Damages
Cases
Malik and Mahmud v. Bank of Credit
[1997] UKHL 23; [1998] AC 20
House of Lords Lord Nicholl
In the Court of Appeal and in your Lordships’ House the parties were agreed that the contracts of employment of these two former employees each contained an implied term to the effect that the bank would not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. Argument proceeded on this footing, and ranged round the type of conduct and other circumstances which could or could not constitute a breach of this implied term. The submissions embraced questions such as the following: whether the trust-destroying conduct must be directed at the employee, either individually or as part of a group; whether an employee must know of the employer’s trust-destroying conduct while still employed; and whether the employee’s trust must actually be undermined. Furthermore, and at the heart of this case, the submissions raised an important question on the damages recoverable for breach of the implied term, with particular reference to the decisions in Addis v. Gramophone Co. Ltd. [1909] AC 488 and Withers v. General Theatre Corporation Ltd. [1933] 2 K.B. 536.
A dishonest and corrupt business
These questions are best approached by focusing first on the particular conduct of which complaint is made. The bank operated its business dishonestly and corruptly. On the assumed facts, this was not a case where one or two individuals, however senior, were behaving dishonestly. Matters had gone beyond this. They had reached the point where the bank itself could properly be identified with the dishonesty. This was a dishonest business, a corrupt business.
It is against this background that the position of an innocent employee has to be considered. In my view, when an innocent employee of the bank learned the true nature of the bank’s business, from whatever source, he was entitled to say: “I wish to have nothing more to do with this organisation. I am not prepared to help this business, by working for it. I am leaving at once.” This is my intuitive response in the case of all innocent employees of the business, from the most senior to the most junior, from the most long serving to the most recently joined. No one could be expected to have to continue to work with and for such a company against his wish.
This intuitive response is no more than a reflection of what goes without saying in any ordinary contract of employment, namely, that in agreeing to work for an employer the employee, whatever his status, cannot be taken to have agreed to work in furtherance of a dishonest business. This is as much true of a doorkeeper or cleaner as a senior executive or branch manager.
An implied obligation
Two points can be noted here. First, as a matter of legal analysis, the innocent employee’s entitlement to leave at once must derive from the bank being in breach of a term of the contract of employment which the employee is entitled to treat as a repudiation by the bank of its contractual obligations. That is the source of his right to step away from the contract forthwith.
In other words, and this is the necessary corollary of the employee’s right to leave at once, the bank was under an implied obligation to its employees not to conduct a dishonest or corrupt business. This implied obligation is no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages.
Second, I do not accept the liquidators’ submission that the conduct of which complaint is made must be targeted in some way at the employee or a group of employees. No doubt that will often be the position, perhaps usually so. But there is no reason in principle why this must always be so. The trust and confidence required in the employment relationship can be undermined by an employer, or indeed an employee, in many different ways. I can see no justification for the law giving the employee a remedy if the unjustified trust-destroying conduct occurs in some ways but refusing a remedy if it occurs in others. The conduct must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer. That requires one to look at all the circumstances.
Breach
The objective standard just mentioned provides the answer to the liquidators’ submission that unless the employee’s confidence is actually undermined there is no breach. A breach occurs when the proscribed conduct takes place: here, operating a dishonest and corrupt business. Proof of a subjective loss of confidence in the employer is not an essential element of the breach, although the time when the employee learns of the misconduct and his response to it may affect his remedy.
Remedies: (1) acceptance of breach as repudiation
The next step is to consider the consequences which flow from the bank being in breach of its obligation to its innocent employees by operating a corrupt banking business. The first remedy of an employee has already been noted. The employee may treat the bank’s conduct as a repudiatory breach, entitling him to leave. He is not compelled to leave. He may choose to stay. The extent to which staying would be more than an election to remain, and would be a waiver of the breach for all purposes, depends on the circumstances.
I need say no more about waiver in the present case. The assumed facts do not state whether the appellants first learned of the corrupt nature of B.C.C.I. after their dismissal on 3 October 1991, or whether they acquired this knowledge earlier, in the interval of three months between the appointment of the provisional liquidators on 5 July 1991 and 3 October 1991. If anything should turn on this, the matter can be investigated further in due course.
In the nature of things, the remedy of treating the conduct as a repudiatory breach, entitling the employee to leave, can only avail an employee who learns of the facts while still employed. If he does not discover the facts while his employment is still continuing, perforce this remedy is not open to him. But this does not mean he has no remedy. In the ordinary course breach of a contractual term entitles the innocent party to damages.
Remedies: (2) damages
Can an employee recover damages for breach of the trust and confidence term when he first learns of the breach after he has left the employment? The answer to this question is inextricably bound up with the further question of what damages are recoverable for a breach of this term. In turn, the answer to this further question is inextricably linked with one aspect of the decision in Addis v. Gramophone Co. Ltd. [1909] AC 488.
At first sight it seems almost a contradiction in terms that an employee can suffer recoverable loss if he first learns of the trust-destroying conduct after the employment contract has already ended for other reasons. But of the many forms which trust-destroying conduct may take, some may have continuing adverse financial effects on an employee even after his employment has ceased. In such a case the fact that the employee only learned of the employer’s conduct after the employment had ended ought not, in principle, to be a bar to recovery. If it were otherwise, an employer who conceals a breach would be better placed than an employer who does not.
Premature termination losses
This proposition calls for elaboration. The starting point is to note that the purpose of the trust and confidence implied term is to facilitate the proper functioning of the contract. If the employer commits a breach of the term, and in consequence the contract 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. In addition to financial benefits such as salary and commission and pension rights, the losses caused by the premature termination of the contract (“the premature termination losses”) may include other promised benefits, for instance, a course of training, or publicity for an actor or pop star. Prima facie, and subject always to established principles of mitigation and so forth, 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.
It follows that 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, ex hypothesi the employee did not sustain any loss of pay and so forth by reason of the breach of the trust and confidence term. That is the position in the present case.
Continuing financial losses
Exceptionally, however, the losses suffered by an employee as a result of a breach of the trust and confidence term may not consist of, or be confined to, loss of pay and other premature termination losses. Leaving aside injured feelings and anxiety, which are not the basis of the claim in the present case, an employee may find himself worse off financially than when he entered into the contract. The most obvious example is conduct, in breach of the trust and confidence term, which prejudicially affects an employee’s future employment prospects. The conduct may diminish the employee’s attractiveness to future employers.
The loss in the present case is of this character. B.C.C.I. promised, in an implied term, not to conduct a dishonest or corrupt business. The promised benefit was employment by an honest employer. This benefit did not materialise. Proof that Mr. Mahmud and Mr. Malik were handicapped in the labour market in consequence of B.C.C.I’s. corruption may not be easy, but that is an assumed fact for the purpose of this preliminary issue.
There is here an important point of principle. Are financial losses of this character, which I shall call “continuing financial losses”, recoverable for breach of the trust and confidence term? This is the crucial point in the present appeals. In my view, if it was reasonably foreseeable that a particular type of loss of this character was a serious possibility, and loss of this type is sustained in consequence of a breach, then in principle damages in respect of the loss should be recoverable.
In the present case the agreed facts make no assumption, either way, about whether the appellants’ handicap in the labour market was reasonably foreseeable by the bank. On this there must be scope for argument. I would not regard the absence of this necessary ingredient from the assumed facts as a sufficient reason for refusing to permit the former employees’ claims to proceed further.
The contrary argument of principle is that since the purpose of the trust and confidence term is to preserve the employment relationship and to enable that relationship to prosper and continue, the losses recoverable for breach should be confined to those flowing from the premature termination of the relationship. Thus, a breach of the term should not be regarded as giving rise to recoverable losses beyond those I have described as premature termination losses. In this way, the measure of damages would be commensurate with, and not go beyond, the scope of the protection the trust and confidence term is intended to provide for the employee.
This is an unacceptably narrow evaluation of the trust and confidence term. Employers may be under no common law obligation, through the medium of an implied contractual term of general application, to take steps to improve their employees’ future job prospects. But failure to improve is one thing, positively to damage is another. Employment, and job prospects, are matters of vital concern to most people. Jobs of all descriptions are less secure than formerly, people change jobs more frequently, and the job market is not always buoyant. Everyone knows this. An employment contract creates a close personal relationship, where there is often a disparity of power between the parties. Frequently the employee is vulnerable. Although the underlying purpose of the trust and confidence term is to protect the employment relationship, there can be nothing unfairly onerous or unreasonable in requiring an employer who breaches the trust and confidence term to be liable if he thereby causes continuing financial loss of a nature that was reasonably foreseeable. Employers must take care not to damage their employees’ future employment prospects, by harsh and oppressive behaviour or by any other form of conduct which is unacceptable today as falling below the standards set by the implied trust and confidence term.
This approach brings one face to face with the decision in the wrongful dismissal case of Addis v. Gramophone Co. Ltd. [1909] AC 488. It does so, because the measure of damages recoverable for breach of the trust and confidence term cannot be decided without having some regard to a comparable question which arises regarding the measure of damages recoverable for wrongful dismissal. An employee may elect to treat a sufficiently serious breach of the trust and confidence term as discharging him from the contract and, hence, as a constructive dismissal. The damages in such a case ought, in principle, to be the same as they would be if the employer had expressly dismissed the employee. The employee should be no better off, or worse off, in the two situations. In principle, so far as the recoverability of continuing financial losses are concerned, there is no basis for distinguishing (a) wrongful dismissal following a breach of the trust and confidence term, (b) constructive dismissal following a breach of the trust and confidence term, and (c) a breach of the trust and confidence term which only becomes known after the contract has ended for other reasons. The present case is in the last category, but a principled answer cannot be given for cases in this category without considering the other two categories from which it is indistinguishable.
Addis v. Gramophone Co.
Against this background I turn to the much discussed case of Addis v. Gramophone Co. Ltd. [1909] AC 488. Mr. Addis, it will be recalled, was wrongfully and contumeliously dismissed from his post as the defendant’s manager in Calcutta. At trial he was awarded damages exceeding the amount of his salary for the period of notice to which he was entitled. The case is generally regarded as having decided, echoing the words of Lord Loreburn L.C., at p. 491, that an employee cannot recover damages for the manner in which the wrongful dismissal took place, for injured feelings or for any loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment. In particular, Addis is generally understood to have decided that any loss suffered by the adverse impact on the employee’s chances of obtaining alternative employment is to be excluded from an assessment of damages for wrongful dismissal: see, for instance, O’Laoire v. Jackel International Ltd. (No. 2) [1991] I.C.R. 718, 730-731, following earlier authorities; in Canada, the decision of the Supreme Court in Vorvis v. Insurance Corporation of British Columbia (1989) 58 D.L.R. (4th) 193, 205; and, in New Zealand, Vivian v. Coca-Cola Export Corporation [1984] 2 N.Z.L.R. 289, 292; Whelan v. Waitaki Meats Ltd. [1991] 2 N.Z.L.R. 74, where Gallen J. disagreed with the decision in Addis, and Brandt v. Nixdorf Computer Ltd. [1991] 3 N.Z.L.R. 750.
