What price unfair dismissal, in times of austerity?

17 December 2011 by

Edwards v Chesterfield Royal Hospital and Botham (FC) v Ministry of Defence [2011] UKSC 58 – read judgment.

Although not strictly speaking a human rights case, the Supreme Court handed down an important employment law decision this week which has significant impact on employees’ ability to claim damages if they are sacked unfairly or if an internal disciplinary process isn’t properly followed by their employer.

Both cases, which had been conjoined for the purposes of the appeal, dealt with situations where an employee had a contractual right to a particular disciplinary procedure but the procedure was not properly followed. The employees argued that as a result of the flawed disciplinary process, incorrect and highly damaging findings of fact were made against them, which prevented them from finding future employment. In both cases the incorrect findings of fact concerned allegations of inappropriate sexual conduct, in the case of Mr Edwards (a surgeon) with patients and in the case of Mr Botham (a youth worker) with teenage girls in his care, so the employees’ upset is readily understandable.

Both Mr Edwards and Mr Botham brought claims for unfair dismissal in the employment tribunal (ET). Mr Edwards withdrew his claim, but Mr Botham was successful. However, Mr Botham was only awarded damages of some £65,000, which was significantly less than he said his lost earnings were, because there is a statutory cap on awards for unfair dismissal in the ET. He was also not entitled to receive anything towards his (large) legal costs bill, because costs awards are the exception rather than the rule in the ET.

Background

Both Mr Edwards and Mr Botham therefore brought claims in the High Court as well, for breach of contract. Their problem was that previous case-law (Johnson v. Unisys Ltd and Eastwood v. Magnox Electric plc/McCabe v. Cornwall County Council) had established that such a claim was barred. This was essentially on public policy grounds, because where the manner of an employee’s dismissal was in breach of the implied term of trust and confidence Parliament in the Employment Rights Act 1996 had made clear that it intended the employee’s remedy to be by way of an unfair dismissal claim in the ET, rather than a breach of contract claim. This rule has become known as the ‘Johnson exclusion‘. Edwards and Botham did not develop any head-on challenge to the ‘Johnson exclusion’ rule, but said that their cases were different because it was a breach of an express term of their contract – the disciplinary procedures – not a general implied term.

The ruling

The cases split the Supreme Court (4-3 in Mr Edwards’ case and 6-1 in Mr Botham’s case), but a majority found for the employers in both. Lord Dyson (with whom Lord Walker and Lord Mance agreed) considered that the ‘Johnson exclusion‘ prevented a claim for breach of contract based on an express term of an employment contract. He placed great weight on the statutory framework, noting that Parliament required contractual force to be given to disciplinary rules and procedures. There is a statutory requirement for an employee to be given a note of written disciplinary procedures and these are usually incorporated into the contract. Also, the power of an ET to increase an award by 25% in the event of a failure to comply with a Code of Practice indicated that Parliament linked a breach of disciplinary procedures with unfair dismissal proceedings.

Lord Phillips agreed with the majority, but on a different basis. He considered that the claims were effectively for “stigma” damages caused by wrongful dismissal (i.e. dismissal in breach of contract and without notice, rather than statutory unfair dismissal), and were precluded by the old case of Addis v. Gramophone Co Ltd.

Lady Hale dissented and would have found for the employees in both case. She rather pointedly noted that she was the only member of the Supreme Court who had ever been an employee, and thought that unfair dismissal law, which Parliament had clearly intended to improve the lot of employees, ought not to be used as a basis for limiting their rights. She also briefly explored the fact that the ‘Johnson exclusion‘ led to several strange anomalies and results.

Lord Kerr (with whom Lord Wilson agreed) relied on the application of ordinary contract principles and considered that Mr Edwards should be able to bring a breach of contract action because the reputational damage arose from findings in the disciplinary proceedings, rather than the dismissal itself. The cause of action was therefore prior to and independent of the dismissal. The majority of the Supreme Court disagreed, considering that in reality everything was part of the dismissal. However, Lord Kerr was in agreement with the majority on Mr Botham’s case – he considered that Mr Botham had no cause of action, because the damage to his reputation arose as a result of the dismissal.

Comment

Until fairly recently this rather technical case would not have made much difference for many employees – most people don’t earn enough to make the statutory cap on unfair dismissal awards relevant or would have been able to get another job relatively quickly. However, with the economy in the doldrums (not just in the UK but everywhere), unemployment increasing, and the Coalition planning to introduce radical reforms to employment law which will make it harder to make an unfair dismissal claim, this restriction on employees’ ability to sue their employer if they are unfairly sacked may be of interest to a lot more people.

 

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