When an employee walks out and mentions psychological harm, your first instinct might be relief that a difficult situation has resolved itself. That resignation letter citing stress, anxiety or a hostile work environment should trigger a compliance review, not a sigh of relief.
Under Australian work health and safety laws, a resignation citing psychological harm signals that psychosocial hazards in your workplace may not have been adequately controlled. Under the regulatory framework that took effect in April 2023, that is not just an HR problem. It is a WHS compliance issue with serious consequences.
Australia's Psychosocial Hazard Regulations
Since 1 April 2023, Australian employers have operated under explicit WHS regulations requiring them to identify and manage psychosocial hazards. The Commonwealth Work Health and Safety (Managing Psychosocial Hazards at Work) Code of Practice 2024 provides practical guidance, while the amended WHS Regulations prescribe how Persons Conducting a Business or Undertaking (PCBUs) must identify and manage these hazards.
These regulations apply across all harmonised jurisdictions: Commonwealth, NSW, Queensland, South Australia, Western Australia, Tasmania, Northern Territory and ACT. Victoria has separate but comparable requirements under its occupational health and safety framework.
PCBUs must eliminate psychosocial risks, or if that is not reasonably practicable, minimise them so far as is reasonably practicable. They achieve this by applying the hierarchy of controls, the same approach required for physical hazards.
When an employee resigns citing psychological harm, the immediate question from a WHS perspective is: were you meeting this obligation?
The Psychosocial Hazards You Must Manage
The Managing Psychosocial Hazards at Work Code of Practice 2024 identifies 17 psychosocial hazards that PCBUs must identify and control:
Job demands (workload, pace, complexity, emotional demands)
Low job control (limited autonomy over how or when work is done)
Poor support (inadequate practical assistance, feedback or resources)
Lack of role clarity (unclear responsibilities or expectations)
Poor organisational change management (inadequate consultation during change)
Inadequate reward and recognition (effort-reward imbalance)
Poor organisational justice (unfair processes, decisions or treatment)
Traumatic events or material (exposure to distressing content or incidents)
Remote or isolated work (working alone without adequate support)
Poor physical environment (noise, temperature, lighting, ergonomics)
Violence and aggression (threats, intimidation, physical harm)
Bullying (repeated unreasonable behaviour)
Harassment including sexual harassment
Conflict or poor workplace relationships (interpersonal tensions)
Fatigue (mental or physical exhaustion from work demands)
Intrusive surveillance (unreasonable monitoring of workers)
Job insecurity (uncertainty about ongoing employment)
The Safe Work Australia model code identifies 14 common hazards. The Commonwealth Code of Practice 2024 adds fatigue, intrusive surveillance and job insecurity as specific hazards relevant to the Commonwealth jurisdiction.
Why Poor Organisational Justice Should Concern Every Employer
One hazard demands particular attention when an employee resigns citing psychological harm: poor organisational justice.
Safe Work Australia defines poor organisational justice as unfairness, inconsistency, bias or lack of transparency in the way procedures are implemented, decisions are made or workers are treated. It encompasses three dimensions:
Procedural fairness: fair processes to reach decisions
Informational fairness: keeping relevant people informed
Interpersonal fairness: treating others with dignity and respect
According to Comcare, poor organisational justice becomes a hazard when it is very poor, long-term or happens often. Examples include:
Applying policies or procedures inconsistently or with bias
Failing to appropriately address underperformance, inappropriate behaviour or misconduct
Allocating work, shifts or opportunities in a discriminatory or unfair way
Having no or inadequate processes for decisions affecting workers
Blaming workers for things outside their control
If an employee resigns citing unfair treatment, a botched investigation or a biased disciplinary process, they describe exposure to poor organisational justice. That is a recognised psychosocial hazard that you had a duty to control.