For present purposes I am not concerned with the exclusion of damages for injured feelings. The present case is concerned only with financial loss. The report of the facts in Addis is sketchy. Whether Mr. Addis sought to prove that the manner of his dismissal caused him financial loss over and above his premature termination losses is not clear beyond a peradventure. If he did, it is surprising that their Lordships did not address this important feature more specifically. Instead there are references to injured feelings, the fact of dismissal of itself, aggravated damages, exemplary damages amounting to damages for defamation, damages being compensatory and not punitive, and the irrelevance of motive. The dissenting speech of Lord Collins was based on competence to award exemplary or vindictive damages.
However, Lord Loreburn’s observations were framed in quite general terms, and he expressly disagreed with the suggestion of Lord Coleridge C.J. in Maw v. Jones 25 Q.B.D. 107, 108, to the effect that an assessment of damages might take into account the greater difficulty which an apprentice dismissed with a slur on his character might have in obtaining other employment. Similarly general observations were made by Lord James of Hereford, Lord Atkinson, Lord Gorell and Lord Shaw of Dunfermline.
In my view these observations cannot be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term and this caused financial loss. Addis v. Gramophone Co. Ltd. was decided in the days before this implied term was adumbrated. Now that this term exists and is normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles. This is as much true if the breach occurs before or in connection with dismissal as at any other time.
This approach would accord, in its result, with the approach adopted by courts and tribunals in unfair dismissal cases when exercising the statutory jurisdiction, currently limited to a maximum of £11,300, to award an amount of compensation which the court or tribunal considers “just and reasonable” in all the circumstances. Writing on a clean slate, the courts have interpreted this as enabling awards to include compensation in respect of the manner and circumstances of dismissal if these would give rise to a risk of financial loss by, for instance, making the employee less acceptable to potential employers: see sections 123 and 124 of the Employment Rights Act 1996 and Norton Tool Co. Ltd. v. Tewson [1973] 1 WLR 45.
I do not believe this approach gives rise to artificiality. On the contrary, the trust and confidence term is a useful tool, well established now in employment law. At common law damages are awarded to compensate for wrongful dismissal. Thus, loss which an employee would have suffered even if the dismissal had been after due notice is irrecoverable, because such loss does not derive from the wrongful element in the dismissal. Further, it is difficult to see how the mere fact of wrongful dismissal, rather than dismissal after due notice, could of itself handicap an employee in the labour market. All this is in line with Addis. But the manner and circumstances of the dismissal, as measured by the standards of conduct now identified in the implied trust and confidence term, may give rise to such a handicap. The law would be blemished if this were not recognised today. There now exists the separate cause of action whose absence Lord Shaw of Dunfermline noted with “a certain regret”: see Addis v. Gramphone Co. Ltd. [1909] AC 488, 504. The trust and confidence term has removed the cause for his regret.
Breach of contract and reputation
I must now turn to two submissions made concerning injury to reputation. The liquidators submitted that injury to reputation is protected by the law of defamation. The boundaries set by the tort of defamation are not to be side-stepped by allowing a claim in contract that would not succeed in defamation: see Lonrho Plc v. Fayed (No. 5) [1993] 1 W.L.R. 1489, 1496, per Dillon L.J. Here, it was submitted, a claim in defamation would not succeed: the bank made no defamatory statements, either referring to the appellants or at all. This submission is misconceived.
I agree that the cause of action known to the law in respect of injury to reputation is the tort of defamation. With certain exceptions this tort provides a remedy, where the necessary ingredients are present, whether or not the injury to a person’s reputation causes financial loss. No proof of actual damage is necessary, and damages are at large. If, as a result of the injury to his reputation the plaintiff does in fact suffer financial loss, this may be recoverable in a defamation action as “special damage”.
All this is commonplace. It by no means follows, however, that financial loss which may be recoverable as special damage in a defamation action is irrecoverable as damages for breach of contract. If a breach of contract gives rise to financial loss which on ordinary principles would be recoverable as damages for breach of contract, those damages do not cease to be recoverable because they might also be recoverable in a defamation action. There can be no justification for artificially excising from the damages recoverable for breach of contract that part of the financial loss which might or might not be the subject of a successful claim in defamation. Hallett J. summarised the position in Foaminol Laboratories Ltd. v. British Artid Plastics Ltd. [1941] 2 All E.R. 393, 399-400:
“. . . a claim for mere loss of reputation is the proper subject of an action for defamation, and cannot ordinarily be sustained by means of any other form of action . . . However . . . if pecuniary loss can be established, the mere fact that the pecuniary loss is brought about by the loss of reputation caused by a breach of contract is not sufficient to preclude the plaintiffs from recovering in respect of that pecuniary loss.”
Furthermore, the fact that the breach of contract injures the plaintiff’s
reputation in circumstances where no claim for defamation would lie is not, by itself, a reason for excluding from the damages recoverable for breach of contract compensation for financial loss which on ordinary principles would be recoverable. An award of damages for breach of contract has a different objective: compensation for financial loss suffered by a breach of contract, not compensation for injury to reputation.
Sometimes, in practice, the distinction between damage to reputation and financial loss can become blurred. Damage to the reputation of professional persons, or persons carrying on a business, frequently causes financial loss. Nonetheless, the distinction is fundamentally sound, and when awarding damages for breach of contract courts take care to confine the damages to their proper ambit: making good financial loss. In Herbert Clayton and Jack Waller Ltd. v. Oliver [1930] A.C. 209, 220, when considering an award of damages to an actor who should have been billed to appear at the London Hippodrome, Lord Buckmaster regarded loss of publicity rather than loss of reputation as the preferable expression. In Aerial Advertising Co. v. Batchelors Peas Ltd. (Manchester) [1938] 2 All E.R. 788, 796-797, where aerial advertising (“Eat Bachelors Peas”) took place during Armistice Day services, Atkinson J. was careful to confine damages to the financial loss flowing from public boycotting of the defendant’s goods and to exclude damages for loss of reputation. Lord Denning M.R. drew the same distinction in GKN Centrax Gears Ltd. v. Matbro Ltd. [1976] 2 Lloyd’s Rep. 555, 573.
Breach of contract and existing reputation
The second submission concerning reputation was that the appellants’ claims for damages to their existing reputations is barred by the decision of the Court of Appeal in Withers v. General Theatre Corporation Ltd. [1933] 2 K.B. 536.
There is an acute conflict between this decision and the earlier decision, also of the Court of Appeal, in Marbe v. George Edwardes (Daly’s Theatre) Ltd. [1928] 1 K.B. 269. In Marbe clear views were expressed that when assessing damages for loss flowing from a failure to provide promised publicity, the loss may include loss to existing reputation: see Bankes L.J., at p. 281, and Atkin L.J., at p. 288. In Withers equally clear views were firmly stated to the contrary by all three members of the court: see Scrutton L.J., at p. 547, Greer L.J., at p. 554, and Romer L.J., at p. 556. I have to say that, faced with the embarrassing necessity to choose, I prefer the views expressed in Marbe. They accord better with principle. Loss of promised publicity might cause an actor financial loss, for two reasons: first, through loss of opportunity to enhance his professional reputation and, secondly, his absence from the theatre scene might actually damage his existing professional reputation. If as a matter of fact an actor does suffer financial loss under both heads, and that is a question of evidence, I can see no reason why the law should deny recovery of damages in respect of the second head of loss.
Conclusion
For these reasons I would allow these appeals. The agreed set of assumed facts discloses a good cause of action. Unlike the courts below, this House is not bound by the observations in Addis v. Gramophone Co. Ltd. [1909] AC 488 regarding irrecoverability of loss flowing from the manner of dismissal, or by the decision in Withers v. General Theatre Corporation Ltd. [1933] 2 K.B. 536.
I add some cautionary footnotes, having in mind the assumed facts in the present case. First, when considering these appeals I have been particularly conscious of the potential difficulties which claims of this sort may present for liquidators. I am conscious that the outcome of the present appeals may be seen by some as opening the door to speculative claims, to the detriment of admitted creditors. Claims of handicap in the labour market, and the other ingredients of the cause of action now under consideration, may give rise to lengthy and costly investigations and, ultimately, litigation. If the claims eventually fail, liquidators may well be unable to recover their costs from the former employees. The expense of liquidations, and the time they often take, are matters already giving rise to concern. I am aware of the dangers here, but it could not be right to allow “floodgates” arguments of this nature to stand in the way of claims which, as a matter of ordinary legal principle, are well founded. After all, if the former employee’s claim is well founded in fact as well as in law, he himself is a creditor and ought to be admitted as such.
Secondly, one of the assumed facts in the present case is that the employer was conducting a dishonest and corrupt business. I would like to think this will rarely happen in practice. Thirdly, there are many circumstances in which an employee’s reputation may suffer from his having been associated with an unsuccessful business, or an unsuccessful department within a business. In the ordinary way this will not found a claim of the nature made in the present case, even if the business or department was run with gross incompetence. A key feature in the present case is the assumed fact that the business was dishonest or corrupt. Finally, although the implied term that the business will not be conducted dishonestly is a term which avails all employees, proof of consequential handicap in the labour market may well be much more difficult for some classes of employees than others. An employer seeking to employ a messenger, for instance, might be wholly unconcerned by an applicant’s former employment in a dishonest business, whereas he might take a different view if he were seeking a senior executive.”
Johnson v. Unisys Limited
[2001]
UKHL 13; [2001] 2 All ER 801; [2001] 2 WLR 1076
LORD BINGHAM OF CORNHILL
“38. My Lords, I shall consider first the problem posed by the express terms of the contract. In developing the implied term of trust and confidence and other similar terms applicable to the continuing employment relationship, the courts were advancing across open country. No express provision that BCCI would be entitled to conduct a fraudulent business, or that the employer in W A Goold (Pearmak) Ltd v McConnell would have no grievance procedure, stood in their way. But the employer’s right to dismiss the employee is strongly defended by the terms of the contract. In the present case, Mr Johnson’s contract provided:
“If you decide to leave UNISYS you are required to give the company four weeks notice; equally, the company may terminate your employment on four weeks notice… In the event of gross misconduct, the company may terminate your employment without notice.”
