At a stretch
Date: 17 February 2012
Authors: Anna Macey
Issue: Vol 162, Issue 7501
Categories: Features, Employment, Disciplinary&grievance procedures, Tribunals
Before a seven panel member of the Supreme Court, a majority of four to three held that a failure to observe contractual dismissal procedures could not give rise to a claim for damages for breach of contract at common law. The majority held that damages for a flawed disciplinary process were inextricably connected to the dismissal itself, for which Parliament had provided a remedy in the form of unfair dismissal. These claims therefore fell within the Johnson exclusion zone, which was both upheld and extended, to cover express terms of contract.
The facts
The two cases of Edwards v Chesterfield Royal Hospital NHS Foundation and Botham v Ministry of Defence [2011] UKSC 58, [2011] All ER (D) 101 (Dec) were conjoined for this appeal.
Mr Edwards was a consultant surgeon, summarily dismissed following a disciplinary panel’s findings that he inappropriately examined a female patient. He argued that, in breach of an express term of his contract, the disciplinary panel did not include a legally qualified chair, a clinician in the same medical discipline, or allow him legal representation before the panel. It was Edwards’s contention that, had these terms not been breached, the panel would not have made their findings of misconduct.
Mr Botham was a youth worker, dismissed for behaving inappropriately towards teenage girls. Before an employment tribunal, he successfully claimed unfair and wrongful dismissal, and was awarded the maximum damages available for unfair dismissal, reduced by 55% for contribution. He later issued proceedings in the High Court seeking damages for breach of contract, because his disciplinary process had been in breach of the Ministry of Defence personnel manual.
Both employees claimed the breach of the dismissal procedures damaged their reputations and prevented them from securing comparable employment. Their claims were therefore substantial. The issue before the Supreme Court was the measure of damages recoverable in law and the substance of their claims was assumed to be correct.
Legal background
There has been controversy over what Addis v Gramophone Co Ltd [1909] AC 488, [1908-10] All ER Rep 1 established. In Edwards, Lord Phillips interprets it as deciding that an employee wrongfully dismissed is not entitled to damages for stigma caused by his wrongful dismissal, because such damages would be outside the contemplation of the parties, and therefore too remote.
The more recent problems in this area of the law stem from the twin cases of Johnson v Unisys Ltd [2001] UKHL 13, [2001] 2 All ER 801 and Eastwood v Magnox Electric plc [2004] UKHL 35, [2004] 3 All ER 991. In Johnson, the House of Lords held an employee could not claim damages for psychiatric injury caused by a breach of the implied term of trust and confidence arising from the manner of dismissal. The primary reason given was because to allow such claims would interfere with the intentions of Parliament by displacing the restrictions imposed on unfair dismissal law.
In Eastwood, three employees claimed that breaches of the implied term of trust and confidence during the disciplinary process caused them psychiatric injury. The House of Lords distinguished this from Johnson because the cause of action had existed before the dismissal. In so finding, they demarcated what has become known as the Johnson exclusion zone, separating those claims which could proceed because there was a cause of action occurring prior to and independently of the dismissal, from those which could not because of their close relationship to the dismissal itself and for which Parliament had provided a remedy in the form of unfair dismissal.
This distinction has proved problematic, and has been much criticised for the practical problems it causes. Despite this, neither claimant tried to overturn Addis, Johnson or Eastwood.
In a well-reasoned but controversial judgment, the Court of Appeal held that Edwards’s claim did not fall within the Johnson exclusion area, both because the terms were express, and because there was a breach of contract which could be separated from the dismissal (Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2010] EWCA Civ 571, [2010] All ER (D) 247 (May)). It followed that Edwards was, in principle, entitled to recover whatever damages he could prove followed from the failure to use the correct procedures.
The High Court rejected Botham’s claim, holding that the damages he sought arose solely from the dismissal and therefore fell within the Johnson exclusion area, despite the breaches of express terms of his contract (Botham v Ministry of Defence [2010] EWHC 646 (QB), [2010] All ER (D) 264 (Mar)).
The decision
Lord Dyson (with whom Lord Walker agreed and Lord Mance concurred) held that the disciplinary process could not be separated from the dismissal which followed it. Edwards sought to claim for damage to his reputation caused by the findings of the disciplinary panel, but these findings were the same as the reasons for his dismissal, about which he could not claim for damages to reputation. The panel’s findings were therefore not independent of the dismissal process, and so Edwards’s claim fell within the Johnson exclusion area. It followed that Botham’s claims were also held to flow directly from his dismissal and were also precluded.
Nothing turned on the fact the contractual breaches were of express rather than implied terms because Lord Dyson held they were not “ordinary” contractual terms. Instead, they were incorporated into contracts of employment to ensure compliance with unfair dismissal law, and Parliament would not have intended such terms to be given independent contractual force. This decision sits oddly with the facts of Edwards’s case: the terms he was relying on were the subject of a locally negotiated agreement, and included a legally qualified chair and a clinician of the same discipline. This was some way from a bare compliance with the ACAS disciplinary code.
