this case, the increased risk was recognised, but the prison s implementation of it was extremely poor. The Home Office s appeal was dismissed. THE AUSTRALIAN APPROACH A recent decision by the High Court of Australia in Koehler v Cerebos (Australia) Limited (which has been greeted with some relief by Australian employers groups) might be seen as a more hard-line approach to employee stress cases. Facts The case involved a full-time sales representative at a supermarket who had accepted part-time work as a result of retrenchment after the supermarket lost the right to distribute a product range. From the beginning of her new job, Koehler complained about the amount of work she was required to do, saying that there was no way she could do the required tasks in the 24 hours she now worked per week. She was told by her supervisor to try it for one month, and to tell him if she could not cope. 4

5 She performed the work, but continued to complain about it, both orally and in writing, suggesting that either her hours should be increased, or the number of stores she was required to visit should be reduced. Neither action was taken by the employer. Koehler did not suggest in any of her complaints that the difficulties she was experiencing were affecting her health. Just over five months into her new job, the Koehler found herself unable to lift the cartons she was required to move. She was diagnosed with a psycho-physical disorder resulting in pain amplification, anxiety, and depression. At court, Koehler contended that her employer s failure to implement the steps she identified was a breach of duties owed by the employer at common law, as implied terms of the employment contract, and through statute to provide a safe system of work. The employer did not dispute that she suffered from a recognised psychiatric illness resulting from her employment. District Court success for the employee Koehler won her case at the District Court, but lost at the Supreme Court of Western Australia and at the High Court of Australia, the latter two courts being unable to find that her injury was foreseeable by her employer. High Court the reversal The High Court focussed on the fact that Koehler had agreed to perform the duties that caused her injuries, noting that her acceptance of the work showed that she herself did not at that time have any reason to suspect the possibility of future psychiatric injury. Secondly, the Court noted the fact that neither Koehler nor her doctor initially suspected psychiatric harm once symptoms appeared pointed against such harm having been foreseeable. Employees have obligations In a separate judgment Callinan J could not see it as possible to imply a term by which the employer had a duty not to ask or require an employee to do the amount of work she agreed to do: it was for Koehler to either refuse to do all or part of the work. The judge further considered that it was farfetched and not foreseeable that Koehler would suffer the injury she suffered. CONCLUSION In stress cases, a number of elements must be present before an employee will be entitled to claim against their employer: The employee must have suffered actual injury to health (as opposed to merely stress, which may cause harm but is not legally a harm in and of itself). This injury must be shown to have resulted from factors connected to the workplace. When injuries have multiple causes, employers will only be liable to the extent that the causes are workplace-related. This injury must have been reasonably foreseeable by the employer. Reasonably practicable steps must have been available to the employer that would have reduced or prevented the harm. It would appear that in New Zealand, the risk inherent to some jobs (for instance social workers and prison guards) will mean that it may be difficult for the employer to show that the harm was not foreseeable. Employers in such fields would be well advised to have strong protocols in place to ensure that signs of approaching stress-related illness are picked up and dealt with, and that these protocols are properly implemented. 5

6 The English experience in Melville shows that merely having procedures to deal with foreseen risks is insufficient: procedures that merely gather dust may be worse (from the employer s perspective) than no procedures at all. FIRST STRESS CONVICTION IN NEW ZEALAND Nalder & Biddle (Nelson) Ltd has recently become the first company to be convicted under the Health and Safety in Employment Act (HSEA) for failing to provide a safe work environment in relation to employee stress. The HSEA requires employers to take all practicable steps to ensure the safety of employees while at work. This decision is the first under changes made to the Act in 2002 confirming that harm for the purposes of the Act includes physical or mental harm caused by work-related stress. Facts In this case, the employee was an assistant in the accounting department of the company, and had made it plain to her employer that she was suffering stress-related chest pains and had been placed on medication. Despite the employer agreeing to employ three extra staff members, the stress continued. Medical evidence confirmed that the condition suffered by the complainant was directly related to workplace stresses. The Court found that the employer failing to alleviate the stress after it had been made aware of the problem meant that all practical steps (as required by the legislation) were not taken. After a guilty plea, the employer was fined $8,000, plus $1,300 in expenses. No reparation was ordered as a settlement had already been reached under the Employment Relations Act. Comment The case shows that employers can face serious consequences not only through employee claims, but also though prosecutions by the Department of Labour. It should be emphasised that this is a case in which the employer pleaded guilty, and thus the case does not say that employing three people to assist a stressed employee is not enough to satisfy the employer s duties under the HSEA. PAYBACK TIME NOTICE PROVISIONS CAN WORK BOTH WAYS A decision of the Employment Relations Authority has held a convenience store worker liable to repay his previous employers $1,920 in wages, being the equivalent of 40 hours per week at $12 per hour for four weeks. Ten days after starting a job at a Night n Day convenience store in Dunedin, Scott O Connor finished a shift and never returned. Night n Day wrote to him seeking explanation, then wrote again to inform him that his employment had been terminated as a result of his abandoning it. It was pointed out that the employment agreement required four weeks notice of termination by either party, and that it provided that in the event of failure to give notice or to work it out, four weeks wages or the applicable percentage of that amount would be due or would be forfeited to the other party. 6

