The key principle of compensation is that the claimant should be put into the position in which he would have been, but for the breach, in so far as money can so do. This is limited by the principle of causation and the principle that loss must be such that it was or is deemed to have been, in the contemplation of the parties. This latter principle of remoteness in a contract claim restricts the level of loss that might be recovered. It is narrower that the principle and concept of remoteness in a civil wrong claim.
Contract law is said to compensate for the loss which “arises naturally” out of or is the “probable” or direct consequence of the breach. There is no entitlement to a complete indemnity for all loss actually suffered as a result of the breach, however, improbable or unpredictable.
The loss must be reasonably foreseeable as liable to result from the breach. This depends on the knowledge of the parties at the relevant time or at least the knowledge of the party who committed a breach. The party’s knowledge may be actual or imputed. Everyone, as a reasonable person, is taken to know the ordinary course of things and accordingly what loss is liable to result from a breach of contract in that ordinary course.
Atypical Loss I
Where a person has, in fact, particular knowledge of special circumstances, outside of the ordinary course of things, so that a breach in those circumstances would be liable to cause more loss, then he is liable for that loss. The special knowledge may be such as to reduce the level of damages otherwise recoverable.
It is not necessary that the contract breaker has actually asked himself what loss is liable or likely to result. It is often said that the parties contemplate performance, and not breach. It is enough that he would as a reasonable man have concluded, had he averted to it, that the loss in question is liable to result from the breach.
It is not necessary, given his state of knowledge, that the defendant could as a reasonable man, foresee that a breach would necessarily result in that loss. It is enough if he could foresee it was likely to do so or that it was is a “serious probability”, “real danger”, are is “on the cards”. Later cases have criticised this law formulation. It is said that “reasonable foreseeability” equates the contract rule with the tort / civil wrong rule.
Atypical Loss II
The above principles do not mean that every type of damage which is reasonably foreseeable, should be, ought to be considered as naturally (i.e. in the usual course of things arising) is to be supposed to be in the contemplation of the parties. Where the type of damage is plainly foreseeable as a real possibility but will occur only in a small minority of cases, it cannot be regarded as arising “in the usual course of things” or be supposed to be in the “contemplation of the parties”.
The parties are not taken to contemplate (for the purpose of recovery of damages), types of loss or damage which in the knowledge available to the defendant, would appear to them as only likely to occur in a small minority of cases. The loss in question must be of the type of the kind which the defendant when he made the contract ought to have realised was not unlikely to result from the breach.
The words “not unlikely” means a degree of probability considerably less than an even chance, but nevertheless not very unusual and easily foreseeable.
The general principles that apply to the award of damages and compensation for breach of contract of employment apply to wrongful and unfair dismissal. Unfair dismissal is subject to a cap of two year’s salary on compensation. There is no equivalent limitation in a wrongful dismissal case.
The principle applicable to the award of damages for breach of contract is that the innocent party should be compensated for the loss caused by the breach. He should be put in the same position that he would have been in, had the contract been performed.
The practical difficulty with wrongful dismissal proceedings is that in most cases, the employer would have been entitled to dismiss for no reason, notwithstanding that he, in fact, dismisses the employee in breach of contract. In these circumstances, the loss caused and incurred, measured relative to what would have happened if there had been a lawful dismissal, may be minimal. It may be no more than the salary payable during the notice period.
In the ordinary course, unpaid suspension apart, an employer’s failure to act fairly in the steps leading to dismissal does not of itself cause the employee financial loss. The loss arises when the employee is dismissed, and it arises by reason of his dismissal.
Exceptionally, the financial loss may flow directly from the employer’s failure to act fairly when taking steps leading to dismissal. Financial loss flowing from suspension is an instance. Another exceptional instance is cases when an employee suffers financial loss from psychiatric or other illness caused by his pre-dismissal unfair treatment. In such cases, the employee may have a common-law cause of action which precedes, and is independent of, his subsequent dismissal.
In the context of most employment contracts, the employee’s claim for compensation is limited to the salary for the period of notice. However, where a contract is for a fixed term which cannot be terminated by notice (which would be unusual), the employee may be entitled to compensation or remuneration for the rest of the contract term, subject to the general rules relating to minimisation or mitigation of loss. Mitigation requires that the claimant takes reasonable steps to seek other employment.
