Object reference not set to an instance of an object.
  • Home
  • >
  • Publications
  • >
  • Employer liability for "stressed" employees – what are the limits?
Publications

Employer liability for "stressed" employees – what are the limits?

12 October 2005

Our Christchurch employment team recently acted for Gen-i Limited in its successful defence of an employee’s claim that it had breached a number of obligations to the employee which resulted in the employee becoming "stressed" and ultimately suffering a depressive illness and a breakdown.

While numerous medical reports indicated that the employee’s illness was attributable to workplace factors, the Employment Relations Authority held that the illness and the employee’s termination were "in no way the fault of Gen-i".

This issue of Counsel looks at the decision in that case and highlights the limits on employer liability and some steps employers can take to minimise the risk of liability.

Stress

Workplace stress and subsequent employer liability has been the subject of much discussion and media interest in recent years, particularly when the Health and Safety in Employment Act 1992 (the HSE Act) was amended to make it explicit that stress and fatigue were to be recognised as having the potential to attract liability.

At the time of the amendments there was a general concern that they would result in a flood of claims and/or prosecutions.

Media interest has also been drawn to the subject because of large awards in a few cases and inquest findings linking suicide to workplace stress.

However, although workplace stress claims are increasingly visible in employment litigation, with a high proportion of aggrieved employees alleging at least some work stress, the majority of the claims are still being brought by individual employees under the Employment Relations Act 2000 as opposed to being prosecuted by the Department of Labour under the HSE Act.

It is noteworthy here that any penalty imposed under the HSE legislation is payable to the state (although the Court does have the power to order reparation directly to a victim under the Sentencing Act 2000) whereas compensation for a grievance under the Employment Relations Act 2000, or damages for breach of an employment agreement are paid directly to the employee.

To date there has only been one prosecution under the HSE Act for stress-related harm. The employer pleaded guilty in that case (see below).

Employer ordered to pay $14,500 following guilty plea

Department of Labour v Nalder Biddle (Nelson) Limited 1

A Nelson boat building company recently pleaded guilty to a charge under the HSE Act of failing to take all practicable steps to ensure the safety of an overworked administrative employee who was suffering stress-related pains.

Despite allowances being made by the Court for the employer’s cooperation and early guilty plea, the employer was fined $8,000 and ordered to pay $1,294 in medical expenses, $130 court costs and employee’s solicitor fee of $5,000.

The Court noted on sentencing that although the effects of stress are difficult to assess, where an employee’s work conditions are known to be stressful and the employer has knowledge of resulting medical difficulties, "immediate action is required".

Kingston v Gen-i Limited

The limits on employer liability were noted as early as 2002 in Attorney General v Gilbert2, where the Court of Appeal stated that:

"An employer does not guarantee to cocoon employees from stress and upset, nor is the employer a guarantor of the safety or health of the employee."

and laid down a three-stage test for determining liability.

These limits were restated by the Employment Relations Authority in its determination of Kingston v Gen-i Ltd3, the first significant claim of this type against a private sector employer.

The claim

The employee brought a claim against the employer for:

  • breach of employment agreement (including the following specific breaches):
    • failing to adequately monitor and regulate his workload to ensure he did not suffer undue stress and psychological harm
    • failing to take any or adequate steps to reduce his workload when it knew or ought to have known he was suffering from a mental illness and was vulnerable to further stress-related harm
    • failing to respond reasonably to his protests that he and his sales team were under-resourced and that he was unable to meet the performance targets imposed on him
    • failing to adjust his performance targets to realistic and reasonable levels … when it knew or ought to have known that he was suffering from a mental illness and was vulnerable to further stress-related harm
    • failing to take effective steps to provide him with resource support or modification or redistribution of his duties and responsibilities to protect him from further psychiatric harm … and
  • a personal grievance for constructive dismissal.

The facts

In brief, the facts of Gen-i are as follows:

The employee commenced work with the employer in 1990.

In approximately 1997 the employee started having difficulty sleeping, and suffering general weakness. This was initially diagnosed as a drug reaction but the employee was diagnosed with a depressive illness later that year.

The employee claimed that he notified his employer of his illness on more than one occasion.

The employer denied having any knowledge of the employee’s illness.In 1998 the employer undertook a restructure.

The employee disagreed with the structure proposed by the employer and made the employer aware of his opposition. The employee maintained that his opposition to the restructuring ought to have made the employer aware of his stress levels and increased vulnerability.

In March 2002 the employee had a breakdown.

Subsequently, the employer provided the employee with extended leave on full pay and with the employee’s consent consulted with his medical advisors about a safe return-to-work programme.

The employee returned to work on a part-time basis in May 2002. However, when he felt he still could not cope, he took a further period of leave, returning the following July.

Upon his return to work the employee was presented with his targets for the forthcoming year, which were an increase on the previous year’s figures.

Despite further protests from the employee, the employer declined to reduce the employee’s target figures, offering to consider alternative positions within the company to allow the employee a "lifestyle-based career change".

Following a series of meetings between the parties and their legal advisors, the employee raised a grievance and subsequently resigned.

Three-stage test affirmed

Applying the test set out by the Court of Appeal in Gilbert the Authority noted that:

  • The first issue for determination is the issue of causation – "whether the job was the problem".
  • If the work did pose a risk to the employee’s health, the next issue for determination is foreseeability – "whether the employer knew or ought to have known".
  • Finally, if there is a foreseeable risk – "did the employer take all reasonably practical steps to manage the risk?"