7 Another provision of the agreement stated that a worker s absence without notice for a period of three or more working days would be deemed to be termination of their employment. Applying the agreement s provisions, the Authority found Mr O Connor to be liable. No response was received to any letters sent to Mr O Connor, and attempts by Night n Day and the Authority failed to contact him, with the result that he did not appear before the Authority. It is unknown whether Mr O Connor remains at large. Comment Employers should note that clauses allowing for the deduction of wages for no or inadequate notice can legitimately be included in employment agreements and will be enforceable. Employees should, as always, be aware of the arrangements they are entering into in employment agreements, and be aware of the possibility of what in this case represented a substantial amount of money (considerably more than what Mr O Connor had earned during the brief course of his employment) being recoverable by their employer in the event that they disappear. PROPOSED LEGISLATIVE CHANGES FLEXIBLE WORKING HOURS BILL On April the 7 th, the Green Party s Employment Relations (Flexible Working Hours) Amendment Bill passed its first reading in Parliament, and has been sent to a select committee. The Bill aims: to provide employees with young and dependent children the statutory right to request part-time and flexible hours, and a framework in which they can negotiate reduced working hours. As currently proposed, the legislation would mean that if an employee has fulltime care of a child under five or of a disabled child up to 18, and has been employed for six months, they may apply to their employer for flexible working hours, explaining what hours they want, and how the proposal could be implemented. The employer will only be entitled to refuse the request if staffing issues, amount of work, performance and quality demands, or planned structural changes prevent the requested change. Business New Zealand opposes the Bill, suggesting that such intervention is unnecessary and cumbersome given that the present tight labour market encourages employer flexibility, and because other legislation already gives some protection. On the other hand, unions have applauded the legislation as encouraging better work-life balance. Given that the Bill presently has Government support, it may well become law. PAID PARENTAL LEAVE COVERAGE TO BE EXTENDED Ruth Dyson, the Associate Minister of Labour, has recently announced that the government intends to introduce legislation this year to extend the paid parental leave scheme to cover self-employed workers. At present, the scheme entitles eligible wage and salary earners to payment of up to $ per week for 13 weeks of their parental leave (increasing to 14 weeks in December this year) funded by the taxpayer. 7

8 OVERSEAS SNIPPETS I LL BE SEEING Y ALL IN COURT CONFEDERATES AND THE WORKPLACE An American security guard recently took a case alleging that his dismissal was a result of unjustified discrimination. The man claimed that his dismissal after he refused to remove confederate flag stickers on his lunch box and truck proclaiming The South was Right and Heritage not Hate was discrimination on the basis of national origin ( Confederate Southern-American ) and religion (Christian). The case (somewhat surprisingly) went all the way to the country s second highest court before its final rejection, showing that even seemingly ridiculous claims may still tie up considerable resources. US $11.2M FOR BREACH OF EMPLOYMENT AGREEMENT Also in the United States, a federal judge has recently confirmed an $11.2 million award made at arbitration in favour of a company against its former vice president for breach of his employment agreement and through tort. The former employee had solicited his former employer s employees, used the former employer s confidential information to assist his new company, and had acquired work previously performed by his former employer. LONG-TERM SICK WORKERS NOT ENTITLED TO ANNUAL LEAVE In England, the Court of Appeal has recently decided that a worker was not entitled to 4 weeks statutory holiday in a year throughout which they were on sick leave. ANTI POACHING RESTRAINT RULED UNREASONABLE The New South Wales Supreme Court has recently ruled that an anti-poaching clause in some former employees employment contracts was unreasonable. This was due to the scope and duration of the clause. NATIONAL PARTY ANNOUNCES EMPLOYMENT LAW POLICY The National Party has recently announced its intention to repeal the recently enacted Employment Relations Law Reform Act (discussed in previous newsletters) and to introduce a new piece of employment legislation incorporating the best of the Employment Contracts Act 1991 and the Employment Relations Act National claims that this new Employment Agreements Act would, amongst other things: Ensure that employers and employees have the same rights in employment agreements Remove union monopoly bargaining rights in collective agreements Establish a 90-day probation period during which new workers may be dismissed without cause; and Limit union access to workplaces. National also said it plans to overhaul the Holidays Act 2003, in order to reduce costs for employers, to ensure that it does not pay more to be sick than to be at work, and to allow the fourth week of annual leave (which is due to kick in in April 2007) may be taken as salary/wages by mutual agreement. Further changes are also promised in relation to OSH legislation. 8

9 APRIL SEMINARS START SUCCESSFULLY The April seminar on termination of employment was enthusiastically received by those who attended. Places are filling fast for future seminars. BOOK NOW if interested. TRANS-TASMAN HUMAN RECOURSES We recently undertook two seminars in Sydney for our Australian clients. It focussed on managing a New Zealand business from Australia including hiring and firing issues plus restructurings. It resulted from more New Zealand businesses having their HR operations directed out of Australia. Both seminars were well attended and enthusiastically received. A repeat is planned for later in the year. If you have any interest or suggestions please call Michael Quigg on FURTHER INFORMATION Employment Michael Quigg michaelquigg@quiggpartners.com Sean Heywood seanheywood@quiggpartners.com Jol Bates jbates@quiggpartners.com Deirdre Marshall deirdremarshall@quiggpartners.com Tim Sissons timsissons@quiggpartners.com M&A Corporate David Quigg davidquigg@quiggpartners.com John Horner johnhorner@quiggpartners.com Nick White nickwhite@quiggpartners.com Matt Yates mattyates@quiggpartners.com Barbara Pearse barbarapearse@quiggpartners.com 9