Notice-period pay counts towards awards in constructive dismissal cases rules Court of Appeal

Pay earned during a constructive dismissal notice period by the employee dismissed may count towards compensation in an unfair dismissal award, the Court of Appeal ruled recently.

The ruling, in the case of Stuart Peters v Bell, overturned earlier rulings by the Employment Tribunal (ET) and the Employment Appeal Tribunal (EAT). They had applied the long-established Norton Tool ruling which said that income earned by unfairly dismissed employees during the notice period should not be considered when compensation awards were decided.

Ms E Bell won her case for unfair dismissal at the ET in April 2007. Her former employer, Stuart Peters, appealed, but the EAT upheld the original ruling.

However, the Court of Appeal (CA) disagreed. Lord Justice Elias said: “It seems to me that what may be good industrial relations practice when termination is triggered deliberately by the employer will be different to the practice – or more accurately the lack of any practice – which occurs where it is triggered by an employee.”

He added: “I would allow the appeal and hold that credit has to be given for the sums earned in the temporary employment carried out during the notice period.”

Bell had worked for three months during that period.

Commenting, Mark Watson, employment partner at Fox Williams, said: “Two cheers for the Court of Appeal.

“Norton Tool is an anachronism. It was a decision of the old National Industrial Relations Court (NIRC) back in 1972, when employees had less protection than they do now.

“The effect is blatantly unfair on employers. In short, on a successful unfair dismissal claim in the Employment Tribunal, the employee does not have to give credit for any amounts earned during his notice period – ie, he receives a windfall if he receives any remuneration during this period. He will be awarded all his notice monies even if he fully mitigates his loss.

Stuart Peters v Bell is important for employers in two ways. First, it whittles down the circumstances in which Norton Tool applies. The CA took the view that it was an unwarranted extension to apply Norton Tool, a case of actual dismissal, to cases of constructive dismissal. Norton Tool is therefore only a very limited exception to the normal rule that compensation must reflect actual loss.”

Watson added: “Employment Tribunals will now have to adopt a different approach to assessing loss and compensation depending on the nature of the dismissal. Employers should be in good heart that, if Stuart Peters v Bell is anything to go by, Norton Tool ought not to survive for very much longer.”

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