Comcare Regulatory Action: Real Case Studies
Comcare publishes regulatory case studies showing how regulators approach psychosocial hazard compliance failures:
Poor Change Management Case: An Australian Public Service agency introduced a new performance management system without adequate worker consultation. Comcare inspectors found multiple WHS failures:
Ineffective WHS Management Systems to prevent or minimise psychological injury
Lack of a change management plan and inadequate worker consultation
Failure to conduct incident investigations into the causal factors contributing to psychosocial incidents
The agency received an Improvement Notice and had to implement corrective actions.
Work Demands Case: Comcare found an organisation was contravening WHS laws by failing to adequately address psychosocial risks from workload management. The inspector found a failure to provide and maintain a safe system of work relating to psychosocial risks associated with workload management.
Regulators actively enforce psychosocial hazard obligations. A resignation citing psychological harm could trigger similar scrutiny of your workplace.
WHS Penalties
Monetary penalties under Australian WHS laws are significant and continue to increase.
Commonwealth jurisdiction: From 1 July each year, penalties increase under an indexation mechanism. Current maximum penalties under the Work Health and Safety Act 2011 (Cth) range from $78,000 to $3.3 million for individuals or body corporates.
NSW: Following amendments effective 1 July 2024, maximum penalties for Category 1 offences (reckless conduct) are:
Body corporate: up to $10,424,983
Individual PCBU or officer: up to $2,168,029 and/or 10 years imprisonment
Queensland: Industrial manslaughter carries maximum penalties of 20 years imprisonment for individuals or $10 million for body corporates.
Beyond penalties, non-compliance can result in improvement and prohibition notices, enforceable undertakings, prosecution, and personal liability for officers who fail to exercise due diligence.
Officer Due Diligence
Section 27 of the WHS Act imposes a specific duty on officers (directors, executives and others who make or participate in significant decisions) to exercise due diligence to ensure the organisation meets its WHS obligations.
Due diligence requires officers to take reasonable steps to:
Acquire and keep up-to-date knowledge of WHS matters
Gain an understanding of the hazards and risks in the business
Ensure appropriate resources and processes are available to eliminate or minimise risks
Ensure the organisation has, and implements, processes for complying with duties
Verify the provision and use of resources and processes
If an employee's resignation exposes systemic failures in psychosocial risk management, officers who failed to exercise due diligence face personal liability.
Beyond WHS: Other Legal Pathways
While WHS compliance is the primary lens, employers must understand that an employee resignation citing psychological harm opens multiple legal pathways at once.
The Elisha Decision: Contractual Damages for Psychiatric Injury
The High Court's December 2024 decision in Elisha v Vision Australia Ltd [2024] HCA 50 changed employer liability. Vision Australia paid $1,442,404.50 in damages for psychiatric injuries caused by a disciplinary process the trial judge described as a sham and a disgrace.
The High Court overturned 115 years of precedent (from Addis v Gramophone Company Ltd [1909]), holding that:
Workplace policies including disciplinary procedures can be incorporated into employment contracts
Employers can be liable for psychiatric injury caused by breach of those policies
Such injury is foreseeable when protective procedures are not followed
From a WHS perspective, the Elisha case illustrates what happens when poor organisational justice causes psychological harm. The employer failed to follow its own procedures, denied the employee procedural fairness and caused a diagnosable psychiatric illness.
Constructive Dismissal
Under section 386(1)(b) of the Fair Work Act 2009, an employee who resigns due to employer conduct that left them no real choice is considered to have been dismissed. If uncontrolled psychosocial hazards made the workplace intolerable, a constructive dismissal claim may succeed.
Employees have 21 days from the resignation taking effect to lodge an unfair dismissal application.
Workers Compensation
Former employees can lodge workers compensation claims for psychological injury up to six months after the injury. Under section 9A of the Workers Compensation Act 1987 (NSW), employment must be a substantial contributing factor.
The section 11A defence (reasonable management action) requires employers to prove their actions were objectively reasonable. Failure to comply with WHS psychosocial hazard obligations undermines any claim that management actions were reasonable.
General Protections
If the employee raised concerns about psychosocial hazards before resigning, adverse action in response may breach the general protections provisions of the Fair Work Act. These claims carry a reverse onus of proof and can be brought up to six years after the conduct for non-dismissal matters.