1. Causation: Was/is the job the problem?

Sales not inherently stressful work

On this point the Authority noted that it was a characteristic of many of the successful workplace stress cases to date that the work being performed by the employee is of such a nature or volume that a clear risk is associated with the work.

New Zealand examples of this include a Police photographer (Brickell v Attorney General4) and a social worker charged with the assessment of child abuse risk in a particularly high-risk area (Whelan v Attorney General5).

However, the Authority in Gen-i noted that there was nothing to indicate that the employee’s work in sales posed any inherent risk to his psychological wellbeing.

Medical evidence – purported causation not sufficient

In an effort to prove a causative link, the employee submitted various medical reports spanning some years which concluded that his depressive illness was caused or exacerbated by work-related stress.

However, all these reports were based entirely on self reporting and the Authority noted that:

"A patient’s own assessment of the causes of his illness ... [is not] conclusive proof of what he or she alleges."

The Authority was very cautious about relying on reports based on the employee’s own opinion and rejected the conclusions of medical experts who only saw the employee during the latter stages of his illness and who did not treat him at the onset of the depression.

2. Foreseeability: Whether the employer knew or ought to have known?

The employee argued that the employer knew or ought to have known of his depression and high stress levels due to his alleged disclosure of depression to a manager over a drink one night in a bar; his various complaints about resourcing and office structure during the 1998 restructuring; and his persistent annual efforts to negotiate his sales figures down.

The Authority rejected all of these claims noting that:

  • a casual remark in a social setting is not sufficient notice; and
  • that the comments made during the restructure were made as part of a general consultation process about what was best for the business, and in no way gave any indication that he was having personal difficulties.

The Authority found that at no time prior to his breakdown and subsequent leave did the employee put the employer on formal notice that he was suffering from depression or had any general vulnerability to stress.

A common sense approach to avoiding liability related to workplace stress

There are a number of practical steps an employer can take in an effort to reduce potential liability:

  1. Promote an awareness of the issue within the organisation. Employees need to be well managed, and managers need to be trained to recognise potential workplace stress situations and to deal with them.
  2. Put in place clear policies that aim to identify, reduce and manage stress. Employers should also have a clear process for considering and responding to complaints and concerns from employees and for identifying and minimising hazards.
  3. Ensure that annual leave is taken on a regular basis, and that a reasonable proportion is taken in one uninterrupted period.
  4. Ensure that there are good systems of recording information relevant to employees’ vulnerability to workplace stress. For example, if an employee had a nervous breakdown and took sick leave two years ago, the employee’s current manager needs to be aware of this information so he or she can take it into account when dealing with the employee.
  5. An employer does not have to ask the employee to disclose personal information, but it does have an obligation to take what it does know about the employee into account. Information relating to mental health and stability should obviously be kept confidential.
  6. Implement an Employee Assistance Programme (EAP), particularly in jobs that are inherently stressful.
  7. Ensure an employee who needs sick leave for workplace stress-related illnesses is properly supported when they come back to work. It may be appropriate to consider restricted duties on their return.
  8. Get specific advice as soon as possible. An employee who is "stressed" can become increasingly difficult to manage.

It is clear, therefore, that where the job is not inherently stressful but the employee claims specific vulnerability, the employee has an obligation to clearly and specifically inform the employer of that vulnerability.

As noted above, the question then becomes (following formal notification of the employee’s depression and breakdown) did the employer take all practicable steps to manage that risk?

3. Risk management: Did the employer take all reasonably practicable steps to manage the risk?

Following the employee’s breakdown and subsequent stress leave (notification), the employer:

  • (with the employee’s consent) liaised with the employee’s medical advisers to implement a transition programme and a return to work plan, which enabled the employee’s reintegration into the workplace on a graduated basis
  • made arrangements to ensure the employee was situated away from a colleague with whom he had previous conflicts at work
  • when it became apparent that the employee was still finding the work difficult, the employer:
    • provided further leave, and
    • offered to work with the employee to review lifestyle-based career changes within the company.

Despite the employer’s efforts, the employee’s health did not improve and he subsequently resigned.

The Authority held that, in the circumstances, the employer took all reasonably practicable steps to manage the risk once it had knowledge of the employee’s vulnerability and that the termination (by way of resignation) of the employee’s employment was in "no way the fault of the employer".

Conclusion

Workplace stress claims have indeed been one of the most high-profile areas of employment law over the past few years.

However, the employer’s success in Gen-i discussed here serves to reiterate that:

  • the obligations on employers in relation to workplace stress are limited
  • where an employee claims a particular vulnerability to harm resulting from stress, he or she has an obligation to put the employer on formal notice of this vulnerability (it is clear from Gen-i that a passing remark in a social setting will not be sufficient in this regard)
  • an employer is not expected to shield employees from workplace stress but rather take all reasonably practicable steps to manage the risk of harm resulting from such workplace stress where either:
    • the job is inherently stressful, or
    • the employee is labouring under a specific vulnerability.
  • medical reports purporting to find that an employee’s mental health condition is caused, or contributed to, by workplace factors will not be determinative (and in fact may be given little weight where they are based solely on the unchallenged self reporting of the employee).

Although the limits on employer liability are becoming clearer in this area, considered and applied policies will help reduce potential liability.

Footnotes

  1. Unreported, District Court, Nelson CRN040425002 [2002]
  2. NZLR 3423 Unreported, 12 May 2005 CEA 325/034 [2000] 2 ERNZ 5295 Unreported decision of Travis J, 21 December 2004 AC71/04

Contacts

Related services