Higher compensation for unfair dismissal has brought into
focus difficult issues surrounding the calculation of the claimant’s award.
Liability can even stretch to the loss of an ex-employee’s subsequent job. By Nicholas
In any successful claim for unfair dismissal the law aims to compensate the
employee for the wrong that has been done – not to grant a windfall by
over-compensating him. The primary measure in any claim will be wages lost as a
result of dismissal, and for this the tribunal will take into account any money
earned by the employee following the dismissal.
For instance, if the employee finds alternative employment at a lower
salary, the tribunal can award compensation for the ongoing differential.
Similar principles apply in other types of claim, such as unlawful
An individual bringing an unfair dismissal claim is under a duty to
"mitigate" the loss he has suffered by taking all reasonable steps to
find suitable alternative employment – if he fails to do this he may find a
court reduces his award to reflect the sums he could have earned from
The onus is on the former employer to challenge the attempts made by the
employee to mitigate. Issues of mitigation are likely to become increasingly
important in unfair dismissal cases. Given the increase in compensation
available, it is likely tribunals will grapple more often with these difficult
questions and ask whether the employee has taken reasonable steps to mitigate
Income during the notice period
Surprisingly, the courts adopt a different approach to mitigation where the
employee has been dismissed without due notice. If an employee is dismissed in
breach of contract and without notice, but then obtains alternative employment
during the notional notice period, one would have expected the employee would
be obliged to give full credit to the sums he earned during that period.
However the courts have taken the opposite view. This is on the grounds that
it is good industrial practice for the employer to pay notice monies, without
regard to mitigation. This is not an invariable rule. An employer should be
required to pay over such sums as good industrial relations practice requires.
This may be less than the full notice period if it is particularly lengthy.
Finding better paid employment
In some cases an employee may be dismissed only to find an alternative job
that offers more pay than the one he has lost. In these circumstances he may
have an initial loss for the period he is out of work; followed by a steady
reduction of that loss because of the additional sums he earns at the new job;
followed by a period when he, in fact, makes money out of having been
dismissed, because he has earned more than he would have done had he remained
with the old employer throughout.
In some cases the tribunal has taken the view that it should calculate
compensation by looking at matters at the date of the compensatory hearing.
But the Scottish EAT has twice indicated it prefers to calculate
compensation in a different way: loss is calculated only up to the date on
which the employee found the new job.
However, it may be more appropriate for the tribunal instead to take account
of the new job offer after the tribunal hearing date. There appears to be no
logic in a law that deprives the employer of the credit for ongoing excess sums
earned by the employee from the new job, but permits the employee to claim for
an ongoing differential if the second job earns less than the original.
Loss of a second job
The courts have recently had to consider the difficult issues which arise
where the employee is unfairly dismissed from one job, finds alternative
employment and is then dismissed from that job. In one recent case (Dench v
Flynn, 1998, IRLR 653) the applicant was dismissed unfairly by the respondent.
She had difficulties finding alternative employment but eventually received an
offer from another employer. She lasted
in the new job for approximately two months.
Her original employer argued the new employment contract, which was stated
to be permanent, meant it was free from any responsibility for loss caused by
her dismissal from the second job.
The Court of Appeal decided there was no rule of law that required the
tribunal to terminate the period of loss at the date from which the new
contract started. The question was whether the first employer could be regarded
as having continued to cause her loss, given that she was dismissed from the
new job without any compensation or right to compensation because of her lack
of employment rights.
In a second case (Salvesen Logistics v Tate, unreported, EAT/689/98), the
dismissal was unfair. However, the employee found a job within two weeks.
Initially this was stated to be temporary but the post was then confirmed as
permanent. After eight months in the new job Tate was made redundant.
The tribunal decided that Salvesen should compensate Tate for the loss
suffered by the dismissal from the second job; it took into account that, if
the unfair dismissal had not occurred, Tate would have been likely to remain
with the old employer, where he was not at risk of being made redundant. It was
open to a tribunal to consider the appropriate effect of the unfair dismissal
and then to attribute to the unfair dismissal all the loss caused by it. In
many cases, finding permanent new employment would break the chain of
causation; however, the award should always be the amount that was just and
equitable. This approach was upheld by the EAT.
These cases show that a tribunal has considerable discretion to decide
whether to award loss against the first employer following dismissal from the
In evaluating the risks of unfair dismissal litigation, the employer cannot
necessarily assume that the loss will be capped merely because the employee
finds alternative permanent employment.
Ten steps to minimise your liability
1: Do not wait until liability has
been sorted out before considering the size of the employee’s claim. If you
establish that there are likely to be issues here you can take steps to obtain
relevant evidence to present to a tribunal, or as part of any
"without-prejudice" negotiations. This information may be difficult
to obtain six or nine months later, when the compensatory hearing is coming up
2: Require the employee to quantify
the claim and to indicate what income has been earned by way of mitigation. If
you consider that the income is on the low side, then you can ask for the
details of attempts at mitigation.
3: Write a warranty into any
settlement agreement if you are taking the ex-employee’s mitigation figures
4: Gather evidence on jobs in the
area as this may help in challenging attempts to mitigate.
5: Listen to the grapevine. Quite
often information about the employee’s mitigation plans becomes available this
6: Consider offering alternative
employment. This must be done after employment has ended as the duty to
mitigate loss only arises after the dismissal has occurred.
7: Consider abandoning any
irrelevant or unenforceable restrictive covenants in the employee’s contract
that may affect his ability to gain alternative employment.
8: Consider commissioning a
specialist report from appropriate advisers on the employee’s pro-spects for
9: Apply for disclosure of
mitigation details and documents. If the em-ployee refuses to provide details
of mitigation the tribunals are likely to agree to order such information to be
disclosed in the form of interrogatories under Schedule 1 paragraph 4(3) of the
Employment Tribunal Regulations.
10: Be very careful with reference requests. They may offer a useful
indication of the type of jobs the employee is trying to obtain. Indeed it is
likely to be in your interests to give a positive reference in the hope that he
or she finds alternative employment. Remember, however, that any reference
given may be disclosed to the employee and used in evidence if it contradicts
your case in connection with the dismissal.
Nicholas Robertson is partner in the employment group at Rowe and Maw