39. The effect of such a provision at common law was stated with great clarity by McLachlin J of the Supreme Court of Canada in Wallace v United Grain Growers Ltd (1997) 152 DLR (4th) 1, 39:
“The action for wrongful dismissal is based on an implied obligation in the employment contract to give reasonable notice of an intention to terminate the relationship (or pay in lieu thereof) in the absence of just cause for dismissal.… A ‘wrongful dismissal’ action is not concerned with the wrongness or rightness of the dismissal itself. Far from making dismissal a wrong, the law entitles both employer and employee to terminate the employment relationship without cause. A wrong arises only if the employer breaches the contract by failing to give the dismissed employee reasonable notice of termination. The remedy for this breach of contract is an award of damages based on the period of notice which should have been given.”
40. Likewise in Malloch v Aberdeen Corporation [1971] 1 WLR 1578, 1581 Lord Reid said:
“At common law a master is not bound to hear his servant before he dismisses him. He can act unreasonably or capriciously if he so chooses but the dismissal is valid. The servant has no remedy unless the dismissal is in breach of contract and then the servant’s only remedy is damages for breach of contract.”
41. The action for wrongful dismissal could therefore yield no more than the salary which should have been paid during the contractual period of notice. In the present case Mr Johnson’s letter of engagement referred to Terms and Conditions of Employment contained in the company’s Employee Handbook, which stipulated expressly that “The company reserves the right to make payment in lieu of notice”. Unisys exercised that right.
42. My Lords, in the face of this express provision that Unisys was entitled to terminate Mr Johnson’s employment on four weeks notice without any reason, I think it is very difficult to imply a term that the company should not do so except for some good cause and after giving him a reasonable opportunity to demonstrate that no such cause existed.
43. On the other hand, I do not say that there is nothing which, consistently with such an express term, judicial creativity could do to provide a remedy in a case like this. In Wallace v United Grain Growers Ltd (1997) 152 DLR (4th) 1, 44-48, McLachlin J (in a minority judgment) said that the courts could imply an obligation to exercise the power of dismissal in good faith. That did not mean that the employer could not dismiss without cause. The contract entitled him to do so. But in so doing, he should be honest with the employee and refrain from untruthful, unfair or insensitive conduct. He should recognise that an employee losing his or her job was exceptionally vulnerable and behave accordingly. For breach of this implied obligation, McLachlin J would have awarded the employee, who had been dismissed in brutal circumstances, damages for mental distress and loss of reputation and prestige.
44. My Lords, such an approach would in this country have to circumvent or overcome the obstacle of Addis v Gramophone Co Ltd [1909] AC 488, in which it was decided that an employee cannot recover damages for injured feelings, mental distress or damage to his reputation, arising out of the manner of his dismissal. Speaking for myself, I think that, if this task was one which I felt called upon to perform, I would be able to do so. In Mahmud v Bank of Credit and Commerce International SA [1998] AC 20, 51 Lord Steyn said that the true ratio of Addis’s case was the damages were recoverable only for loss caused by a breach of contract, not for loss caused by the manner of its breach. As McLachlin J said in the passage I have quoted, the only loss caused by a wrongful dismissal flows from a failure to give proper notice or make payment in lieu. Therefore, if wrongful dismissal is the only cause of action, nothing can be recovered for mental distress or damage to reputation. On the other hand, if such damage is loss flowing from a breach of another implied term of the contract, Addis’s case does not stand in the way. That is why in Mahmud’s case itself, damages were recoverable for financial loss flowing from damage to reputation caused by a breach of the implied term of trust and confidence.
45. In this case, Mr Johnson says likewise that his psychiatric injury is a consequence of a breach of the implied term of trust and confidence, which required Unisys to treat him fairly in the procedures for dismissal. He says that implied term now fills the gap which Lord Shaw of Dunfermline perceived and regretted in Addis’s case (at pp 504-505) by creating a breach of contract additional to the dismissal itself.
46. It may be a matter of words, but I rather doubt whether the term of trust and confidence should be pressed so far. In the way it has always been formulated, it is concerned with preserving the continuing relationship which should subsist between employer and employee. So it does not seem altogether appropriate for use in connection with the way that relationship is terminated. If one is looking for an implied term, I think a more elegant solution is McLachlin J’s implication of a separate term that the power of dismissal will be exercised fairly and in good faith. But the result would be the same as that for which Mr Johnsoncontends by invoking the implied term of trust and confidence. As I have said, I think it would be possible to reach such a conclusion without contradicting the express term that the employer is entitled to dismiss without cause.
47. I must however make it clear that, although in my opinion it would be jurisprudentially possible to imply a term which gave a remedy in this case, I do not think that even if the courts were free of legislative constraint (a point to which I shall return in a moment) it would necessarily be wise to do so. It is not simply an incremental step from the duty of trust and confidence implied in Mahmud v Bank of Credit and Commerce International SA [1998] AC 20. The close association between the acts alleged to be in breach of the implied term and the irremovable and lawful fact of dismissal give rise to special problems. So, in Wallace v United Grain Growers Ltd (1997) 152 DLR (4th) 1, the majority rejected an implied duty to exercise the power of dismissal in good faith. Iacobucci J said, at p 28, that such a step was better left to the legislature. It would be “overly intrusive and inconsistent with established principles of employment law”.
48. Some of the potential problems can be illustrated by the facts of this case, in which Mr Johnson claims some £400,000 damages for the financial consequences of psychiatric damage. This form of damage notoriously gives rise at the best of times to extremely difficult questions of causation. But the difficulties are made greater when the expert witnesses are required to perform the task of distinguishing between the psychiatric consequences of the fact of dismissal (for which no damages are recoverable) and the unfair circumstances in which the dismissal took place, which constituted a breach of the implied term. The agreed statement of facts records that for the purposes of this appeal against a strike-out it is accepted that Mr Johnson’s psychiatric illness was caused by “the circumstances and the fact” of his dismissal. At a trial, however, it would be necessary to decide what was caused by what.
49. Another difficulty is the open-ended nature of liability. Mr Johnson’s case is that Unisys had knowledge of his psychological fragility by reason of facts lodged in the corporate memory in 1985-87 and therefore should have foreseen when he was engaged that a failure to comply with proper disciplinary procedures on dismissal might result in injury which deprived him of the ability ever to work again. On general common law principles it seems to me that if the necessary term is implied and these facts are made out, the claim should succeed. It may be that such liability would be grossly disproportionate to the employer’s degree of fault. It may be likely to inhibit the future engagement of psychologically fragile personnel. But the common law decides cases according to principle and cannot impose arbitrary limitations on liability because of the circumstances of the particular case. Only statute can lay down limiting rules based upon policy rather than principle. In this connection it is interesting to notice that although the majority in Wallace v United Grain Growers Ltd were unwilling to accept an implied term as to the manner of dismissal, they treated it as relevant to the period of notice which should reasonably have been given. McLachlin J said that this was illogical and so perhaps it is. But one can understand a desire to place some limit upon the employer’s potential liability under this head.
50. It follows, my Lords, that if there was no relevant legislation in this area, I would regard the question of whether judges should develop the law by implying a suitable term into the contract of employment as finely balanced. But now I must consider the statutory background against which your Lordships are invited to create such a cause of action.
….. 51. In 1968 the Royal Commission on Trade Unions and Employers’ Associations under Lord Donovan recommended a statutory system of remedies for unfair dismissal. The recommendation was accepted by the government and given effect in the Industrial Relations Act 1971. Unfair dismissal was a wholly new statutory concept with new statutory remedies. Exclusive jurisdiction to hear complaints and give remedies was conferred upon the newly created National Industrial Relations Court. Although the 1971 Act was repealed by the Trade Union and Labour Relations Act 1974, the unfair dismissal provisions were re-enacted and, as subsequently amended, are consolidated in Part X of the Employment Rights Act 1996. The jurisdiction is now exercised by employment tribunals and forms part of the fabric of Enlish employment law.
52. Section 94(1) of the 1996 Act provides that “an employee has the right not to be unfairly dismissed by his employer”. The Act contains elaborate provisions dealing with what counts as dismissal and with the concept of unfairness, which may relate to the substantive reason for dismissal or (as in this case) the procedure adopted. Over the past 30 years, the appellate courts have developed a substantial body of case law on these matters. Certain classes of employees are altogether excluded from the protection of the Act. Section 108 excludes those who have not had one year’s continuous service and section 109 excludes those over normal retiring age or 65. The tribunal may make an order for reinstatement, re-engagement or compensation. The latter consists of a basic award and a compensatory award. The basic award is related to the period of service but, by section 122(2), may be reduced by such amount as the tribunal considers just and equitable on account of the complainant’s conduct before dismissal. A compensatory award under section 123(1) shall be, subject to qualifications:
“such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.”
….. 54. My Lords, this statutory system for dealing with unfair dismissals was set up by Parliament to deal with the recognised deficiencies of the law as it stood at the time of Malloch v Aberdeen Corporation [1971] 1 WLR 1581. The remedy adopted by Parliament was not to build upon the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith, leaving the courts to give a remedy on general principles of contractual damages. Instead, it set up an entirely new system outside the ordinary courts, with tribunals staffed by a majority of lay members, applying new statutory concepts and offering statutory remedies. Many of the new rules, such as the exclusion of certain classes of employees and the limit on the amount of the compensatory award, were not based upon any principle which it would have been open to the courts to apply. They were based upon policy and represented an attempt to balance fairness to employees against the general economic interests of the community. And I should imagine that Parliament also had in mind the practical difficulties I have mentioned about causation and proportionality which would arise if the remedy was unlimited. So Parliament adopted the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount.
55. In my opinion, all the matters of which Mr Johnson complains in these proceedings were within the jurisdiction of the industrial tribunal. His most substantial complaint is of financial loss flowing from his psychiatric injury which he says was a consequence of the unfair manner of his dismissal. Such loss is a consequence of the dismissal which may form the subject-matter of a compensatory award. The only doubtful question is whether it would have been open to the tribunal to include a sum by way of compensation for his distress, damage to family life and similar matters. As the award, even reduced by 25%, exceeded the statutory maximum and had to be reduced to £11,000, the point would have been academic. But perhaps I may be allowed a comment all the same. I know that in the early days of the National Industrial Relations Court it was laid down that only financial loss could be compensated: see Norton Tool Co Ltd v Tewson [1973] ICR 45; Wellman Alloys Ltd v Russell [1973] ICR 616. It was said that the word “loss” can only mean financial loss. But I think that is too narrow a construction. The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.
56. Part X of the Employment Rights Act 1996 therefore gives a remedy for exactly the conduct of which Mr Johnson complains. But Parliament had restricted that remedy to a maximum of £11,000, whereas Mr Johnson wants to claim a good deal more. The question is whether the courts should develop the common law to give a parallel remedy which is not subject to any such limit.
