An employer identifies apparent irregularities in an employee's reporting, suspends the employee on full pay and convenes a disciplinary meeting. These are familiar steps in managing suspected misconduct. But what happens when the disciplinary process itself causes a psychological injury?
A decision of the NSW Personal Injury Commission provides a timely reminder that the reasonableness of disciplinary action is not established simply because an employer has genuine concerns about an employee's conduct.
In Johnson v Imperial Tobacco Australia Limited [2026] NSWPIC 589, decided on 9 October 2026, Commission Member Jane Peacock found that the employer had failed to establish that its disciplinary actions were reasonable for the purposes of its defence to a workers compensation claim.
The decision highlights the importance of preliminary inquiries, proportionate suspension decisions, procedural fairness and the management of employees on sick leave.
The Background: Reporting Concerns and an Immediate Suspension
The employee was employed by Imperial Tobacco as a Territory Sales Manager, responsible for a geographic area extending from Kempsey to Ballina in northern NSW.
In early 2023, concerns emerged about discrepancies in his sales activity and reporting records. These involved three broad categories of alleged misconduct:
- Falsification or misrepresentation of sales and customer visit information.
- Failures to provide honest and accurate information when performing store duties.
- Inaccurate reporting of working hours and company time.
The allegations were serious, potentially involving dishonesty and fraudulent reporting.
On 12 April 2023, while the sales manager was absent from work with a respiratory illness, Imperial Tobacco issued a letter setting out the allegations, suspended him on full pay and directed him to attend a meeting the following afternoon.
He was offered the opportunity to have a support person present, but was required to provide that person's details by close of business on the day the letter was issued.
Following his request, the meeting was postponed until 19 April, the day after his certified sick leave ended.
The meeting proceeded for approximately two hours and 39 minutes. The sales manager subsequently alleged that he had been subjected to extensive and accusatory questioning, causing him considerable distress.
The employer disputed his account of how the meeting was conducted, maintaining that he had been afforded a break and additional time to respond.
The meeting was adjourned, with a further postponement subsequently agreed because of the sales manager's medical circumstances.
The investigation was never completed, and the sales manager did not return to work.
The Legal Issue: Reasonable Management Action
Importantly, Imperial Tobacco did not dispute that the sales manager had suffered a work-related psychological injury.
It was also accepted that the injury had been wholly or predominantly caused by the employer's actions in relation to discipline.
The dispute therefore concerned the application of section 11A of the Workers Compensation Act 1987 (NSW).
That provision excludes compensation for a psychological injury wholly or predominantly caused by reasonable action taken or proposed by an employer in relation to specified management matters, including discipline, performance appraisal and dismissal.
The employer bears the onus of establishing that the relevant action was reasonable.
The Commission referred to the principles in Northern NSW Local Health Network v Heggie [2013] NSWCA 255, which establish that reasonableness is assessed objectively and may encompass the entire disciplinary process, including the investigation itself.
An employer's genuine belief that its actions are reasonable is insufficient. The assessment must consider the circumstances known to the employer, or reasonably ascertainable through diligent inquiries.
Equally, as recognised in Van Vliet v Landscape Enterprises Pty Ltd [2022] NSWPICPD 49, reasonableness does not require perfection.
The question was whether Imperial Tobacco had demonstrated that its actions, considered in their entirety, were objectively reasonable.
Where the Employer's Defence Failed
Several aspects of the disciplinary process weighed against the employer.
- The evidentiary foundation for the allegations
One of the central issues was the absence of evidence supporting the employer's decision to escalate the matter.
The sales manager had received a favourable performance assessment in February 2023. That did not prevent the employer from subsequently investigating suspected misconduct, but it was relevant context.
His former direct manager, who was potentially well placed to explain his working arrangements, reporting practices and customer activities, had not been shown to have been consulted before the suspension.
The employer also failed to produce the underlying field audit material and People and Culture investigation documents said to support its concerns.
The Commission was not required to determine whether the sales manager had actually engaged in dishonesty.
Rather, it had to assess whether the employer had established that its disciplinary response was reasonable on the evidence available.
The distinction is important. Reporting discrepancies may justify further inquiries without necessarily establishing a sufficient foundation for allegations of deliberate dishonesty.
- Suspension was not a neutral administrative measure
Imperial Tobacco argued that the paid suspension had limited practical consequences because the sales manager undertook some work from home and was already absent through illness.
The Commission did not accept that reasoning.
Member Peacock observed:
"Suspension is a significant and serious action taken by an employer against an employee (even if it is on full pay)." [96]
She recognised that suspension can cause distress and reputational harm, including where an employee works remotely.
The decision does not suggest that an employer must complete an investigation before suspending an employee.
Rather, it raises the question of whether the employer had a sufficient evidentiary basis and justification for taking what the Commission characterised as a drastic step before undertaking further readily available inquiries.
- Procedural fairness requires more than an invitation to respond
The original letter required the sales manager to attend a meeting the following day, notwithstanding his illness.
