By including sums for distress, recent cases have overturned the long-held
view that compensation for unfair dismissal should only cover financial loss
The recent Court of Appeal judgment in Dunnachie v Kingston upon Hull City
Council has revisited the long accepted interpretation of s123 of the
Employment Rights Act 1996 (ERA) – that compensation for unfair dismissal
covers economic loss alone.
Section 123 of the ERA provides that compensation for unfair dismissal is
‘such amount as the tribunal considers just and equitable in all the
circumstances having regard to the loss sustained by the complainant in
consequence of the dismissal in so far as that loss is attributable to action
taken by the employer’. This has been consistently interpreted as relating to
economic loss alone, such as loss of wages and other contractual benefits.
It has created a situation where employees cannot claim compensation for any
distress suffered during a disciplinary process if that process resulted in
their dismissal, but could bring such a claim if the outcome of the process was
The issue was raised, but not argued, in the House of Lords’ in Johnson v
Unisys . Lord Hoffman said he could see no reason why compensation under
s123 ERA could not include ‘distress, humiliation, damage to reputation in the
community or to family life’ where appropriate, while subject to the statutory
cap. The comments were taken as binding in subsequent cases.
Mr Dunnachie was employed by Hull City Council as an environmental health
officer from 1986 until he resigned in March 2001. In the months before his
resignation, he was subjected to a long campaign of harassment by his line
manager that undermined his position and reduced him to a ‘despair’.
Dunnachie’s requests to talk with senior managers were allegedly ignored.
The employment tribunal upheld Dunnachie’s complaint, and he was awarded a
total of £123,328.28. This amount was then reduced in accordance with the
statutory cap in place at that time to £51,700. But the tribunal’s breakdown of
the compensation award was controversial. It included a sum of £10,000 in the
total award, which was intended to compensate Dunnachie for the distress he
suffered in the weeks prior to his resignation.
The council went to the Employment Appeals Tribunal (EAT) which overturned
the tribunal’s decision, rejecting any recovery for non-economic loss in unfair
dismissal claims. However, the EAT permitted Dunnachie to go to the Court of
It held that compensation for non-economic loss brought about by the manner
of any unfair dismissal is recoverable in principle. It also found that the
wording of s123 ERA was wide enough to cover non-economic loss, and that the
award of £10,000 was in line with the guidance given in Vento v Chief Constable
of West Yorkshire Police.
Leave has been granted for the parties to appeal to the House of Lords,
which hasn’t happened as yet. Pending any appeal, this decision remains binding
on the lower courts and tribunals.
The court made several qualifications, hoped to stem any tidal wave of
claims. They are:
– Non-economic compensation will only be awarded in constructive dismissal
claims and outright dismissals conducted in a particularly distressing,
capricious and/or public manner where there is ‘a real injury to [the
– The case does not affect dismissal claims where usual procedural ‘hiccups’
However, there are still numerous questions to be answered. Employers must
wait for any clarification to be provided by the House of Lords. In the
meantime, they are advised to:
– check that proper policies dealing with bullying are in place
– ensure that training on such policies has been carried out; and
– deal with complaints concerning employees’ behaviour towards each other as
soon as the arise.
By Sue Nickson, Partner and head
of employment law, Hammonds