A leading case applicable to Australian employment law on this subject is Bliss v South East Thames Regional Authority (1987) ICR 700.
Bliss was an orthopaedic surgeon employed by .the SE Thames Regional Authority and was directed to attend a psychiatric examination after his employer received reports about his supposed mental instability from a (duplicitous) colleague. Bliss refused and was suspended from his duties. He then claimed breach of contract by his employer .
"The Court of Appeal in finding for Bliss and against his
"that it was an implied term of the plaintiff's contract of employment that the authority would not without reasonable cause conduct itself in a manner calculated or likely to damage or destroy the relationship of confidence and trust between the contracting parties; that in requiring the plaintiff to undergo a psychiatric examination when there was no mental or pathological illness but merely a severe degree of breakdown of personal relationships and in suspending him when he refused to submit to such an examination the defendant was in breach of that implied term and that the breach going to the root of the contract was so fundamental as to constitute a repudiation of the contract of employment."
The judgement also states at 713 "There is no general power in an employer to require employees to undergo psychiatric examination." [emphasis added]