57. My Lords, I do not think that it is a proper exercise of the judicial function of the House to take such a step. Judge Ansell, to whose unreserved judgment I would pay respectful tribute, went in my opinion to the heart of the matter when he said:
“there is not one hint in the authorities that the…tens of thousands of people that appear before the tribunals can have, as it were, a possible second bite in common law and I ask myself, if this is the situation, why on earth do we have this special statutory framework? What is the point of it if it can be circumvented in this way? …. it would mean that effectively the statutory limit on compensation for unfair dismissal would disappear.”
58. I can see no answer to these questions. For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.
59. The same reason is in my opinion fatal to the claim based upon a duty of care. It is of course true that a duty of care can exist independently of the contractual relationship. But the grounds upon which I think it would be wrong to impose an implied contractual duty would make it equally wrong to achieve the same result by the imposition of a duty of care.”
… ….
66. My Lords, given this background to the disciplinary procedures, I find it impossible to believe that Parliament, when it provided in section 3(1) of the 1996 Act that the statement of particulars of employment was to contain a note of any applicable disciplinary rules, or the parties themselves, intended that the inclusion of those rules should give rise to a common law action in damages which would create the means of circumventing the restrictions and limits which Parliament had imposed on compensation for unfair dismissal. The whole of the reasoning which led me to the conclusion that the courts should not imply a term which has this result also in my opinion supports the view that the disciplinary procedures do not do so either. It is I suppose possible that they may have contractual effect in determining whether the employer can dismiss summarily in the sense of not having to give four weeks’ notice or payment in lieu. But I do not think that they can have been intended to qualify the employer’s common law power to dismiss without cause on giving such notice, or to create contractual duties which are independently actionable.
67. I would dismiss the appeal.
Gogay v Hertfordshire County Council
[2000] EWCA Civ 228
HALE L.J.:
“The implied term of confidence and trust
It is now well settled that there is a mutual obligation implied in every contract of employment, not, without reasonable and proper cause, to conduct oneself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. This requires an employer, in the words of Lord Nicholls of Birkenhead in Malik v BCCI [1998] AC 20, at p 35A and C,
‘. . . not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment contract implicitly envisages. . . . The conduct must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer’.
Lord Steyn emphasised, at p 53B, that the obligation applies ‘only where there is “no reasonable and proper cause” for the employer’s conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship . . . ‘
……..
Damages
Miss Sinclair argues that, even if there were such a breach, the claimant would not be entitled to compensation for her depressive illness and resulting inability to do residential care work. There is clear authority for the proposition that general damages cannot be awarded for frustration, mental distress or injured feelings arising from an employer’s breach of the implied term of confidence and trust: see Bliss v South East Thames Regional Health Authority [1985] IRLR 308, CA, holding that the principle laid down in Addis v Gramophone Co Ltd [1909] AC 488 applied to this breach as it did to wrongful dismissal; and French v Barclay’s Bank plc [1998] IRLR 646, affirming that proposition despite other observations of the House of Lords in Malik v BCCI [1998] AC 20.
Malik, of course, was not concerned with injured feelings but with financial loss, usually referred to as stigma damage, resulting from the employer’s breach of contract. Both Lord Nicholls (with whom Lord Goff of Chieveley and Lord MacKay of Clashfern agreed) and Lord Steyn (with whom Lord Goff, Lord MacKay and Lord Mustill agreed) held that such damages could be recovered for breach of this implied term. Insofar as Addis v Gramophone Co was thought to be authority to the contrary, it was a departure from the normal principle that damages for financial loss, including loss of reputation, were recoverable in contract, and should not be applied to a breach of the implied term. Lord Nicholls said this at p 39D:
‘Now that this term exists and is normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles. This is as much true if the breach occurs before or in connection with dismissal as at any other time.’
There is, however, a clear distinction between frustration, mental distress and injured feelings, on the one hand, and a recognised psychiatric illness on the other. In Page v Smith [1996] AC 155, the House of Lords held (by a majority) that once it was established that the defendant was under a duty of care to avoid causing personal injury to the claimant, it mattered not whether the injury sustained was physical, psychiatric or both. The cases limiting the ambit of liability in tort for psychiatric injury to secondary victims did not apply to primary victims to whom a duty of care not to cause personal injury was established. As Lord Lloyd of Berwick observed at p 188F:
‘In an age when medical knowledge is expanding fast, and psychiatric knowledge with it, it would not be sensible to commit the law to a distinction between physical and psychiatric injury, which may already be somewhat artificial, and may soon be altogether outmoded.’
Mr Hollow for the claimant argues that no such distinction should be drawn in this case. The employer owes his employees duties both in contract and in tort. In Walker v Northumberland County Council [1995] IRLR 35, at para 74, Colman J pointed out that ‘the scope of the duty of care owed by to an employee to take reasonable steps to provide a safe system of work is co-extensive with the scope of the implied term as to the employee’s safety in the contract of employment’. He awarded damages for a mental breakdown resulting from a breach of that duty. The duty in this case is owed purely in contract, rather than in tort, but there can be no more reason to distinguish between physical and psychiatric injury in this case than there is in the case of other breaches of an employer’s duties.
In my judgment that is correct. There is all the difference in the world between hurt, upset and injury to feelings, for which in general the law does not provide compensation whether in contract or (with certain well defined exceptions) in tort, and a recognised psychiatric illness. The evidence of Dr Goldie in this case was:
‘She is undoubtedly depressed. The descriptions that she gave of the fluctuations in her moods indicate that the depression is evidenced by profound deepening of despair alternating with a hypomanic state. Anti-depressant medication which has been offered and taken since the incident has not helped. Nor has counselling.’
I would therefore hold such damages recoverable unless constrained by authority to the contrary.
One indication to the contrary is an observation of Waller LJ in French v Barclays Bank, at para 57: ‘In my view, the judge was right to conclude that he was constrained by authorities from awarding damages for anxiety, stress and even to health in this case’. There is, however, nothing in the report to suggest that there was evidence of psychiatric illness in that case: paragraph 52 makes it clear that the claimant was appealing against the finding that he was not entitled to damages for injury to his feelings, including stress and anxiety.
Miss Sinclair understandably places great emphasis upon the decision of this court in Johnson v Unisys [1999] IRLR 274. The claimant claimed damages for a mental breakdown allegedly caused by his wrongful summary dismissal for gross misconduct. The Court of Appeal upheld the judge’s decision to strike out the claim. Lord Woolf MR explained the distinction between Addis and Malik thus, in para 31:
‘The true distinction between Addis and Malik is that the breach of contract in Addis was confined to the manner of dismissal while the breach in Malik, although it was repudiatory, was a breach by the bank of the trust and confidence it owed to its employees during the period they were employed. The breach in Malik was of a gravity which entitled the employees to regard themselves as dismissed wrongfully but that was not their complaint. Their complaint related to anterior conduct.’
In Johnson, the claimant’s only complaint was as to the manner of his dismissal. It was ‘no more and no less than an allegation that the defendants failed to follow their own dismissal procedures and that this was procedurally unfair’ (see para 21)
I have to admit to some difficulty with the Johnson case. Lord Woolf recognised that the Malik case ‘does now, however, mean that damages for loss of reputation can be recovered in a case where the damage to reputation is caused by a dismissal which is summary, unfair or without proper notice’ (para 24). Whatever may be the differences between the speeches of Lord Nicholls and Lord Steyn in Malik, that much is clear. If damages for damage to reputation can be recovered for a wrongful dismissal, why cannot damages for psychiatric illness also be recovered? There would still be no breach of the general principle that damages for upset feelings cannot be recovered. It is difficult to discern from the report of Johnson that the distinction between hurt feelings and psychiatric injury was explored before the court: there is certainly no reference to Page v Smith.
The case before us can be distinguished from Johnson. The complaint here relates to a suspension, which manifestly contemplates the continuation of the employment relationship. The clear import of Malik is that the ambit of Addis should be confined. There are in this case two differences from Addis: first this was not a dismissal, and secondly this was psychiatric illness rather than hurt feelings. In my judgment, therefore, the judge was right to award damages for both the financial loss and the non-pecuniary damage resulting from the claimant’s illness.
I recognise that this produces the strange result that, according to Johnson, the defendant authority would have done better had they dismissed rather than suspended the claimant. That simply reinforces my view that the sooner these matters are comprehensively resolved by higher authority or by Parliament, the better.
Finally, Miss Sinclair sought to argue that such losses were not foreseeable at the time the contract was made. To that extent, of course, there is a difference between breach of duty in tort and breach of duty in contract. However, the judge made a clear finding that they were foreseeable at the relevant time, and that is a finding of fact with which this court will not interfere.”
Eastwood & Anor v. Magnox Electric Plc
[2004] UKHL 35
LORD NICHOLLS My Lords, Identifying the boundary of the ‘Johnson exclusion area’, as it has been called, is comparatively straightforward. The statutory code provides remedies for infringement of the statutory right not to be dismissed unfairly. An employee’s remedy for unfair dismissal, whether actual or constructive, is the remedy provided by statute. If before his dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action remains unimpaired by his subsequent unfair dismissal and the statutory rights flowing therefrom. By definition, in law such a cause of action exists independently of the dismissal.
In the ordinary course, 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. Then the resultant claim for loss falls squarely within the Johnson exclusion area.
Exceptionally this is not so. Exceptionally, 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 instance is cases such as those now before the House, when an employee suffers financial loss from psychiatric or other illness caused by his pre-dismissal unfair treatment. In such cases the employee has a common law cause of action which precedes, and is independent of, his subsequent dismissal. In respect of his subsequent dismissal he may of course present a claim to an employment tribunal. If he brings proceedings both in court and before a tribunal he cannot recover any overlapping heads of loss twice over.
If identifying the boundary between the common law rights and remedies and the statutory rights and remedies is comparatively straightforward, the same cannot be said of the practical consequences of this unusual boundary. Particularly in cases concerning financial loss flowing from psychiatric illnesses, some of the practical consequences are far from straightforward or desirable. The first and most obvious drawback is that in such cases the division of remedial jurisdiction between the court and an employment tribunal will lead to duplication of proceedings. In practice there will be cases where the employment tribunal and the court each traverse much of the same ground in deciding the factual issues before them, with attendant waste of resources and costs.
Second, the existence of this boundary line means that in some cases a continuing course of conduct, typically a disciplinary process followed by dismissal, may have to be chopped artificially into separate pieces. In cases of constructive dismissal a distinction will have to be drawn between loss flowing from antecedent breaches of the trust and confidence term and loss flowing from the employee’s acceptance of these breaches as a repudiation of the contract. The loss flowing from the impugned conduct taking place before actual or constructive dismissal lies outside the Johnson exclusion area, the loss flowing from the dismissal itself is within that area. In some cases this legalistic distinction may give rise to difficult questions of causation in cases such as those now before the House, where financial loss is claimed as the consequence of psychiatric illness said to have been brought on by the employer’s conduct before the employee was dismissed. Judges and tribunals, faced perhaps with conflicting medical evidence, may have to decide whether the fact of dismissal was really the last straw which proved too much for the employee, or whether the onset of the illness occurred even before he was dismissed.
