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The ruling by the Court of Appeal earlier this month overturned an earlier decision by the Employment Appeals Tribunal. The tribunal had ruled that injury to feelings did not merit financial compensation in an unfair dismissal case involving a local government worker employed by Hull City Council.
Christopher Dunnachie had reached the post of acting principal environmental health officer when he resigned from his job three years ago after workplace bullying drove him "to a state of overt despair".
Dunnachie had appealed against a decision made by the Employment Appeals Tribunal, which had stripped him of £10,000 from his damage award for emotional distress. Following the Court of Appeal ruling, he was awarded the statutory maximum of £51,700.
Hull City Council has the option of appealing against the court's decision to the House of Lords.
Experts said the Court of Appeal ruling underlined the need for managers to ensure that they are following existing disciplinary procedures.
"Have disciplinary procedures in place and make sure managers are sticking to them," said Mike Emmott, an employment relations adviser at the Chartered Institute of Personnel and Development.
"Do not take the easy way out by treating people so badly that they have to go. This ruling means that the cost of getting things wrong is going to go up."
In conclusion, Lord Justice Sedley, who gave the lead judgement at the Court of Appeal, said tribunals could compensate an employee for injury to their self respect.