Although the employer offered a support person, the requirement to nominate that person within hours raised questions about whether the opportunity was meaningful.
The Commission acknowledged that offering a support person weighed in the employer's favour. The sales manager ultimately declined that opportunity.
Nevertheless, the employer had not adequately explained the urgency of the original meeting, particularly when the concerns had apparently been under consideration for some time.
The Commission was also critical of the suggestion that the sales manager could have reviewed the extensive allegations and gathered supporting material while medically certified as unfit for work.
The employer's subsequent willingness to postpone meetings was relevant, but did not resolve the broader concerns about the commencement and conduct of the process.
- The conduct and documentation of the disciplinary meeting
The sales manager maintained that the lengthy meeting involved extensive questioning about historical matters for which he had been unable to prepare adequately.
The employer disputed his account and maintained that the meeting had been conducted appropriately.
The Commission recognised that perceptions of the meeting could differ.
However, the absence of the recording or transcript, together with the missing preliminary investigation material, limited the evidence available to establish that the process had been reasonable.
Member Peacock ultimately concluded:
"This is not to say that the respondent wasn't entitled to investigate its concerns or require the applicant to attend a meeting to respond, but the investigation must be fair." [126]
Contacting Employees During Sick Leave: Good Intentions Are Not Enough
Another noteworthy aspect of the decision concerned the employer's continued communications with the sales manager during his absence.
The sales manager alleged that repeated contact about his medical status and participation in the investigation made him feel harassed.
Imperial Tobacco rejected that characterisation. It submitted that the communications were legitimate inquiries and that it had not been informed of any psychological condition.
The Commission acknowledged that the messages may have been well intentioned but questioned why repeated contact was necessary while the sales manager remained unwell.
Member Peacock observed:
"The reasonableness of an employer contacting an employee multiple times whilst they are off work with illness does not hinge on whether they are aware that the applicant had suffered a psychological condition." [77]
This is an important observation, although it should not be interpreted as a prohibition on contacting employees during sick leave.
Employers may have legitimate reasons to communicate about medical capacity, leave arrangements, rehabilitation and return-to-work planning.
The relevant consideration is whether the purpose, frequency and manner of that contact are reasonable in the circumstances.
Nor did the Commission make a separate finding that the communications constituted unlawful harassment.
Rather, they formed part of the broader circumstances against which the employer's disciplinary actions were assessed.
The Outcome
Having considered the evidence as a whole, the Commission was not satisfied that Imperial Tobacco had discharged its burden of establishing the reasonableness of its disciplinary actions.
Its section 11A defence therefore failed.
The sales manager was awarded weekly compensation for the period from 21 April 2023 to 16 October 2025, together with medical and treatment expenses. His claim for continuing weekly compensation beyond that period was unsuccessful.
The Commission did not determine that the original misconduct allegations were unfounded or that the employer was prohibited from investigating them.
The failure was in establishing the objective reasonableness of the process adopted.
Practical Implications for Employers
Although the decision arose under the NSW workers compensation legislation, it offers broader lessons for those responsible for managing disciplinary investigations.
Before escalating a matter, employers should consider:
- The preliminary evidence: Have the relevant records been examined and reasonably available explanations tested before concerns are characterised as dishonesty or misconduct?
- The justification for suspension: Is there an identifiable risk that warrants removing the employee from their duties, and have less intrusive alternatives been considered?
- The employee's opportunity to respond: Are the allegations sufficiently particularised, and has the employee been given a genuine opportunity to understand the evidence, obtain assistance and prepare a response?
- Medical circumstances: Is the employee fit to participate, and are requests for information or attendance reasonable given their certified absence?
- The evidentiary record: Can the employer subsequently demonstrate what inquiries were made, what information was considered and why each significant decision was taken?
These considerations are not merely procedural safeguards. The manner in which an investigation is conducted may itself create psychosocial risks and potential workers compensation exposure.
Importantly, employers must retain the capacity to act promptly where circumstances require it, particularly where serious safety, integrity or evidentiary risks exist.
The issue is not whether decisive action can be taken, but whether that action can be objectively justified.
The Broader Lesson
For experienced Employee Relations practitioners, there is nothing particularly novel about the proposition that disciplinary investigations must be procedurally fair.
What makes Johnson significant is the reminder that the reasonableness of an employer's actions may be examined independently of whether its underlying concerns about misconduct were genuinely held or ultimately capable of substantiation.
An investigation need not be perfect. Nor must every allegation be conclusively established before an employer takes appropriate interim action.
However, where an employer cannot demonstrate the inquiries undertaken, the evidence supporting its decisions or the justification for escalating the process, its position becomes considerably more difficult to defend.
A paid suspension, an invitation to bring a support person and a willingness to reschedule meetings will not necessarily overcome more fundamental deficiencies in the process.
The critical question is not simply whether the employer had reasonable grounds to investigate, but whether the steps it chose to take were themselves reasonable.
Case reference: Johnson v Imperial Tobacco Australia Limited [2026] NSWPIC 589, NSW Personal Injury Commission, 9 October 2026
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