The existence of this boundary line produces other strange results. An employer may be better off dismissing an employee than suspending him. A statutory claim for unfair dismissal would be subject to the statutory cap, a common law claim for unfair suspension would not. The decision of the Court of Appeal in Gogay v Hertfordshire County Council [2000] IRLR 703 is an example of the latter. Likewise, the decision in Johnson’s case means that an employee who is psychologically vulnerable is owed no duty of care in respect of his dismissal although, depending on the circumstances, he may be owed a duty of care in respect of his suspension.
It goes without saying that an inter-relation between the common law and statute having these awkward and unfortunate consequences is not satisfactory. The difficulties arise principally because of the cap on the amount of compensatory awards for unfair dismissal. Although the cap was raised substantially in 1998, at times tribunals are still precluded from awarding full compensation for a dismissed employee’s financial loss. So, understandably, employees and their legal advisers are seeking to side-step the statutory limit by identifying elements in the events preceding dismissal, but leading up to dismissal, which can be used as pegs on which to hang a common law claim for breach of an employer’s implied contractual obligation to act fairly. This situation merits urgent attention by the government and the legislature.”
LORD STEYN
“……In other words, the majority held that the statutory regime of unfair dismissal precludes a common law development in respect of wrongful dismissal despite the different meanings of those concepts.
This is the context in which Lord Hoffmann, who gave the leading opinion in Johnson, observed (para 55 (at p 544)) about section 116(1) of the Industrial Relations Act 1971 (the ultimate precursor of the current section 123(1) of the Employment Rights Act 1996):
“. . . I know that in the early days of the National Industrial Relations Court it was laid down that only financial loss could be compensated: see Norton Tool Company Limited v Tewson [1973] 1 WLR 45; Wellman Alloys Limited v Russell [1973] ICR 616. It was said that the word ‘loss’ can only mean financial loss. But I think that is too narrow a construction. The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.”
This observation was relevant to Lord Hoffmann’s reasoning that the development of a general common law remedy as contended for by the employee would have involved a complete or virtually complete overlap with the statutory remedy. Lord Hoffmann’s assumption was shared by the other Law Lords hearing the case. In Dunnachie v Kingston upon Hull City Council [2004] UKHL 36 the House has now unanimously held that section 123(1) of the 1996 Act does not permit the recovery of non-pecuniary loss. While Lord Hoffmann’s observation was in terms of precedent only an obiter dictum it did lend support to his reasoning. That support of the reasoning in Johnson has now disappeared. It does not necessarily follow that, if the true position had been appreciated, Johnson would have been decided differently. But it raises some doubt about the reasoning in Johnson.
…….
The thrust of much of the comment on the central question is summarised by Deakin and Morris (Labour Law, para 5.3, at p 419):
more generally applied, have already prevented the application of the implied term of mutual trust and confidence to many other aspects of the employment relationship. It may be argued that just as employment legislation normally acts as a ‘floor of rights’ in relation to the contract of employment, implicitly encouraging the parties to improve on the basic standards supplied by statute, so the court should be willing, in appropriate cases, to use the enactment of protective legislation as a basis for extending, rather than limiting, recognition of the legitimate common law interests of the employee.”
A footnote to the first quoted sentence observes:
“Thus there has been extensive statutory intervention in the areas of health and safety at work, grievance procedures, and the exercise of employer discretion in relation to occupational pension schemes, all of which have been the subject of judicial innovation in respect of the duty of mutual trust and confidence and which were accepted as legitimate in both Malik and Johnson. . . .”
Hepple QC and Morris (31 ILJ 245, at 253) put the point as follows:
“. . . in Johnson v Unisys Limited, the House of Lords, by a 4:1 majority, stopped the common law developing to ‘reflect modern perceptions of how employees should be treated fairly and with dignity’ in the context of dismissal. The reasoning of the majority has disturbing implications for employment rights in general. Although prepared to contemplate a term that a contractual power to dismiss without cause would be exercised fairly and in good faith, they regarded the introduction of the statutory remedy of unfair dismissal as fatal to the implication of such a contractual duty (and to the imposition of a duty of care).
. . .
The argument that Parliament had intended to freeze out the development of the common law by creating a statutory remedy for unfair dismissal is contentious; the absence of any reference to the common law in the legislation may have occurred because Parliament was content to let the courts develop it in the usual way. Indeed, it would be open to the courts to reason by analogy that a requirement for employers to follow a fair procedure is not regarded by Parliament as unduly onerous. The majority’s reasoning means that although the exercise of the power to suspend must be exercised with due regard to trust and confidence, the more drastic power of dismissal is free from any equivalent constraint.
. . .
In viewing statutory rights as a ceiling rather than a floor, Johnson creates the anomalous situation that employees may be better protected by implied terms in areas in which Parliament has failed or chosen not to legislate than in those in which it has.”
Freedland (The Personal Employment Contract, at 304 and 342) described the principal reasoning in Johnson, founded as it was on an account of the intention of Parliament, as “more than slightly artificial” and “rather contrived”. He stated (at 342-343):
“It must be said that none of these various grounds of decision seems at all compelling in and of itself. In particular, the reasons advanced by the majority of the Law Lords seem rather contrived, and to be in the nature of rationalisations of a prior decision that it would be undesirable as a matter of policy for a claim of this nature to be allowed to succeed. Thus, if the obligation of mutual trust and confidence is a genuine reading of the implied intentions of the parties to the contract of employment, there seems no special reason why it should be regarded as stopping short of controlling the termination of the contract. If, on the other hand, the adjudication is a genuine attempt to comply with the design of the unfair dismissal legislation, it is rather surprising to have regarded Parliament, when it introduced a set of statutory protections for workers with regard to dismissal, as intending, indeed as enjoining, that the common law should not, in the future, develop parallel protections as part of the implied content of their personal work or employment contracts.”
…… It would be wrong now to assume that Addis v Gramophone Company Limited [1909] AC 488 reflected settled law which made impossible the development contended for in Johnson. In Mahmud v Bank of Credit and Commerce International SA [1998] AC 20 Lord Nicholls of Birkenhead observed about Addis (at pp 38H-39D):
“For present purposes I am not concerned with the exclusion of damages for injured feelings. The present case is concerned only with financial loss. The report of the facts in Addis’s case is sketchy. Whether Mr Addis sought to prove that the manner of his dismissal caused him financial loss over and above his premature termination losses is not clear beyond a peradventure. If he did, it is surprising that their Lordships did not address this important feature more specifically. Instead there are references to injured feelings, the fact of dismissal of itself, aggravated damages, exemplary damages amounting to damages for defamation, damages being compensatory and not punitive, and the irrelevance of motive. The dissenting speech of Lord Collins was based on competence to award exemplary or vindictive damages.
However, Lord Loreburn LC’s observations were framed in quite general terms, and he expressly disagreed with the suggestion of Lord Coleridge C.J. in Maw v Jones (1890) 25 QBD 107, 108, to the effect that an assessment of damages might take into account the greater difficulty which an apprentice dismissed with a slur on his character might have in obtaining other employment. Similarly general observations were made by Lord James of Hereford, Lord Atkinson, Lord Gorell and Lord Shaw of Dunfermline.
In my view these observations cannot be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term and this caused financial loss. Addis v Gramophone Company Limited was decided in the days before this implied term was adumbrated. Now that this term exists and is normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles. This is as much true if the breach occurs before or in connection with dismissal as at any other time.”
My analysis was to the same effect: 50A-51E. The other Law Lords in the case agreed with this analysis. On a careful analysis of Addis it will be seen that there was no majority for ruling out the recovery of financial loss flowing from the manner of a wrongful dismissal. The headnote of Mahmud rightly states “Addis v Gramophone Company Limited [1909] AC 488 not followed”. In Johnson the view prevailed that because of the statutory regime the common law development contended for could not be permitted. But in terms of stare decisis the status of Addis remained exactly the same as it was when Mahmud was decided. The reasoning of the majority in Johnson did not re-invigorate the corpse of Addis. In any event, in the present case the House heard no oral argument on the status of Addis.
In Johnson Lord Hoffmann was prepared to accept the existence within the contract of “a separate term that the power of dismissal will be exercised fairly and in good faith”: para 46. Lord Nicholls did not deal with the point. Lord Millett was prepared to countenance a common law term imposing upon the employer “a more general obligation … to treat his employee fairly even in the matter of dismissal”: para 79. This explains the ratio decidendi of Johnson as I have set it out in para 37 above. In my dissenting judgment in Johnson I further pointed out that the implied obligation of mutual trust and confidence was developed in the context of a series of constructive dismissal cases. I cited Hepple and O’Higgins, Employment Law, 4th ed (1981) pp 134-135, paras 291-292. I added that it cannot, therefore, be confined to breaches during the subsistence of the contract: para 21. After a detailed discussion I concluded (para 24):
“The interaction of the implied obligation of trust and confidence and express terms of the contract can be compared with the relationship between duties of good faith or fair dealing with the express terms of notice in a contract. They can live together. In any event, the argument of counsel for the employers misses the real point. The notice provision in the contract is valid and effective. Nobody suggests the contrary. On the other hand, the employer may become liable in damages if he acts in breach of the independent implied obligation by dismissing the employee in a harsh and humiliating manner. There is no conflict between the express and implied terms.”
This was, of course, said in the context of a claim for financial loss.
At the hearing of the present appeals the House did not have the benefit of oral argument on potential scope of the implied obligation of mutual trust and confidence, or what Sir Nicolas Browne-Wilkinson V-C in Imperial Group Pension Trust Limited v Imperial Tobacco Limited [1991] 1 WLR 589, at 597, more simply called “the implied obligation of good faith”. Perhaps it would be conducive to clarity if the latter description is generally used.
As a result of Johnson the law in the vitally important area of personal contracts of employment is in an unsatisfactory state. The cap (now standing at £55,000) under the statutory scheme on compensatory awards for true financial loss is one aspect of the problem. No doubt it is intended to protect the competitiveness of business but if it is allowed to constrain the development of the common law it may come at too high a price in the failure of corrective justice. The inhibitory effect of Johnson on the development of the common law poses a great structural problem. It prevents, and will continue to prevent, the natural and sensible evolution of our employment law in a critical area. I do not believe that Parliament ever intended such a result. A re-examination by Parliament is needed.