Persons in well paid and prestigious jobs are commonly entitled to relatively lengthy notices. The status and position of the employee in question have been the most significant factors used by the court in deciding notice entitlements.
Where a disciplinary procedure has not been followed, in breach of contract, the measure of loss will depend on the circumstances. A serious breach of contract by an employee would justify instant dismissal in the most serious and exceptional circumstance only. More commonly, it may justify dismissal after an investigation. In other cases, it may justify a lesser sanction or no sanction at all.
The employer may be entitled to dismiss an employee lawfully even if the result of the procedure does not objectively justify it. In many cases, the courts hold that the employer could have dismissed the employee by giving the lawful period of notice so that any damages would be limited to the period of the inquiry and the period of notice.
The plaintiff should be compensated for being deprived of the remuneration he would have received from the defendant under his contract for its unexpired fixed period. The benefits may include the salary including agreed increases, bonuses, allowance, pension contributions and other benefits.
Pension contributions are not subject to tax. The compensation is based on the payment of the standard contributions at the rate and for the period by reference to the plaintiff’s age for the relevant period.
If benefits in kind and perquisites are contractual entitlements, then compensation may be awarded for their loss. If an employment contract contemplates increases in salary in circumstances where it would be obviously unreasonable to deny such increases, then compensation may be allowed for loss of the future incremental elements. In this case, the principle that the contract should be presumed to be performed in the manner most advantageous to the employer does not apply. The denial of customary increments would usually be deemed unreasonable.
An employee who has been wrongfully dismissed may claim compensation in respect of loss of pension rights, which would have otherwise accrued. The entitlement will depend on the terms of the pension scheme. If the scheme accrues ongoing entitlement, then compensation is awarded for their loss.
If the pension payments are a matter of discretion, then compensation may be denied. The least disadvantageous performance by the liable party (the employer) is presumed in most cases. In other cases, reasonable expectations, based on custom and practice and on mutual trust and confidence, may be taken into account.
Compensation may be awarded for the loss of statutory rights, that would otherwise have accrued. An employee might otherwise have accrued notice, unfair dismissal and redundancy rights. Less extensive rights may be provided in alternative employment.
In computing damages for wrongful dismissal, account is taken of taxes that would otherwise be deductible. It has been argued this approach is illogical and gives a windfall to the employer who has acted wrongfully.
As is the general principle with damages, the fact that an employer has insurance or alternative benefit available is generally disregarded. There have been a number of cases where employees have benefitted from long-term sick pay or insurance schemes, which depend on continuity of employment.
A claimant must take reasonable steps to mitigate his loss arising from the defendant’s wrong or breach of contract. He may not recover damages for a loss which he suffers, which he could have avoided by reasonable action.
If the claimant fails to mitigate his loss, the loss is reduced, by the amount by which it would have been reduced, if the claimant had done, what he ought reasonably to have done. Where the claimant does take reasonable steps to mitigate his loss, and a greater, or other loss, is incurred, he may recover that other loss.
The onus of proof is on the defendant to show that the claimant should have mitigated his loss in a particular way. It is generally a question of fact as to what would, or would not have been reasonable in the circumstances.
The employee who has been dismissed is not entitled to compensation for the loss which he could reasonably have avoided. The employee must act reasonably. The dismissed employee cannot, for example, avoid seeking new employment and charge the loss to the breach of contract. An employee will not receive compensation for the loss which he has avoided or for the loss he should have avoided, had he acted reasonably.
Where an employee has been dismissed and is offered an alternative post by the employer, it is commonly reasonable to decline it, in view of the breach of the mutual trust and confidence caused by the initial dismissal. Refusing to accept new employment at a lower salary or a demotion will generally be reasonable. However, everything depends on the circumstances. The test is one of reasonableness in the circumstances
It is usually reasonable to conclude that it is probable that the claimant will be in a position, either by obtaining suitable employment (or establishing his own business), to obtain an income to replace the remuneration which he would have received from the defendant.
Mental Distress I
The traditional principle of law is that damages (compensation) are not granted for injured feelings, vexation or humiliation. It remains the position that damages are not generally awarded for mental distress caused by the manner of termination of the employment contract. However, in exceptional circumstances, there has been some modification of this principle.
