Northern Territory of Australia v Yao [2025] NTSC 6 (14 Feb 2025)

The below sets out an overview of the Yao case prepared for educational and awareness raising purposes only. It covers, at a high level, the main facts, the procedural history and appeal points and the Court’s key findings.

The Yao case deals with a claim for workers compensation for personal injury under the Northern Territory Return to Work Act.

Inherently, there is an overlay of other laws and regulations (the “legislative infrastructure”) that apply to the employment relationship, such as the (NT) Public Sector Employment and Management Act and Employment Instructions (which are referred to in the Yao case), the (NT) Work Health and Safety Act, the Federal Fair Work Act, Anti-Discrimination legislation and a range of subsidiary legislation such as regulations, rules and by-laws, and workplace based policies and procedures.

This case note is not a comprehensive statement of the law or a substitute for legal advice on specific facts.

1. Summary of the Facts
   • At [11] of the decision, the “background facts are largely uncontentious. The major argument between the parties in the Work Health Court being the interpretation placed on various admitted conversations and interactions and the inferences that could and should be drawn from the documents, notably an email from Rosalie Lamour, Assistant Director, Human Resources Shared Services, Department of the Chief Minister to Nathalie Cooke and Joanne Quayle on 23 May 2019.”
   • Mr Yao was employed as a records officer in the Northern Territory Public Service. In 2017, he took extended leave for about 17 months due to undisclosed workplace issues. He returned to work in Mar 2019.
   • On return, organisational changes meant Mr Yao’s old position no longer existed. He was temporarily placed in various ad hoc roles until an AO4 position (a mid-level clerical role) became vacant in May 2019. He accepted that AO4 job.
   • Mr Yao’s managers, particularly Ms Cleveland (his supervisor), believed Mr Yao had ongoing performance problems. Beginning in May 2019, internal emails referred to possible “formal performance management” (ie placing him on a Performance Improvement Plan (PIP)).
   • A pivotal management meeting took place on 23 May 2019, followed by an email discussing the need to place Mr Yao on “formal performance management asap.”
   • In early Aug 2019, Mr Yao was informed that a PIP would be implemented. He says this caused him considerable stress. The PIP began in early Oct 2019.
   • Mr Yao claimed he experienced mental injury (work-related stress) that arose from what he perceived as unfair, unreasonable management action and “micromanagement.” He lodged a workers compensation claim on 12 Feb 2020.
2. Work Health Court Decision.
   • The Work Health Court decided in Mr Yao’s favor, ruling his mental injury was compensable and not excluded by the “reasonable management action” defence in the RTWA.
   • The Court found Mr Yao’s injury was caused partly by a decision on 23 May 2019 to “performance manage” him without proper notice or procedural fairness.
3. Appeal to the Supreme Court.
   • Mr Yao’s employer, the Northern Territory of Australia, appealed, arguing if Mr Yao had any mental injury, it was caused wholly or primarily by “management action taken on reasonable grounds and in a reasonable manner.”
   • The appeal was heard by the Supreme Court of the Northern Territory (Justice Kelly). There were multiple grounds of appeal, including errors in how the lower court had assessed the reasonableness of management action, the onus of proof, and whether procedural fairness was required at the preliminary stage of deciding to place a worker on a PIP.
   • One ground of appeal (Ground 12) dealt with who bears the onus of proving that the mental injury was caused by “reasonable management action.”
     • This was referred to the Full Court.
     • The Full Court confirmed the employer bears both the legal and evidentiary onus to prove the management action was reasonable (with the worker carrying an evidential burden to raise relevant issues).
       

4. RTWA and PSEMA
   • Section 3A Return to Work Act excludes a mental injury from compensation if it is “caused wholly or primarily by management action taken on reasonable grounds and in a reasonable manner.”
   • The Public Sector Employment and Management Act (NT), governs the NT Public Service, including performance management processes. The Court discussed the requirement for structured performance management (via MyPlan or a PIP).
   • Public Service Employment Instruction Number 3 (Natural Justice) relates to the requirement of procedural fairness for “final decisions” affecting employees. The Supreme Court clarified that this does not necessarily apply to early or preliminary steps in performance management.
5. Relevant case law mentioned included:
   • Comcare v Martin (2016) High Court, discusses the purpose of “reasonable management action” defences in compensation law.
   • Department of Education and Training v Sinclair (2005) NSW Court of Appeal, explains that, in psychological injury cases, courts should consider the entirety of the employer’s conduct over time, not just isolated steps, to decide if management action is “reasonable.”
   • Harris v Northern Territory (2023) NT Supreme Court, summarises key factors in assessing whether management action is undertaken on reasonable grounds and in a reasonable manner.
6. Key findings
   • Courts must look at all the employer’s actions together. A single misstep does not automatically render the entire course of conduct unreasonable. Instead, the Work Health Court must evaluate the overall process objectively to see if it was fair and on reasonable grounds.
   • While it can be relevant that a worker has a known psychological history, the legislation does not import a “common law duty of care” test into its “reasonable management action” exemption.
   • It was incorrect to say the Employer had to give formal prior notice and an opportunity to respond before deciding to place Mr Yao on a PIP.
   • Ultimately, the Supreme Court also considered there was sufficient evidence that, from Mr Yao’s perspective, he felt micromanaged or negatively scrutinized starting around June 2019. But perception alone does not determine whether management action was actually “unreasonable.” At [89](d), “However … the trial judge was in error in asking the wrong question. The issue was not “whether the worker did harbour a perception of micromanagement and of bullying and of being negatively targeted by an unusual formal performance management process in the workplace”. The enquiry as to whether a mental injury was a result of reasonable management action is an objective one…”.
7. Outcome
   • Several grounds of appeal were upheld. The Court allowed the appeal regarding the errors in applying procedural fairness rules and failing to assess the totality of management action.
   • Other grounds—for instance, that there was “no evidence” of an early decision to commence a PIP—were dismissed. The Court said there was some evidence to support the finding that management had discussed formal performance management on 23 May 2019.
   • The Supreme Court did not finalise whether Mr Yao’s injury was ultimately compensable. Instead, it sent the matter back (remitted it) to the Work Health to decide again under the clarified legal principles. The final result on compensability remains to be seen.
8. Take aways
   • Not all workplace stress claims are automatically compensable.
   • An employer has a defence if it can show the worker’s stress/mental injury was caused by “reasonable management action undertaken on reasonable grounds.”
   • Generally speaking, the Court will examine factors including whether:
     • management processes were fair overall.
     • the employer followed relevant performance management procedures and policies.
     • actions were carried out objectively and in a manner proportionate to the circumstances.