Lords push boundaries of unfair dismissal payouts

A recent House of Lords judgment
may open the way for "injury to feelings" awards in unfair sacking
claims.

The House of Lords’
decision in Johnson v Unisys, 22 March 2001, unreported, has major potential
implications for the level of compensation recoverable by dismissed employees.

Johnson had worked for
Unisys for many years, and the company knew that he suffered from a psychiatric
illness brought on by work-related stress.

In 1994, he was
summarily dismissed on grounds of gross misconduct. He was given no proper
opportunity to defend himself or answer the allegations. An employment tribunal
upheld his unfair dismissal complaint and awarded the maximum compensation then
available (about £11,690).

Johnson then made a
further claim in the county court for wrongful dismissal – that is, the fact
that he was dismissed in breach of his contract of employment. He alleged that,
because of the manner in which he was dismissed, he suffered a mental breakdown
and had been unable to work. He claimed that this would lead to loss of
earnings in excess of £400,000.

Johnson’s claim was
struck out, and this decision was upheld by the Court of Appeal and House of
Lords. This was on the basis of the long-established rule in Addis v Gramophone
Co, 1909, AC 488, that damages for wrongful dismissal cannot include
compensation for the manner of the dismissal, for the employee’s injured
feelings, or for the fact that the dismissal makes it more difficult to obtain
fresh employment. Damages are thus strictly limited to the net salary the
employee would have earned during the notice period.

This result is
surprising, given that the rule in Addis seemed to have been overruled by the
House of Lords in Malik and another v BCCI, 1997, IRLR 462. In that case, it
was held that damages are available where an employer’s breach of the duty of
trust and confidence makes it more difficult for employees to obtain further
employment.

In Johnson, a majority
of the Lords concluded that the term of trust and confidence is only relevant
to an ongoing employment relationship. It does not apply on termination of
employment to override the employer’s express contractual right to dismiss with
notice.

Implications

A crucial part of the
Lords’ reasoning was Parliament had created the statutory unfair dismissal
regime as the means by which employees should be compensated for the manner in
which they are dismissed. This meant it was inappropriate to extend the law on
wrongful dismissal to provide for such a remedy.

Lord Hoffman stressed
that employment tribunals can award compensation for unfair dismissal as they
consider "just and equitable", and he could see "no reason why
in an appropriate case it should not include compensation for distress, humiliation,
damage to reputation in the community or to family life".

This is potentially
the most significant aspect of the ruling in Johnson. Until now, the orthodox
view of unfair dismissal compensation was that it was limited to actual
financial loss flowing from the dismissal – for example, where there was clear
evidence that mental distress caused by the manner of dismissal made it more
difficult for the individual to find another job.  

However, Lord Hoffman
expressly disagreed with cases suggesting that only financial loss could be
compensated in an unfair dismissal claim (eg, Norton Tool Co v Tewson, 1973,
ICR 45).

Johnson will no doubt
be seized upon to support claims for pure "injury to feelings" in
unfair dismissal cases along similar lines to the awards that are commonplace
under the sex, race and disability discrimination legislation (which
specifically allows for compensation for injury to feelings). This in turn
could lead to higher awards and tougher settlement negotiations – albeit that
there is a £51,700 cap on unfair dismissal compensation.

Richard Lister is a
lawyer in the employment department at Lewis Silkin

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