The traditional rule had not been applied in some cases, where the contract contemplated that publicity or an enhanced reputation would be provided. In a number of cases involving actresses, authors, painters and other artists, whose ability and capacity to earn were determined by their public reputation, damages for mental distress were awarded.
The modern approach is that in appropriate and exceptional cases, some element of compensation for mental distress may be available. There has been a gradual evolution of the court’s understanding of the employment relationship, from the traditional master a servant approach to a mutual relationship of trust and confidence.
Mental Distress II
The courts apply the general principles of contract law in the context of the modern employment relationship. If it is within the contemplation of parties that if a breach might cause humiliation, distress, and anxiety, then damages may be payable. In a number of cases, the courts have emphasised the rupture of the duties of mutual trust and confidence between employer and employee.
In some cases, the manner of dismissal has been the subject of compensation. Damages have been awarded for the effects of a humiliating dismissal.
If an employer makes false claims of incompetence in bad faith, then an employee may be entitled to compensation for loss of opportunity in future employment thereby caused. This reflects the financial effect of the damage caused to his reputation.
There have been claims by employees for breach of an implied term of the contract of employment of trust and confidence. Where two long-serving employees of a bank which collapsed as a result of a massive and notorious fraud perpetrated by those controlling the bank who thereafter found difficulty in obtaining employment because of their association with the bank, were awarded ‘stigma compensation’ arising from their having been put at a disadvantage in the labour market.
The financial loss in respect of damage to reputation could be recovered for breach of a contract of employment. The employer was in breach of its obligations to its employees not to conduct a dishonest or corrupt business. The obligation was one particular aspect of the general obligation not to engage in conduct likely to undermine the trust and confidence required in the employment relationship. Thus, if it was reasonably foreseeable that conduct in breach of the trust and confidence term would prejudicially affect employees’ future employment prospects and loss of that type was sustained in consequence of such a breach, damages would be recoverable.
Early Termination Losses
When the employer commits a breach of the employment contract so that it comes to an end prematurely, the employee loses the benefits he should have received had the contract run its course until it expired or was duly terminated. This includes financial benefits such as salary and commission and pension rights.
The losses caused by the premature termination of the contract may include other promised benefits, such as a course of training, or publicity for an actor or pop star. Prima facie, and subject always to principles of mitigation the dismissed employee can recover damages to compensate him for these promised benefits lost to him in consequence of the premature termination of the contract.
The premature termination losses cannot be attributable to a breach of the trust and confidence term if the contract is terminated for other reasons, for instance, for redundancy or if the employee leaves of his own volition. Since the trust-destroying conduct did not bring about the premature termination of the contract, the employee did not sustain any loss of pay and so forth by reason of the breach of the trust and confidence term.
The employer may be under a contractual obligation, beyond the payment of salary, to provide the employee with work so that he would have an opportunity to gain experience, pursue a promotion in his job and advance his career. He may be engaged not only to receive pay but to work in a particular capacity. This may be an implied term of the plaintiff’s contract of employment, whether as a facet of the obligation to maintain mutual trust and confidence or otherwise.
The amount which the employee would have earned under the contract may be subject to the loss of a chance doctrine. The loss of a chance doctrine, however, must not be carried too far in wrongful dismissal.
In an action for wrongful dismissal, the damages are not an award of the remuneration which would have been earned. They are intended to compensate the plaintiff because he has not been allowed to earn it. This is the justification in principle for which the courts formerly held that damages for wrongful dismissal were not taxable.
Where damages (or the actual or notional income to be derived from the investment thereof) are exempt from tax, then an appropriate adjustment or reduction in those damages must be made if the plaintiff is being compensated for a loss of income or profits which would have been liable to tax in his hands. Otherwise, the plaintiff may receive compensation which might exceed the loss which he suffered.
S 123 TCA 1997 is the charging provision on compensation for dismissal. It applies to any payment not otherwise chargeable to income tax which is made, whether in pursuance of any legal obligation or not, either directly or indirectly in consideration or in consequence of, or otherwise in connection with, the termination of employment. Subject to s. 201, income tax is charged under Schedule E in respect of such payment.
The payment is treated as income received on the date of termination and is treated as emoluments of the past holder of the employment assessable to income tax under Schedule E. It is the duty of the person by whom the payment is made to deliver particulars of the payment in writing to the inspector not later than fourteen days after the end of the year of assessment in which the payment is made.