Lord Dyson makes two concessions with respect to express terms:
- If a contractual term states that a breach of the contract will give rise to contractual damages, then it will do so because this would not interfere with the will of Parliament; and
- if an employer starts a disciplinary process in breach of contract, this is still a breach of contract and the employee can apply for an injunction to prevent this breach (a move which Lord Kerr described as “highly curious”). He reasons that an injunction does not undermine unfair dismissal law, and dismisses the somewhat bizarre consequences of this as an “inevitable” result of the interaction between common law and statute.
Lord Phillips agreed with the majority conclusion, but on different grounds. He analysed both cases as stigma claims and held they were excluded by the rule in Addis, which had never been overturned and was not challenged, and therefore remained good law. He reasoned that because it was too remote to award damages for stigma following a wrongful dismissal, it followed such damages could not be awarded for the more tenuous link of a failure to follow disciplinary procedures.
Lord Kerr (with whom Lord Wilson agreed) would have allowed the claim of Edwards but not that of Botham, because he had accrued a cause of action prior to and separate from the dismissal. Only Lady Hale would have allowed both claims to proceed, and declined to extend the Johnson exclusion area to include express breaches. In advancing the most pro-employee views, she drew attention to her background as the only Supreme Court judge with substantial experience of being an employee.
The difference between Eastwood & Edwards
In Eastwood, the employees were allowed to claim for a breach of the implied term of trust and confidence during a disciplinary process, which later resulted in a dismissal. However, Edwards was not allowed to claim for a breach of express terms of contract during a disciplinary process, which led to his dismissal. What was the difference? Lord Dyson proffers that the disciplinary process in Edwards was inextricably connected to the dismissal. But that is not a legal principle, it is a causation issue that Edwards would need to establish at trial. All the judges in Eastwood acknowledged that claimants in such cases would frequently face very difficult causation issues, and certainly Edwards was no exception to this.
There is another problem: In Eastwood, Lord Steyn allowed the claims to proceed in part because Johnson was not concerned with “wiping out accrued rights”. This is precisely what Lord Dyson did in allowing an employee to claim an injunction before a breach, but not to claim damages afterwards, and he did so without any reference to Lord Steyn’s reasoning in Eastwood.
None of the Supreme Court judges focused specifically on the similarities between Eastwood and Edwards, and why they were decided differently. The reason is presumably that because Eastwood was a personal injury claim, it was not viewed as a threat to the restrictions Parliament had placed on unfair dismissal claims, but ideally the Supreme Court would have explicitly distinguished between the two cases.
Practical consequences
Most disciplinary procedures are non-contractual, and it follows that most employers and employees are unaffected by this ruling. For a minority of employers this ruling will prevent the possibility of very costly damages being awarded against them. But for employees that are affected, which includes many state employees, a blatant breach of a contractual disciplinary procedure may result in substantial losses for which damages may not be commensurable. The three groups particularly affected are:
- High earning employees for whom the statutory cap on claims for unfair dismissal provides a comparatively low level of damages.
- Employees working in fields where reputation is particularly important. Many of these employees will be on modest salaries, such as nurses and child care workers.
- Employees who can only claim wrongful dismissal because they have not accrued sufficient service to claim unfair dismissal. This will affect many more when the length of service required for claiming unfair dismissal increases from one to two years shortly.
Lord Dyson’s suggestion that an employee can seek an injunction to prevent a breach of a contractual disciplinary panel will be too expensive for many employees, involving the need to engage lawyers at a very early stage. It also offers no solution to the many cases (including Botham’s) where it is only known the employer has breached the disciplinary process after it has been done.
The future
It is clear that the Johnson exclusion area will continue to perplex the courts. Edwards raises many questions. Below are some of the more important issues which future cases will need to resolve:
Whether an independent contractor can claim full contractual damages.
The difference between Eastwood and Edwards, and specifically when a cause of action will be held to undermine unfair dismissal law.
While a majority in the Supreme Court would not allow damages for loss of reputation following a breach of disciplinary proceedings leading to a dismissal, it is arguable a different majority leaves open the possibility of claiming damages for breach of a disciplinary proceedings for damages other than loss of reputation.
The principles governing the interpretation of contracts which state that an employee is entitled to contractual damages.
The effect this will have on injunctions, and in particular whether this will make the courts more willing to grant injunctions, which are discretionary.
The status of Gunton v Richmond-upon-Thames LBC [1981] Ch 448, [1980] 3 All ER 577, which the Supreme Court avoided giving judgment on. Allowing an employee wrongfully dismissed in breach of contractual procedures to claim an additional amount of salary to reflect the time it would have taken to comply with those procedures, sits awkwardly with the decision that contractual damages cannot be awarded for a dismissal in breach of the same procedures.
With very significant damages potentially recoverable, and continuing high levels of unemployment, we can expect future cases to challenge all these issues soon. Lord Phillips acknowledges in his judgment that this is a “difficult area of the law”. Nothing in the Supreme Court’s judgment has altered that.
Anna Macey is a pupil barrister at 12 King’s Bench Walk & a former employment tribunal advocate.
E-mail: macey@12kbw.co.uk
Website: www.12kbw.co.uk
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