Wednesday 14 December 2011

Contractual Damages for Manner of Dismissal

CORRECTION: The earlier bulletin omitted the name of the case concerned, which is now included in the amended version below.

[Thanks to Laurie Anstis of Boyes Turner, who is standing in for Daniel Barnett during his absence, for preparing this case summary]

Can an employee who is dismissed in breach of a contractual disciplinary procedure claim damages for breach of contract flowing from the manner of their dismissal?

No, says the Supreme Court, with Lady Hale, Lord Kerr and Lord Wilson dissenting, and Lord Philips finding against the employees on difference grounds, in the joined appeals of Edwards v Chesterfield Royal Hospital and Botham (FC) v Ministry of Defence [2011] UKSC 58.

In Johnson v Unisys Limited [2001] UKHL 13), the House of Lords refused to award damages where the manner of the employee's dismissal was in breach of the implied term of trust and confidence, and suggested that Parliament had intended the employee's remedy in such a case to be by way of an unfair dismissal claim, rather than a breach of contract claim.

In Eastwood v Magnox Electric and McCabe v Cornwall County Council ([2004] UKHL 35), the House of Lords developed the concept of the "Johnson exclusion area". This prohibited claims for damages in relation to a breach of the implied term of trust and confidence arising out of the dismissal itself, but allowed claims which "precede and are independent of" the dismissal.

Giving the leading judgment, Lord Dyson (with whom Lord Walker and Lord Mance agreed) emphasises the development of disciplinary procedures in the context of unfair dismissal law, before holding that:
  • Johnson operates as a bar to a claim for damages for the manner of dismissal in the case of both implied and express contractual terms.
  • Both Edwards and Botham fell, on their facts, within the Johnson exclusion area.
Lord Phillips considered that the claims were effectively for "stigma" damages caused by wrongful dismissal, and were precluded by Addis v Gramophone Co Ltd [1909] AC 488.

In her dissent, Lady Hale notes that she is the only member of the Supreme Court to have been an employee, rather than a self-employed barrister or office holder, and holds that unfair dismissal law ought not to be used as a basis for limiting the rights of employees.

Lords Kerr and Wilson distinguished between the two cases, finding that Edwards had established a cause of action before dismissal, which should be permitted, whereas Botham's claim arose solely from the fact of the dismissal, and should be barred.


Mark Benney said...

It is a slight misnomer to think of this case as one about remedies for the "manner" of dismissal. The point behind the majority reasoning is that the disciplinary procedure is often, indeed usually, part and parcel of the path to dismissal.

The disagreements of the Justices, even within the majority, seem to indicate that urgent Parliamentary action is required to sort this out, but any liberalisation seems unlikely under the current Government.

Time, perhaps, for greater use of direct action by courageous employees or, more realistically, trade unions. As the law stands a breach of a contractual disciplinary procedure or indeed a breach of any procedure serious enough to undermine trust and confidence can involve a breach of a "legal obligation" for the purposes of the "whistleblowing" provisions of the 1996 Act. As soon as it becomes clear that procedures have been breached appropriate disclosures should take place, initially within the organisation but ultimately beyond if necessary. Compensation for victimisation or indeed uncapped compensation for automatic unfair dismissal can follow, but employees need to tread carefully and ideally to have the support of sympathetic and competent trade unions.

The immediate consequence of the judgment is likely to be even more claims for discrimination and whistleblowing that might better proceed as "ordinary" unfair dismissal claims. Some will be genuine, others will be shoehorned into the claim, but in any event the burden on the already creaking ET system will get worse.

Mark Benney said...

Very depressing. I hope Parliament addresses this very soon, but I am not holding my breath. Some commentators are already bemoaning the fact that the various opinions have created more questions than have been answered. But the bottom line, for now, is that Tribunals will have to carry on considering claims pitched in terms of discrimination or whistleblowing where the reality is that procedures have been operated in an unfair way, sometimes at the bidding of cynical and unscrupulous chief executives and managing directors. In the short term Parliament should remove the cap on Tribunal awards in "ordinary" unfair dismissal... Oh, is that a flying pig?