Two recent FWC cases highlight the delicate balance HR must strike when performance management and dismissal decisions involve employees with mental health concerns.

Dismissal for poor performance often comes at the end of a slow spiral, where repeated feedback, performance plans and missed targets compound into a situation that feels unsustainable for everyone involved.

But when the employee in question is also dealing with mental health challenges – whether they’re disclosed or not – dismissal decisions tend to become far more sensitive.

In these cases, HR must carefully balance two competing duties: the need to uphold performance standards and ensure business continuity, and the need to provide a fair performance management process that’s considerate of employees’ mental health.

Workplace claims for mental health conditions are continuing to rise, making up 11 per cent of all serious claims in 2022-23, according to Safe Work Australia. What’s more, a growing recognition of psychological harm is trickling down into legal decisions. 

Recent rulings from the Fair Work Commission (FWC) have shown that missteps in this area can lead to extended legal battles, discrimination claims and even compensation orders if the dismissal process itself causes harm.

So, what does a fair, defensible dismissal process look like when mental health challenges are involved?

Managing performance issues relating to mental health

While mental health challenges don’t exempt employees from performance expectations, they do require HR to tread with greater caution during the performance management process, particularly if dismissal is being considered.

“In these situations, there are disability discrimination risks, general protections risks and, of course, unfair dismissal risks, just to name a few,” says Lauren Brouwer-French, Senior Associate at Harmers Workplace Lawyers. “So the processes really do need to be managed carefully and sensitively.”

Since it’s likely that the employee’s mental health challenges are contributing to their performance issues, it’s often helpful to start by addressing any underlying psychological hazards or stressors, she says.

“Employers in those situations should definitely consider whether any reasonable adjustments can be made to support an employee who might have mental health issues,” says Brouwer-French. “It might be the case that with those reasonable adjustments, those performance issues go away.”

Reasonable adjustments might include the option to work from home or switch to a reduced schedule, whether on a temporary or permanent basis. 

In cases where reasonable adjustments and standard performance management processes prove ineffective and a decision to consider dismissal is made, employers should move slowly and ensure they are meeting the legal requirements associated with each stage of the process, says Brouwer-French.

“That involves giving an individual notice that they might be dismissed and why, and giving them an opportunity to respond,” she says. “If it’s a performance related concern, give them a reasonable time to improve their performance, perhaps with additional support, before moving  to a dismissal.”

3 considerations when dismissal intersects with mental health issues

When mental health challenges intersect with dismissal decisions, there are a few critical risks and responsibilities HR should keep in mind.

1. Can a dismissal amount to discrimination if mental health is involved?

Mental health conditions are generally considered disabilities under the Disability Discrimination Act 1992. As a result, if an employee argues their performance was impaired due to a diagnosed condition, and that their employer either didn’t accommodate it or used it as grounds for dismissal, the termination could potentially breach discrimination law.

This was the basis for a recent claim submitted to the FWC, where an employee claimed her PTSD, depression and anxiety had contributed to performance difficulties and that her dismissal was linked to discrimination based on her mental health status.

The employee in this case claimed she disclosed her disability and requested reasonable adjustments, which were not adequately provided or considered.

“It might be the case that with reasonable adjustments, those performance issues go away.” – Lauren Brouwer-French, Senior Associate, Harmers Workplace Lawyers

Despite the application being submitted late, the FWC has given the employee the green light to proceed with her general protections case, which will be heard at a later date.

According to Brouwer-French, whether or not an employer has explored and implemented reasonable adjustments is one of the most critical factors considered in a disability discrimination claim.

“You can’t dismiss somebody because they have a disability,” she says. “But if, after making reasonable adjustments, a person can’t perform the inherent requirements of the role, then there may be a basis to proceed with a dismissal.”

2. Can mental health issues justify a late unfair dismissal or general protections claim?

Dismissed employees typically have 21 days to file an unfair dismissal application or a general protections claim related to the dismissal with the FWC. But what if their mental health prevents them from acting in time? 

In the case mentioned above, the employee submitted her claim three weeks past the standard deadline, explaining that her PTSD, anxiety and depression had prevented her from acting sooner.

There are a number of considerations the FWC will take into account when deciding whether a late application can proceed in cases like this, says Brouwer-French.

“They’ll look at the person’s reason for the delay, [one of which] might be mental health concerns,” she says. “They’ll also consider whether the person took any steps after the dismissal to try to resolve the issue with their employer.” 

For example, an employee might argue that their depression left them unable to engage with the dismissal process or lodge a claim on time. However, if they also contacted their employer within that period – perhaps to dispute the outcome or ask for a copy of their termination letter – it may support their case.

“The Commission will also have a look at the merits of the underlying application, and whether it has good prospects of success,” says Brouwer-French.

So, should employers be concerned that mental health claims will come back to bite them months or years after the fact? Not necessarily, she says. 

While the FWC does show some flexibility in cases involving mental health, the onus is on the employee to demonstrate that their condition genuinely impaired their ability to act for the entire period of delay.

“So, if they’d waited many months, and they don’t have a good explanation for that, it’s unlikely the Commission would allow the application to proceed.”

3. What if the dismissal itself worsens someone’s mental health?

Even if the decision to terminate is valid, the manner in which it is handled can still create legal risk.

In another recent case, a small business owner was ordered to pay an employee almost $10,000 in compensation after the FWC found that the dismissal process itself had aggravated the employee’s psychological distress.

It found the employer had failed to consider the psychological impact of how the dismissal was delivered, and had not afforded procedural fairness.

Claims like these would always need to be substantiated by medical evidence, says Brouwer-French; for instance, in this case, the employee provided a letter from his treating psychologist which went into the impact the dismissal and the unfair dismissal proceedings had on his mental health and ability to work.

Based on this and the lack of procedural fairness on the employer’s part, the FWC accepted that their conduct had directly harmed the employee’s wellbeing.

Employers can avoid similar claims arising by ensuring their dismissal process is compliant, transparent and empathetic.

“Make sure that when the dismissal is communicated, the employee has an opportunity to have a support person present,” says Brouwer-French. “Then, clearly explain to them the reason for the dismissal and what’s going to happen next.

“Employers can also think about other ways they can support employees through the process. For example, they could remind employees that there’s an employee assistance program that they might want to make contact with to get mental health support if they’re distressed or upset by the process.”

Taking these steps not only satisfies procedural fairness requirements, but also helps reduce the risk of unnecessary psychological harm in an already stressful situation.

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