Harper v Virgin Net Ltd
[2004] EWCA Civ 271
Lord Justice Brooke
“In Johnson v Unisys [2001] UKHL 13; [2003] 1 AC 518 the House of Lords held that the existence of a statutory remedy for unfair dismissal precluded the development of a common law obligation on an employer to exercise a power of dismissal in good faith. Lord Millett ended his speech (at para 80) in these terms:
“…[T]he creation of the statutory right has made any such development of the common law both unnecessary and undesirable. In the great majority of cases the new common law right would merely replicate the statutory right, and it is obviously unnecessary to imply a term into a contract to give one of the contracting parties a remedy which he already has without it. In other cases, where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And, even more importantly, the coexistence of two systems, overlapping but varying in matters of detail and heard by different tribunals, would be a recipe for chaos.”
See also Lord Hoffmann at paras 54-58 and 66.
In the present case the EAT held that the decision of the House of Lords in Johnson precluded them from upholding the Employment Tribunal’s additional award. In paragraph 39(1) of the judgment of the EAT, Judge Peter Clark explained the position in these terms:
“Parliament has decided that the statutory right not to be unfairly dismissed under section 94(1) ERA will be subject to certain limitations. One restriction on the right, in ordinary unfair dismissal cases (cf the special cases under section 108(3)), is that the complainant must first have completed one year’s continuous service (section 108(1)). The end date of the period of continuous service is the EDT, to be calculated in accordance with section 97 ERA.
“(3) As a matter of binding authority, we consider ourselves required to follow the ratio in Johnson v Unisys, as explained by the Court of Appeal in Eastwood and McCabe. Applied to the present case, that means that an Applicant cannot recover, by way of damages for breach of the contract of employment, loss flowing from the fact of and manner of the dismissal itself. The present case is a paradigm example. The Applicant’s complaint is directed solely to Mr Knox’s decision to summarily dismiss her at 5.15 pm on 2nd March 2001. Until then she had been subject to disciplinary proceedings which had, only four hours earlier, resulted on internal appeal in a formal written warning, that is action short of dismissal, being upheld. It is solely the fact of dismissal, itself certainly unfair in the view of
Ms McCafferty, in her powerful submissions, referred us to passages in the speeches in Johnson of Lord Nicholls (at para 2), Lord Steyn (at para 17, final sentence) and Lord Hoffmann (at para 37) as showing variously that the House of Lords recognised in that case that the law relating to employment contracts had always possessed certain special features, and that today the judges when developing the law must have regard to the policies expressed by Parliament in legislation. To permit a claim such as that now being advanced by Ms Harper would, in Lord Nicholls’s words (as adapted to the different situation we are considering):
“…fly in the face of the limits Parliament has already prescribed on matters such as the classes of employees who have the benefit of the statutory right … and the short time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law.”
For these reasons I would dismiss this appeal. “
N -v- Thomas Crosbie Holdings Ltd
[2013] IEHC 127
Laffoy J.
Damages: general observations
33. Counsel for the plaintiff relied on the commentary on the general principles on which damages are awarded set out in Redmond on Dismissal Law in Ireland (2nd Ed.). As it pointed out at paragraph 11.04, where an employee is wrongfully dismissed he is entitled, subject to the rules of mitigation, to compensation for loss of remuneration during an unexpired fixed period of contractual employment, but generally damages on any other basis are excluded. Compensation covers benefits-in-kind, benefits under pension schemes and so forth, as well as commission. The position in relation to fixed-term contracts is outlined as follows (at para. 11.05):
“The general principle applied by the courts to fixed-term contracts which cannot be unfixed by notice recognises an employee’s right to damages in respect of loss of employment for the remainder of the fixed-term, subject only to the rules concerning mitigation of loss.”
In this case there was implicit recognition on the part of the defendant from the outset of the purported termination process that the plaintiff was entitled to be compensated for loss of remuneration for the remainder of the term of his contract, because compensation was proffered (and accepted in mitigation of loss) for the six month’s notice period which the defendant contended would terminate his contract, which, on the basis of the finding made above was not correct.
34. Essentially, the following issues arose at the hearing in relation to the quantification of the damages to which the plaintiff claimed he was entitled:
(a) as regards damages for loss of remuneration, the defendant took issue with the manner in which the plaintiff sought to address taxation issues in the quantification thereof;
(b) the defendant contended that, on the basis of the evidence, the plaintiff had failed to mitigate his loss; and
(c) the defendant contended that the damages claimed by the plaintiff as compensation for alleged damage to his reputation having regard to the manner in which the defendant purported to terminate his contract were not recoverable.
Having set out the relevant provisions of the Executive Contract and the plaintiff’s revised claim for damages for loss of remuneration, I will consider each of those issues in turn.
Taxation issues
38. The revised schedule, in my view, created confusion in relation to the tax situation and the confusion was compounded by the evidence adduced, other than the evidence of Ms. Mullen. In addition to Ms. Mullen, two taxation experts gave evidence, one on behalf of the plaintiff and the other on behalf of the defendant. The plaintiff’s objective in calling a tax expert was to demonstrate that the appropriate approach is to assess the plaintiff’s damages for loss of remuneration on the basis of his gross “before tax” entitlement, whereas the defendant’s position was that the assessment should be on the basis of net “after tax” entitlement, citing the decision of the High Court in Carey v. Independent Newspapers (Ireland) Ltd. [2004] 3 I.R. 52, in which Gilligan J. calculated the damages due to the plaintiff as “six months’ net pay in lieu” of notice. The final position adopted by counsel for the plaintiff in his closing submissions was that the claim for loss of remuneration could be based on net “after tax” pay provided it was clear that the plaintiff had no liability for tax.
39. Notwithstanding that position, I find it necessary to consider the tax position in depth. The evidence has given rise to a lot of confusion. In particular, I did not find the evidence of either tax expert to be in point, because both seemed to envisage that the payment to the plaintiff would involve an assessment of tax due by the plaintiff in accordance with s. 112 of the Taxes Consolidation Act 1997 (TCA 1997) and that the defendant, as employer, would be making deductions in respect of PAYE, PRSI and the Universal Social Charge from the damages awarded by the Court. That fails to take account of the manner in which the Court awards damages for wrongful dismissal, which has been applied since the decision of the High Court (Kenny J.) in Glover v. B.L.N. Ltd. (No. 2) [1973] I.R. 432, by which this Court is bound.
40. Three elements of the plaintiff’s claim for damages for wrongful termination in the Glover case which were allowed were sums claimed in respect of salary for twenty months, directors’ fees, and commission. It had been contended by the defendant that, when calculating the part of the damages referable to those three elements, the Court should make a deduction for the income tax and surtax which the plaintiff would have had to pay on those elements, if he had remained in the defendant’s employment until the expiration of his contract, reliance being placed on the decision of the House of Lords in British Transport Commission v. Gourley [1956] AC 185. In addressing the issue before him, Kenny J. (at p. 438) stated that ss. 8 and 9 of the Finance Act 1964 (the Act of 1964), which had been in force at the relevant time, had the effect that amounts exceeding £3,000 awarded for damages for wrongful dismissal were taxable. Those sections had been replaced by s. 114 and s. 115 of the Income Tax Act 1967 by the date of the judgment of Kenny J. The relevant corresponding provisions are now contained in s. 123 TCA 1997 and s. 201 of the same Act. The first question which was addressed by Kenny J. was whether damages for loss of earnings, fees and commissions, apart from ss. 8 and 9 of the Act of 1964, were chargeable to tax. In answering that question he stated (at p. 438):
“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 the many decisions in which judges have said that damages for wrongful dismissal are not taxable. . . The measure of the damages may be the amount of the remuneration but that does not make them taxable. In so far as the damages in this case consist of a sum calculated by reference to salary, commission and director’s fees, they are not taxable in Mr. Glover’s hands, apart from ss. 8 and 9 of the Act of 1964.”
41. Kenny J. then went on to consider the question whether ss. 8 and 9 of the Act of 1964 had made damages, insofar as they related to salary, directors’ fees and commission, chargeable to tax or whether so much thereof as exceeded £3,000 only was taxable. He answered that question as follows (at p. 439):
“In my view, when the amount of the damages for loss of remuneration exceeds the sum mentioned in s. 9, the first £3,000 is not chargeable to tax. It follows that £3,000 of the damages in this case, insofar as they relate to loss of salary, commission and fees, are not liable to tax under sections 8 and 9.”
The current threshold corresponding to the sum of £3,000 stipulated in s. 9 is identifiable in s. 201(5)(a) of TCA 1997, which provides that income tax shall not be charged by virtue of s. 123 in respect of payment of an amount not exceeding the basic exemption and, in the case of a payment which exceeds that amount, shall be charged only in respect of the excess. In s. 201(1)(a) the expression “the basic exemption” is defined as meaning “€10,160 together with €765 for each complete year of service, up to the relevant date, of the holder in the office or employment in respect of which the payment is made”.
42. In the Glover case it had been argued before Kenny J. that the decision in the Gourley case applied only to damages awarded for loss of remuneration in accident cases and not to those given for wrongful dismissal. Kenny J. rejected that argument. He also rejected an argument that the Gourley case had been wrongly decided and he stated (at p. 441):
“An award of damages by a court is intended to compensate the plaintiff for the loss which he has suffered: in some cases the damages may be punitive but compensation or restoration (so far as money can do it) to the position before the accident is the main element. Therefore, it is irrelevant that the defendant will profit by an allowance being made for tax against the loss. If the damages under £3,000 are not chargeable to tax while the lost remuneration would have been, the plaintiff would be getting an award which would exceed the loss which he had suffered by being deprived of the remuneration.”
Applying the decision in the Gourley case, which he stated accorded with reason and principle, Kenny J. held that it should be applied to the first £3,000 of the damages for loss of salary, fees and commission in the Glover case.
43. The effect of the Glover decision was considered in the Supreme Court in Sullivan v. Southern Health Board [1997] 3 I.R. 123, in which Murphy J. made some observations in relation to the incidents of taxation on damages (at p. 137). He quoted from his own judgment in Allen v. Ó Súilleabháin (Unreported, Supreme Court, 11th March, 1997) at p. 11 where he had stated:
“As I understand it, the principle enunciated by Kenny J. in Glover v. B.L.N. (No. 2) . . . and accepted by Finlay P. in Hickey v. Roches Stores [1980] ILRM 107, is that where damages (or the actual or notional income to be derived from the investment thereof) are exempt from tax that 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. The logic of this proposition is clear. The failure to make such an adjustment would result in the plaintiff receiving compensation which might very much exceed the loss which he suffered.”
Referring to the Glover case, Murphy J. stated that what he described as “the silver handshake” provisions of s. 8 of the Act of 1964 imposed tax on damages awarded as compensation for wrongful dismissal subject to an exemption in respect of the first £3,000 of such damages, which brought into play the deduction of the tax element from all or part of the award.
