A consequence of the COVID-19 pandemic has been the widespread loss of jobs. This may well give rise to claims for psychological injury, but there are a number of complicating factors in the unusual circumstances by which the employment has ceased.

The starting point in assessing whether the psychological injury sustained in this way falls within the definition of ‘injury’ in s4 of the Workers Compensation Act 1987 (NSW) (the Act). The personal situation of the claimant is potentially relevant in this assessment. The psychological injury may occur as a result of a ‘one off’ action – such as the act of being stood down – and thus be a ‘personal injury’ as contemplated by s4(a), or potentially as a result of a succession of events building to the onset (such as an elongated period of developing concern leading to an anxiety reaction) and thus be a ‘disease injury’ as contemplated by s4(b).

If the worker has a ‘personal injury’ under s4(a), it is necessary for that worker to satisfy the requirements of s9A, being that the employment was ‘a substantial contributing factor’ to the disease. However, if the claim is in respect of a ‘disease injury’, s9A does not apply, in order to establish an entitlement, the employment must be ‘the main contributing factor’ to the disease injury.

Much will depend on the individual circumstances of each case in this respect and an analysis of the operation of s4 and s9A in these circumstances could occupy an article in itself. However, the intent of this article is to focus on the operation of s11A.

Assuming an employee has suffered a psychological injury for the purposes of s4 and/or s9A arising out of their employment ceasing, an issue arises as to the application of s11A of the Act which, if operating, will disentitle an employee to compensation. That section provides as follows:

(1) No compensation is payable under this Act in respect of an injury that is a psychological injury if the injury was wholly or predominantly caused by reasonable action taken or proposed to be taken by or on behalf of the employer with respect to transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal of workers or provision of employment benefits to workers.

Action taken to cease the employment of an employee as a consequence of the COVID-19 pandemic could arguably constitute ‘dismissal’ or ‘retrenchment’ for the purposes of s11A, even in circumstances where the employer is, on the face of the language, asserting that the employee is being ‘stood down’ but in fact the employment is being terminated.

‘Dismissal’ has been found to mean circumstances where an employer terminates an employee’s employment without the employee’s consent: Smith v Director General of School Education (1993).

In the context of an employee ceasing work due to the COVID-19 pandemic, there may be circumstances where the employee consents to the termination in light of the unusual circumstances employers currently face. Consequently, it is by no means certain termination of an employee’s employment will be without the employee’s consent.

If the termination does not constitute dismissal, it may however constitute retrenchment. The ordinary meaning for retrenchment is circumstances where an employer reduces staff as a cost reduction measure.

It is fair to say that the circumstances which have surrounded employees ceasing work has arisen in circumstances where the COVID-19 pandemic has made an employee’s employment uneconomic due to the closures and restrictions on employers to conduct their business.

If the employer has terminated the employee’s employment, paid out the employee’s entitlements, and directed the employee to seek employment from Centrelink, such circumstances would arguably constitute retrenchment.

However, for employees who have been stood down but remain connected to the employer, this arguably would not constitute a dismissal or retrenchment from employment and therefore s11A would have no application.

Circumstances where a connection to employment would remain is where the employee is on a JobKeeper benefit arrangement or where the employee is simply sent home to use accrued leave entitlements. Further, employers may be entitled to ‘stand down’ employees on a temporary basis pursuant to provisions of the Fair Work Act 2009 (Cth) or the Industrial Relations Act 1996 (NSW), whereby the employee continues to accrue leave entitlements although not being paid. Being stood down in this sense may not constitute dismissal or retrenchment for the purposes of s11A.

If the cessation of work for an employee due to the COVID-19 pandemic falls within the concept of ‘dismissal’ or ‘retrenchment’, it will be necessary to consider first whether the psychological injury arising from these circumstances was ‘wholly or predominantly’ due to the dismissal or retrenchment of the employee and secondly, whether the employer’s actions in respect of dismissing or retrenching of the employee was ‘reasonable’.

The issue of whether the psychological injury is ‘wholly or predominantly’ caused by the dismissal or retrenchment of the employee will depend upon the facts of each particular case to determine whether there were any other factors in the employment which have contributed to the psychological injury and relevant medical opinion in respect of such issue.

Whether the employer’s actions are ‘reasonable’ will require a consideration of not only the economic circumstances of the employer which resulted in the decision to dismiss or retrench the employee, but also the manner in which the process of dismissal or retrenchment was conducted.

It is probably fair to say that in light of the unprecedented circumstances employers are facing as a consequence of the COVID-19 pandemic, such as the forced closure of an employer’s business, it would be considered ‘reasonable’ for the employer to dismiss or retrench staff. There may, however, be circumstances where the decision is not reasonable, such as where the employer has not suffered any significant downturn in business or there were alternative employment options which could have been offered to the employee.

It will also be necessary for employers to provide employees with as much notice as possible, to give clear reasons for the decision, and to display a significant degree of compassion to their employees to ensure that any actions that are necessarily taken to dismiss or retrench staff due to the COVID-19 pandemic are clearly understood and documented so as to provide a contemporaneous record consistent with the statement of the reason to the employee. That is likely to be critical to establishing that the conduct was ‘reasonable’. Of course, showing compassion for the employee is a sensible approach by employers in this situation in order to minimise the risk of the action of ceasing employment to result in a psychological injury at all.

Although there is a potential for s11A to have some application in respect of a psychological injury claim arising out of an employee ceasing work as a consequence of the COVID-19 pandemic (depending upon the circumstances of each matter), the cessation of provision of work to an employee will not necessarily fall within the scope of s11A. Experience indicates s11A is narrowly and strictly construed and is notoriously a difficult defence to sustain.

Therefore in order to minimise the prospect of staff sustaining a psychological injury in these circumstances, employers should conduct such actions with great care and compassion.

The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above.