Boundaries of compensatory award

The House of Lords’ decision in Johnson v Unisys, IRLB 664, has struck at
the heart of the established principle that compensatory awards in unfair
dismissal cases are based solely on financial loss.

The basic principles

In Unisys, the dismissed employee claimed damages for the manner of his
dismissal, which resulted in him suffering a nervous breakdown. He lost the
contractual case on established principles.

Lord Hoffman did remark, however, that where such loss is a consequence of
the dismissal it "may [our emphasis] form the subject matter of a
compensatory award".

This comment is likely to have huge repercussions on negotiations over, and
the size of, compensatory awards where unfair dismissal has been established
and there has been injury to feelings such as distress, humiliation or damage
to reputation or family life.

Another recent decision of the EAT, Edward v Governors of Hanson School,
IRLB 661, involved an employee who was dismissed as a result of a long period
of illness caused by stress. The EAT held that the compensatory award should
take full account of the conduct of the employer and could include
non-financial loss, although it must compensate the employee and not punish the

Practical effect

These two cases show a move by the EAT, which has been strongly endorsed by
the House of Lords, to give a wide interpretation to what is "just and
equitable in all the circumstances" when assessing the level of the
compensatory award.

These cases recognise the fact that an applicant suffering from mental
distress may have some legitimate claim to just and equitable compensation,
particularly as such distress may often not realistically be claimed for as a
personal injury.

This move is highly significant. There is a legal counter-argument that
injury to feelings claims are not mentioned in the unfair dismissal
legislation, but specifically allowed for in discrimination legislation.

In many unfair dismissal cases, however, applicants will now be arguing for
greater compensation than their pure financial loss, based on an alleged injury
to feelings. Such an allegation will, of course, be difficult for employers to
rebut evidentially.

This approach also builds upon the House of Lord’s decision in Malik in
1997, where damages for loss of reputation from a breach of trust and
confidence by the employer were deemed to be available above and beyond the
previous limit for contractual damages, of notice pay only.

Could this be the "back door" through which the much-vaunted
"stress" claims are now ventilated? Time will tell.

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