A Compliance Response Framework
When an employee resigns citing psychological harm, frame your response around WHS compliance.
1. Treat the resignation as an incident notification
Under WHS laws, you should record and investigate incidents involving psychological harm. A resignation citing such harm indicates potential hazard exposure that warrants investigation.
2. Conduct a targeted psychosocial hazard review
Identify which of the psychosocial hazards the resignation may indicate:
Was workload (job demands) excessive?
Were complaints handled fairly (organisational justice)?
Was the employee adequately supported?
Were there unaddressed bullying, harassment or conflict issues?
Were proper procedures followed in any disciplinary or performance processes?
3. Review your control measures
Regulations 55A to 55D of the WHS Regulations require PCBUs to have control measures in place. Were they:
Implemented in accordance with the hierarchy of controls?
Adequate to eliminate or minimise the identified risks?
Reviewed and maintained to ensure ongoing effectiveness?
4. Document your compliance position
Prepare contemporaneous records demonstrating:
What psychosocial hazards were identified
What risk assessments were conducted
What control measures were implemented
How control measures were monitored and reviewed
What worker consultation occurred
5. Assess exposure across multiple pathways
Consider the employee's potential claims across:
WHS regulatory investigation
Constructive dismissal (21-day deadline)
Workers compensation (six-month deadline)
General protections (six-year limitation for non-dismissal)
Breach of contract (Elisha pathway)
6. Notify relevant parties
Contact your workers compensation insurer regardless of whether a claim has been lodged. Engage legal advisers. Consult WHS advisers if regulatory notification may be required.
7. Use this as a catalyst for systemic improvement
One resignation citing psychological harm often indicates broader issues. Consider:
Are other workers exposed to similar hazards?
Are your policies and procedures fit for purpose under current WHS requirements?
Are managers trained in psychosocial risk identification and management?
Does your WHS management system adequately address psychological health?
The Bottom Line
Psychological health at work is not discretionary. It is subject to the same WHS obligations as physical safety, with the same consequences for non-compliance.
Comcare's regulatory priorities for 2025-26 include psychosocial hazards as a key focus area, with an ongoing Psychosocial Inspection Program assessing how well employers manage these hazards. State and territory regulators have similar priorities.
When an employee resigns citing psychological harm, the question is no longer just will they sue? It is: were we compliant? And increasingly, the answer to that question has consequences far beyond any individual claim.
Key References
WHS Legislation and Codes:
Work Health and Safety (Managing Psychosocial Hazards at Work) Code of Practice 2024
Model Code of Practice: Managing Psychosocial Hazards at Work
Regulators:
Employment Law:
Workers Compensation:
How Refresh Can Help
Psychosocial compliance is now a baseline expectation for Australian employers. At Refresh, we help organisations meet their obligations through:
Psychosocial hazard identification and risk assessments aligned with the Code of Practice requirements
WHS management system reviews to ensure psychosocial risks are adequately integrated
Policy and procedure development that meets both WHS and employment law standards
Workplace investigations conducted with procedural fairness and proper documentation
Training for officers, managers and workers on psychosocial hazard management and WHS duties
Incident response support when psychological harm claims arise
Regulatory support during WHS inspections and investigations
If you are responding to an employee resignation involving psychological harm, or want to strengthen your psychosocial compliance framework, contact Refresh to discuss how we can assist.
This article is general information only and does not constitute legal advice. It reflects the law at the time of publication, noting that WHS laws, codes, and their application vary by jurisdiction, industry, and individual circumstances. Victoria and certain sectors operate under different requirements.
You should not rely on this information without seeking advice specific to your situation. Nothing in this article creates a professional relationship, and no liability is accepted for actions taken based on its content. Strict time limits apply to many employment matters, including unfair dismissal claims.
If an employee resigns citing psychological harm, early, structured action is critical. ReFresh helps organisations document psychosocial risks, investigations, controls, and decision-making in line with Australian WHS obligations, giving leaders a clear, auditable system to manage risk and demonstrate compliance before issues escalate.
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