A
recent decision by the House of Lords may have opened the door to higher claims
for compensation from dismissed employees. benjimin burgher looks at the likely
ramifications of the decision
In
the well-established case of Norton Tool Co v Tewson (1972) IRLR 86 it was
found that the compensatory award for unfair dismissal is dependent on what is
"just and equitable" when taking into account all the circumstances
regarding the financial loss of the applicant. But loss does not usually
include injury to pride or feelings. However, a recent decision by the House of
Lords in Johnson v Unisys (2001) UKHL/13 has extended the scope for dismissed
employees to claim further compensation under the Employment Rights Act 1996.
So where does that leave employers?
Facts
in Johnson
When
Johnson’s employer, Unisys, summarily dismissed him, he claimed unfair
dismissal on the grounds that the company had failed to follow its own
disciplinary procedure. He claimed that he had not been given the opportunity
to defend himself or to provide a full explanation for any of the allegations
made against him. The employment tribunal upheld Johnson’s claim and awarded
him the then maximum compensatory award of £11,000.
Johnson
subsequently brought a claim in the county court for damages for wrongful
dismissal. The basis of his claim was that, as a result of the way he had been
dismissed, he had suffered psychological problems that had made it impossible
for him to find work. He claimed losses in excess of £400,000. Johnson argued that, by dismissing him in
the way it did, his employer had breached the duty of mutual trust and
confidence implied in every employment contract. The county court struck out
Johnson’s claim, holding that an unfair dismissal could not amount to a breach
of the duty of trust and confidence. Johnson appealed.
Court
of Appeal’s decision
The
Court of Appeal, (1999) IRLR 90, held that employees are not entitled to
damages for injury to feelings or for loss of reputation caused by the manner
in which they are dismissed. In its decision, the court referred to the
ubiquitous House of Lords decision in Addis v Gramophone Co (1909) AC 488, and
the principle that an employee cannot claim damages for injury to feelings or
loss of reputation arising out of the manner in which he was dismissed.
Johnson
had continued to argue that the way he was treated breached the implied terms
of trust and confidence from which he was able to claim damages. He referred to
the House of Lords decision in Malik v BCCI (1997) ICR 606 in support of this
argument. According to the Malik case, damages can be recovered for financial
loss, for damage to employment prospects or loss of reputation arising from a
breach of contract. In Malik, Lord Steyn stated that the rule in Addis was inapplicable
because the Malik claim was "based not on the manner of a wrongful
dismissal but on a breach of contract which is separate from and independent of
the termination of the contract of employment".
Manner
of dismissal
As
Johnson’s claim was based on his wrongful dismissal, however, the Court of
Appeal held that Malik was of no benefit to him. The alleged breach of the
implied term of trust and confidence did not alter the fact that Johnson’s
complaint was one concerning the manner of his dismissal. Consequently,
Johnson’s claim that his employer’s decision to dismiss him in breach of its
own disciplinary procedures had caused him to suffer a psychological illness,
which then made it difficult for him to find other work, was dismissed.
Is
this an inconsistency?
There
is some uncertainty, underlined in the recent Court of Appeal decision of Gogay
v Hertfordshire County Council (2000) IRLR 703. In Gogay, it was held that the
suspension of a residential care worker, pending the outcome of an
investigation into an allegation that the employee sexually abused a child in
care, was in breach of the implied term of trust and confidence. The employee
was entitled to damages for the psychiatric illness she suffered as a result of
that breach.
Giving
judgment in Gogay, Lady Justice Hale said that the case should be distinguished
from the Court of Appeal decision of Johnson. This is because the complaint in
Gogay related to a suspension, which involved the continuation of the
employment relationship. Gogay could therefore be distinguished on the grounds
that it did not involve a dismissal and that it related to psychiatric illness
rather than hurt feelings. In her decision, Lady Justice Hale stated, "I
recognise that this produces the strange result that, according to Johnson, the
defendant authority would have been better had they dismissed rather than
suspended the claim. That simply reinforces my view that the sooner these
matters are comprehensively resolved by higher authority or by parliament the
better."
No
remedy at common law
Johnson’s
appeal to the House of Lords provided a gilt-edged opportunity for this
apparent inconsistency to be resolved. However, despite a valiant attempt in
the partly dissenting judgement of Lord Steyn, the uncertainty prevails. In
short, the principle in Addis is still only applicable to a dismissal and Malik
is only applied to issues of breach of trust and confidence that do not extend
to the termination of employment.
The
majority decision in the Lords’ judgment, given by Lord Hoffmann, held that a
separately actionable remedy under common law for the manner of dismissal would
be inconsistent with the statutory system created by parliament in providing a
remedy for unfair dismissal under Part X of the Employment Rights Act 1996.
Compensation
for distress
Lord
Hoffmann also commented (although not required to do so) that compensation
under Part X of the Employment Rights Act 1996, could include compensation for
distress, humiliation, damage to reputation within the community or to family
life, as well as financial loss.
Lord
Hoffmann dealt quite briefly with this issue by saying, "I know that in
the early days of the National Industrial Relations Court it was laid down that
only financial loss could be compensated (see Norton Tool Co v Tewson (1973)
ICR 45; Wellman alloys v Russell (1973) ICR 616). It was said that the word
"loss" can only mean financial loss, but I think that is too narrow a
construction. The emphasis is on the tribunal awarding such compensation as it
thinks just and equitable. I 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
statement seems to shatter a previous statement by Sir Hugh Griffiths in
Vaughan v Weighpack Ltd (1974) ICR 261 NIRC that, "While a dismissal may
be a distressing experience, that of itself is not a matter for
compensation…It is only if there is cogent evidence that the manner of the
dismissal caused financial loss – as, for example, by making it more difficult
to find future employment – that the manner of the dismissal becomes relevant
to the assessment of compensation. …The court believes that it will only be
on very rare occasions that it will be found that the evidence justifies an
award under this head. One would hope in any event that the decision of a
tribunal vindicating the employee by a finding of unfair dismissal, would
rectify any temporary mischief that might have occurred as a result of the
dismissal, whatever its manner may have been."
Implications
So
where are we now? The statutory maximum compensatory award for unfair dismissal
of £51,700 may provide an incentive for applicants to also claim distress
arising from the manner of their dismissal. Highly paid employees may now
decide to claim unfair dismissal in addition to their contractual claims. Less
well-paid employees may attempt to claim for distress arising out of the manner
of the dismissal in order to pursue higher levels of compensation.
However,
the recovery of damages for distress, humiliation, damage to reputation in the
community or to family life arising from the manner of dismissal will be for
the applicant to prove. It will be necessary to plead these matters as separate
heads of loss, and for evidence to be called in order for the applicant to
satisfy the burden of proof in relation to the loss. Applicants will also have
to overcome the difficult issues of causation and remoteness. This is likely to
lengthen tribunal hearings and further formalise the employment tribunal
procedure.
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The
apparent inconsistency in the law remains, but there is likely to be much
greater scope for applicants to argue for additional loss in employment
tribunals. Although the House of Lords in Johnson has firmly locked the door on
the pursuit of damages arising out of the manner of dismissal under common law,
it seems that the key for another door has been provided.         Â
Benjimin
Burgher is a barrister at Norton Rose employment unit
