The Employment Appeal Tribunal (EAT) has confirmed that an employee who is constructively and unfairly dismissed without notice does not have to offset earnings received from new employment during what would have been their notice period.
An employment tribunal held that Ms Bell was constructively and unfairly dismissed by her employer, Stuart Peters Ltd. She was not paid in respect of her six-month notice period, but had managed to find alternative employment for three months in the six months following her dismissal. The question in this case was whether those earnings should have been offset against Bell’s entitlement to compensation for her unfair dismissal.
Section 123(1) of the Employment Rights Act 1996 (ERA) provides that the compensatory award should be such amount as is “just and equitable in all the circumstances” and section 123(4) that the usual obligation to mitigate losses applies to employees as it does to claims for damages under the common law.
However, in Norton Tools v Tewson, the then equivalent of the EAT held that good industrial relations practice dictated an employee in such circumstances should receive a compensatory award that includes a payment in respect of notice, and that payment should not be reduced for earnings from new employment during what would have been their notice, period. This principle became known as the “narrow principle”.
The “narrow principle” appeared to be challenged by a decision of the House of Lords in 2004 (Dunnachie v Kingston upon Hull County Council).
This case concerned a claim for injury to feelings which the Lords held fell outside of the compensatory award which they said was limited to compensating an employee for their actual losses suffered.
This decision did not sit well with the “narrow principle” which, as in Bell’s case, allows for double recovery where new employment was found during the notice period.
However, by the time Bell’s case came before the tribunal and then the EAT, the Court of Appeal had (in Langley and Carter v Burlo) approved the “narrow principle”.
Applying Burlo and the “narrow principle”, the tribunal held that Bell was entitled to compensation unreduced for earnings from her new employment and that no distinction should be drawn between a constructive unfair dismissal and an unfair dismissal in this regard.
The EAT agreed and held that this did not expand the “narrow principle” but simply applied it to a different type of dismissal. No distinction was made in the ERA and, while Bell was entitled to an element of double recovery, that would have to be challenged in the House of Lords, given the decision in Burlo.
That will not be the case in these proceedings, as the employer did not argue Norton Tools was not good law. However, both the EAT in this case and the Court of Appeal in Burlo have expressed their hope that the opportunity does arise soon.
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Key points
- Employees successful in unfair dismissal claims will be able to claim for their losses in respect of notice that they did not work even if they find employment during that time. This covers both constructive dismissals and actual dismissals by an employer.
- The EAT expressed dissatisfaction with the position (as did the Court of Appeal previously) since an employee can achieve a degree of double recovery. Employers should watch this space for developments in the law in this area.
What you should do
- Be aware that this is a complex area of law where there is still conflicting case law. When negotiating unfair dismissal compensation, employees are likely to argue for their full notice period without mitigation. While employers may seek to resist such claims where the claimant has found new employment during the notice period, this case will make it more difficult to succeed in such arguments.
- Note that this case only applies to unfair dismissal claims and not to wrongful dismissal or breach of contract claims, where the normal rules on mitigation still apply.