44. In the Sullivan case, the problem with which the Supreme Court was confronted was that the liability to tax in respect of the damages awarded or a part thereof had not been explored in argument at first instance. Murphy J. stated that he considered it would be improper for any court to compute the defendant’s liability to damages on the basis of the plaintiff’s liability to tax without a convincing case having been made for the adoption of that course. A retrial on the issues of damages was directed.
45. Having reviewed the evidence of the taxation experts and Ms. Mullen’s report in the light of the authorities to which I have referred, I think the following observations are pertinent:
(a) On the authority of the decision of Kenny J. in the Glover case, it would appear that s. 112 TCA 1997, to which the experts referred, is not the charging provision for the assessment of tax on damages for wrongful dismissal.
(b) On the basis of the same authority, it would appear that s. 123 TCA 1997 is the charging provision. 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. In a case such as this, by virtue of subs. (4)(b) of s. 123, 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. Sub-section (6) provides that where a payment chargeable to tax under s. 123 is made, it shall be 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.
(c) Notwithstanding that s. 192A TCA 1997 was also referred to in evidence, my understanding is that it was accepted that it has no application, because the Court is not concerned with statutory protection of an employee’s rights.
(d) While, if it was being assessed, the liability of the plaintiff under s. 123 would be subject to the exemptions and reliefs provided for in s. 201 TCA 1997, which I have outlined in para. 41 above primarily for illustrative purposes, the approach adopted in the Glover case to reverse the more benign effect of the application of s. 123, than the effect if the employee continued in employment and s. 112 applied, which must be followed by the Court, means that it is not necessary to assess the effect of s. 201 and I noted that Ms. Mullen did not do so in Appendix 2.
(e) Of course, there remains the consequence of the application of s. 123(4)(b), which is adverse to the plaintiff and the effect of which Ms. Mullen calculated at €23,481.69 as referred to at (c) in para. 37 above. It has been suggested by Redmond (op. cit.), (at fn. 82 at p. 224) that a solution to that problem might be to introduce income averaging or “top slicing” provisions to ensure that these damages were not subjected to unduly high rates of tax by virtue of being taxed wholly in one year. As I understand it no such provisions have been enacted and the plaintiff must bear that consequence.
……
….
47. The evidence adduced and the submissions made in this case bear out the comment in Redmond (op. cit.) (at para. 11.46) that the law governing the calculation of the effect of tax liability on damages for loss of earnings or earning capacity is unsatisfactory and controversial. The evidence adduced by the parties in this case suggests that the taxation experts found the law confusing. In particular, the evidence in this case as to the relevant charging provision, whether it is s. 112 or s. 123 TCA 1997, and as to who is responsible for paying the tax, was very confusing. As I have found, the relevant charging provision which the Court has to have regard to is s. 123. Further, although the proposition that, while 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, “it is irrelevant that the defendant will profit by allowance being made for tax against the loss” (per Kenny J. in the passage in Glover quoted at para. 42 above) is somewhat disconcerting in the current economic climate, it is clear that this Court is bound to follow the approach adopted in the Glover case. Liability for remission of tax is a matter which concerns the defendant and the Revenue Commissioners, and liability for tax on income received by the plaintiff is a matter which concerns the plaintiff and the Revenue Commissioners. Finally, on the very unusual facts of this case arising, principally, from the unusually long term of the plaintiff’s employment under the Executive Contract and the fact that he will be compensated “up front” in respect of prospective loss, the justice of the situation may be met notwithstanding that subs. (4)(b) of s. 123 is applied without any adjustment or “top slicing”.
48. However, before reaching any firm conclusion on the quantum of damages for loss of remuneration, it is necessary to address the argument advanced by the defendant that the plaintiff has not mitigated his loss.
Mitigation of loss
…..53. By way of general observation, endeavouring to resolve the issue of mitigation of loss in this case is difficult, and, like all other difficult aspects of the case, it is difficult because of the extremely unusual basis on which the plaintiff was employed by the defendant, which, in the events which happened, prima facie, have entitled the plaintiff to damages for breach of contract which represent three years and eleven month’s remuneration. Even in the uncertain economic climate prevailing, it is reasonable to conclude that it is probable that at some time prior to 16th June, 2016 the plaintiff 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. As regards setting up his own business, while the evidence as to his current assets is far from precise, it is reasonable to infer that he is in a much more advantageous position than most employees who are made redundant. Finally, apart from the unusual features of the plaintiff’s contract of employment with the defendant, another unusual feature of this case is that his claim came on for hearing in the same month as his payment in lieu of notice and his obligations under Clause 17.1 expired. Therefore, his situation is not analogous to the situation which Smyth J. faced in Sharkey v. Dunnes Stores (Ireland) Ltd. [2004] IEHC 163, an authority relief upon by counsel for the defendant.
54. Obviously, there is an element of unpredictability involved in determining at what point in time prospectively the plaintiff should reasonably obtain an alternative source of income. However, on the basis of the evidence, I think that a reasonable cut-off point would be the expiration of two years from 17th July, 2012. It is important to emphasise that no finding is being made that up to this point in time the plaintiff has failed to take steps to mitigate his loss.
Quantum of damages characterised as special damages
55. In summary, I consider that the basis on which damages for loss of remuneration should be quantified is that the plaintiff should be compensated for being deprived of the remuneration he would have received from the defendant under the Executive Contract for two years from 17th July, 2012. The benefits under the Executive Contract in respect of which he is entitled to be remunerated or reimbursed are:
(a) the salary including the 2% increase agreed between the parties with effect from 29th February, 2012;
(b) the bonus;
(c) the car allowance; and
(d) the pension contributions.
Items (a) to (c) inclusive are the remuneration elements of the damages.
56. As regards the pension contributions, which Ms. Mullen has classified as not being subject to tax, which for the years 2013 and 2014 (per Appendix 1 to Ms. Mullen’s report) aggregate €12,376.28, there was no real debate at the hearing as to whether they should be included or excluded in the award of damages. Having regard to the fact that the pension scheme was in being when the Executive Contract was entered into, that the defendant agreed to continue to pay the defined contributions into it at the rate and for the period by reference to the plaintiff’s age set out therein and that the plaintiff is now forty eight years of age and will be within the agreed age related period until 16th July, 2014, I think it is reasonable to assume that the plaintiff will continue to pay the contributions, so that for, the period which I have identified, he should recoup those payments from the defendant.
57. The tax exigible on the remuneration element of the damages should be assessed in accordance with the decision in the Glover case under the relevant charging provision, that is to say, s. 123 TCA 1997. As it is not the Court’s function to attempt to calculate the tax exigible on the remuneration elements under the relevant charging provision (s. 123) from 17th January, 2013 (which I consider to be the “date of termination” for the purposes of s. 123(4)) to 16th July, 2014, factoring in the necessary adjustment in accordance with the Glover decision, unless the parties can agree a figure, that calculation will have to be carried out by Ms. Mullen. If the defendant disputes her calculation, then the matter will have to be the subject of further evidence and submissions to the Court. The objective is to ascertain the net “after tax” amount which will compensate the plaintiff for the loss of salary, car allowance and bonus in the period from 17th January, 2013 to 16th July, 2014, the six month period up to 17th January, 2013 having been already addressed by the defendant in the payment in lieu of notice.
58. Finally, as has been made clear earlier, the Court is not concerned with the issue of redundancy or any entitlement of the plaintiff to a payment under the Act of 1967. Therefore, in assessing the damages for the loss of remuneration of which the plaintiff has been deprived, in my view, the payment of €34,272 made by the defendant to the plaintiff in respect of statutory redundancy should not be deducted, as was done at (g) in the revised schedule.
General damages
59. It was submitted on behalf of the defendant that, as a matter of law, having regard to the decision of the House of Lords in Addis v. Gramophone Co. Ltd. [1909] AC 488, which has been followed in this jurisdiction, the plaintiff is not entitled to compensation for loss of reputation and injury to his feelings as regards the manner in which his employment was terminated. On the other hand, counsel for the plaintiff made it clear that, while it is the plaintiff’s position that the manner in which his employment was terminated had a prejudicial effect on him and was stressful, he is not claiming damages for personal injuries. The basis of his claim is that there was damage to his reputation in the community. Counsel for the plaintiff submitted that there has been a practice to award a small amount of compensation in cases such as this and that that practice prevails at Employment Appeals Tribunal level.
60. I do not consider it necessary to consider the current status in this jurisdiction of the principle established in the Addis Gramophone case, which was analysed by Gilligan J. in the Carey case (at p. 9 et seq.) because I consider that the plaintiff’s claim is simply not maintainable on the facts.
C v Eircom Limited
[2006] IEHC 380
Laffoy J.
“It seems to me to be implicit in the first issue that the defendant recognises that, had her secondment not been terminated, the plaintiff would have been entitled to be paid commission. Even if that is not the case, in my view, she would have been entitled to commission if she had earned it. On its proper construction, the letter of 21st November, 2000 meant that the bonus scheme, as it applied to the plaintiff, would be replaced by a commission scheme from April, 2001. This construction is consistent with the understanding of the plaintiff and of her line manager, Mr. O’Sullivan, at the time.
The essence of the first issue is whether the termination of the plaintiff’s secondment and the consequent deprivation of the opportunity to earn commission constitute a breach of contract on the part of the defendant. What happened in fact is that the defendant closed down part of its business in the United Kingdom. While reiterating that the passage from McGregor which I have quoted above is concerned with the normal measure of damages for wrongful dismissal, which does not arise here, the principles set out there are apposite to a situation in which an employer terminates a special contract with an employee, but not the underlying contract of employment. There is a footnote in McGregor to the effect that the question whether there has been a breach in a context where the defendant’s business has closed down is often put in the form whether the case falls within Turner v. Goldsmith [1891] 1 Q.B. 544, CA, on the one hand, or within Rhodes v. Forwood (1876) 1 App. CAS. 256, on the other. Turner v. Goldsmith was one of the two cases on which counsel for the plaintiff relied in support of the plaintiff’s claim for commission, the other being Devonald v. Rosser & Sons [1906] 2 K.B. 728.
In Turner v. Goldsmith the plaintiff had been employed under a contract in writing by the defendant, a shirt manufacturer, as an agent, in reality as a travelling salesman, for a term of five years on the basis that he would be remunerated by commission. After about two years the defendant’s manufactory was burned down. The defendant did not resume business and did not employ the plaintiff thereafter. The plaintiff brought an action for damages. The Court of Appeal held that the action was maintainable, and that the plaintiff was entitled to substantial damages because the defendant, having agreed to employ the plaintiff for five years, did not fulfil that agreement unless he sent him a reasonable amount of samples to enable him to earn his commission, and that the defendant was not excused from fulfilling his agreement by destruction of his manufactory by fire. Linley L.J. distinguished Rhodes v. Forwood (at p. 549) on the basis that there had not been any express contract to employ the agent in that case and such contract could not be implied. In the case under consideration there was an express contract to employ the plaintiff. Linley L.J. went on at p. 550 to consider the circumstances in which a positive contract would be subject to an implied condition that the parties should be excused in case, before breach, performance becomes impossible without default of the contractor and he stated:
“… the contract will be treated as subject to an implied condition that it is to be in force only so long as a certain state of things continues, in those cases only where the parties must have contemplated the continuing of that state of things as the foundation of what was to be done.”