The liability of the employer is subject to certain exemptions and reliefs. The scope of the reliefs has been severely curtailed. The Court should ensure that the plaintiff does not get an award which would exceed the loss which he has suffered by being deprived of remuneration,
UFD / Courts
If the claimant brings proceedings both in court and before the WRC, he cannot recover any overlapping heads of loss twice over. There is a boundary between the common-law rights and remedies and the statutory rights and remedies. The line can be difficult to draw.
Particularly in cases concerning financial loss flowing from psychiatric illnesses, the division of remedial jurisdiction between the court and the WRC may lead to a duplication of proceedings. In practice, there will be cases where the employment tribunal and the court each deal with much of the same grounds in deciding the issues before them.
References and Sources
Employment Law Meenan 2014 Ch. 19
Employment Law Supplement Meenan 2016
Employment Law Regan & Murphy 2009 Ch.14 ( 2nd Ed 2017)
Employment Law in Ireland Cox & Ryan 2009 Ch.19
Dismissal Law in Ireland Redmond 2007 Ch. 11
Other Irish Books
Employment Law Forde & Byrne 2009
Principles of Irish Employment Law Daly & Doherty 2010
Employment Law Contracts (Book & CD-ROM) Beauchamps, Solicitors 2011
Unfair Dismissals Act 1977 (10/1977)
Worker Protection (Regular Part-Time Employees) Act 1991 (5/1991),
Unfair Dismissals (Amendment) Act 1993 (22/1993)
Protection of Employees (Part-Time Work) Act 2001 (45/2001
Civil Service Regulation (Amendment) Act 2005 (18/2005) (Part 6)
Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act 2007 (27/2007)
Industrial Relations (Amendment) Act 2015 (27/2015), s. 39
Periodicals and Reports
Employment Law Yearbook (annual) Arthur Cox
Employment Law Reports
Irish Employment Law Journal
Employment Law Review
Dismissal & Redundancy Consolidated Legislation Barrett, G 2007
Irish Employment legislation (Looseleaf) Kerr 1999-
Employment Rights Legislation (IEL offprint) Kerr 2006
Dismissal & Redundancy Consolidated Legislation Barrett, G 2007
Principles of Irish Employment Law Daly & Doherty 2010
Termination & Redundancy, What is the law? Hayes, Barry & O’Mara 2005
Termination of Employment Statutes (IEL) Kerr 2016
Termination of Employment: Practical Guide for Employers Purdy 2011
Employment Law Nutshell Donovan, D 2016
Employees: Know Your Rights Eardly 2008
Essentials of Irish Labour Law Faulkner 2013
Workplace Relations Commission http://www.lrc.ie/en/
Irish Human Rights and Equality Commission https://www.ihrec.ie/
Health and Safety Authority http://www.hsa.ie/eng/
Textbook on Employment Law, Honeyball, et al. 13th Ed. 2014
Labour Law, Deakin and Morris 5th Ed. 2012
Employment Law, Smith and Wood 13th Ed 2017
Selwyn’s law of Employment Emir A 19 Ed. 2016
Employment law : the essentials. Lewis D Sargeant M and Schwab M 11 Ed.2011
Labour Law Collins H, Ewing K D and McColgan 2012
Industrial relations law reports. (IRLR): Law Section,
Employment law Benny R Jefferson M and Sargent 5th Ed. 2012
Pitt’s Employment Law 10th Ed. Gwyneth Pitt 2016
CLP Legal Practice Guides: Employment Law 2016 Gillian Phillips, Karen Scott
Cases and Materials on Employment Law 10th Ed. Richard Painter, Ann E. M. Holmes 2015
Blackstone’s Statutes on Employment Law 2015 – 2016 Richard Kidner
UK Practitioner Services
Tolley’s Employment Handbook 2017 Mrs Justice Slade 2017
Butterworths Employment Law Handbook 2017 Peter Wallington 2017
Blackstone’s Employment Law Practice 2017 Edited by Gavin Mansfield, John Bowers, John Macmillan 2017
UK Periodicals and Reports
The Employment Law Review 8th Ed. Erika C. Collins 2017
Industrial Relations Law Reports
Employment Law in Context: Text and Materials 2nd Ed. David Cabrelli 2016