Counsel for the defendant, albeit in a different context, referred to the following passage from the concurring judgment of Kay L.J. in Turner v. Goldsmith (at p. 550):
“If it had been shewn that not only the manufactory but the business of the defendant had been destroyed by vis major, without any default of the defendant, I think the plaintiff could not recover. But there is no proof that it is impossible for the defendant to carry on business in articles of the nature mentioned in the agreement.”
That passage was clearly obiter.
…..
Arrears of salary
The issue as posed on the defendant’s list is whether the plaintiff has suffered any loss of salary as a result of the premature termination of her secondment contract. The answer, unambiguously, is that she has not.
However, this issue has arisen out of a mathematical conundrum which counsel for the plaintiff and counsel for the defendant have not been able to resolve. The plaintiff claimed the sum of €79,711 as representing the difference between what the plaintiff was paid in the three years ending 3rd April, 2003 and what she would have earned if her secondment had continued and she earned commission equivalent to 100% of her salary in the second and third years. Counsel agreed the appropriate figure at €78,000, but as I understand it, that figure includes a figure of €5,151 in addition to the euro equivalent of Stg.£48,000. In the interest of saving time and costs, the defendant has conceded on an arbitrary basis that the sum of €5,151 should be awarded to the plaintiff under the heading of arrears of salary. On that basis, I calculate the aggregate amount due to the plaintiff in respect of commission and arrears of salary at €50,682, of which €45,531 is referable to commission and €5,151 to arrears of salary
Removal/Relocation Expenses
This is the only remaining issue which arises directly out of the termination of the plaintiff’s secondment, as opposed to the manner in which she was treated by the defendant thereafter. The issue on the defendant’s list under this heading is whether the plaintiff is entitled to the sum of €11,672 in respect of removal expenses. …………..
The first point which I think is relevant is that the property acquired in the United Kingdom was acquired by the plaintiff and Mr. Daly jointly. Mr. Daly supported the plaintiff’s claim in this Court and, in the circumstances, I think it is reasonable to assume that the plaintiff on her own account incurred half of the costs and expenses in connection with the sale of the property.
Secondly, it is clear on the evidence that the sale of the property in 2002 was a direct consequence of the termination of the secondment of the plaintiff and Mr. Daly. In circumstances in which the secondment of the plaintiff was terminated before the agreed period, in my view, the defendant cannot limit the plaintiff to the provision in the secondment contract in relation to the transportation of personal effects. Further, the defendant cannot limit the plaintiff to the provision which is made in the document entitled “Eircom Relocation Scheme (Republic of Ireland)”, which was put in evidence. As I have held, the termination of the plaintiff’s secondment was in breach of the terms of her secondment contract and she is entitled to recover by way of damages the costs and expenses she has incurred by reason of the breach.
I am satisfied that the plaintiff is entitled to recover the sum of €11,672 from the defendant as special damages.
………….Although I believe it is not really apposite to the issues I am now discussing, I will refer to the passage from McGregor upon which counsel for the plaintiff relied in making the case that the plaintiff was entitled to damages to compensate her for harm to her career prospects caused by the failure of the defendant to give her meaningful work on the termination of her secondment. The passage relied on starts at para. 28-023 and is in the following terms:
“Today there have come into prominence claims by employees for breach of an implied term in the contract of employment of trust and confidence and these have important repercussions upon the issue of damages. The leading case is Mahmud v. Bank of Credit and Commerce International SA [[1998] AC 20] in the House of Lords. The claimants, who were two long-serving employees of the defendant bank which collapsed as a result of a massive and notorious fraud perpetrated by those controlling the bank and who, having been made redundant by the bank’s liquidators, thereafter found difficulty in obtaining employment because of their association with the bank, made a claim for what was referred to as ‘stigma compensation’ arising from their having been put at a disadvantage in the labour market. The House of Lords allowed their claim. It was held that, provided a relevant breach of contract was established, financial loss in respect of damage to reputation could be recovered for breach of a contract of employment. Here the employer was in breach of its obligations to its employees not to conduct a dishonest or corrupt business, this obligation being 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. …
Thus the decision in Mahmud is of great importance as it recognises for the first time that damages may be recoverable for financial loss arising from damage to an employee’s reputation resulting from breach of the employment contract, thereby making an inroad upon the common understanding of Addis v. Gramophone Company [[1909] AC 488].”
In the first supplement to the 7th edition of McGregor it is pointed out that the decision in Mahmud is taken further in Eastwood v. Magnox Electric plc [2004] UKHL 35.
The reason I suggest that the decision of the House of Lords in Mahmud is not really apposite is that the plaintiff is still an employee of the defendant, she has not been put in the position of seeking alternative employment, and the question of “stigma” damages does not arise. For the same reason, I consider it unnecessary to express any view on the status in this jurisdiction of the decision in the Addis case in the light of recent developments in the United Kingdom, except to point out that it seems to me to be of no relevance here, as it was a case of wrongful dismissal and the issue was whether the dismissed employee was entitled to damages for hurt feelings and loss arising from the manner of his dismissal. However, I do consider that as a matter of principle a contractual term of mutual trust and confidence which was recognised by the House of Lords in the Mahmud case should be implied into each contract of employment in this jurisdiction by operation of law.
What seems to me to be apposite to the plaintiff’s position is a statement made in the commentary in McGregor on the normal measure of damages for wrongful dismissal when dealing with the amount which an employee would have earned, to which I have alluded earlier. McGregor states at para 28-005:
“That the amount which the employee would have earned under the contract may be subject to the loss of a chance doctrine is shown, as is the computation of the damages when this is so, by Ministry of Defence v. Wheeler [[1998] 1 WLR 637, C.A.]. The loss of a chance doctrine, however, must not be carried too far in wrongful dismissal, as indeed in other, cases.”
As the plaintiff is still an employee of the defendant it seems to me that the issue which arises is whether the defendant as her employer was under a contractual obligation, beyond the payment of her salary, to provide her with work so that she would have an opportunity to gain experience, pursue promotion in her job and advance her career. In my view, the defendant was under such an obligation, if not expressly (which I believe is the correct interpretation, because under the letter of appointment dated 25th March, 1999 the plaintiff was engaged not only to receive pay but to work in a particular capacity) then under an implied term in the plaintiff’s contract of employment, whether as a facet of the obligation to maintain mutual trust and confidence or otherwise. Further, I consider that the defendant was in breach of that obligation. So the answer to issue (a) is in the affirmative. In dealing with the remaining issues, I think the correct approach is to reverse the order of issues (b) and (c) and I propose considering next the extent of the defendant’s breach and the extent to which the plaintiff contributed to the factual situation that she has only attended at work on one day since 31st May, 2001.
I have no doubt that the defendant was in breach of its contractual obligation to the plaintiff in the two years prior to June, 2003. The defendant should have identified an appropriate position for the plaintiff in Dublin in the TRS3 grade and should have offered it to the plaintiff. It was canvassed with the plaintiff in her cross-examination that she should have taken the initiative with the defendant in relation to her assignment. I am satisfied on the evidence that the plaintiff did all she could be expected to do. It is not clear on the evidence who, if anybody, in the Human Resources division of the defendant had responsibility for placing the plaintiff in an appropriate position after May, 2001. What is clear is that the defendant was wholly responsible for the failure to place the plaintiff.
In relation to the period between June, 2003, when the plaintiff was instructed to attend at the RBU, and 22nd February, 2005, when the first job offer was made to her, I am of the view that the plaintiff did not contribute to the failure to assign her to an appropriate position. I have made that finding on the evidence of Mr. MacBradaigh, which I found to be candid and non-partisan. It is clear on the evidence that the RBU was a core element, and a vital facility in, of the restructuring of Telecom under the strategy set out in the Blue Book and, in particular, in redeployment or easing the departure of personnel. However, it is also clear on the evidence that by June, 2003 it was under resourced and it was no longer performing the role which it had performed previously, at any rate, in Dublin. While I consider that one of the concerns voiced by the plaintiff, concern for her safety at the RBU premises in Exchequer Chambers, verged on the ludicrous, I consider that her scepticism as to whether she would get any training there was justified. On the evidence, I am satisfied that she would not have obtained any training had she attended the RBU and I am also satisfied that it is highly improbable that her attendance would have resulted in the early offer of an appropriate position. In reaching that conclusion, I am taking into account the fact that the plaintiff’s grade was lower than that of the other attendees at the RBU at the time and that there would have been a greater range of opportunities available to an employee of her age, with her qualifications and at her grade than would have been available for attendees occupying more senior grades. I find it extraordinary that the information sought by the plaintiff’s solicitor on her behalf in relation to the RBU was not furnished, although it is consistent with the approach of the defendant to the plaintiff in the four years following the termination of her secondment. I think it would not be unreasonable to infer that the defendant’s objective in instructing her to attend at the RBU was with a view to hastening her departure from the defendant.
…..General damages
The final issue listed by the defendant was whether the plaintiff is entitled to general damages in respect of any matter raised in the other issues and, if so, the amount of such damages. It is not necessary to express any view on the contention of counsel for the defendant that general damages are not recoverable for breach of a contract of employment. In my view, no evidence has been adduced which would support an award of general damages, and, in particular, no medical evidence has been adduced that the defendant’s treatment of the plaintiff caused injury to her health rather than ordinary stress.
General observations
The plaintiff’s case is an unusual case, although not unique. It is unusual because of the commitment of the defendant, arising from the Blue Book, not to invoke compulsory redundancy against an employee. The spectre of voluntary leaving and the financial arrangements which could accompany it, in other words a severance package, overshadowed this case. However, this case is concerned only with measuring the plaintiff’s loss while she remains an employee of the defendant. It is not concerned with determination of her employment or voluntary leaving.
The order
There will be judgment in the sum of €87,354 made up of the following components:
(a) €50,682 in respect of commission and arrears of salary;
(b) €11,672 in respect of relocation expenses and
(c) €25,000 as loss of chance damages.
As regards components (a) and (b), the award is based on the gross figures which were adduced in evidence. It is a matter for the parties to address any taxation implications which ensue.
Sunday Newspapers Ltd -v- K & Anor
[2007] IEHC 324
Smyth J.
“This appeal comes before the Court pursuant to Section 15(6) of the Protection of Employees (Fixed-Term Work) Act, 2003 (“the 2003 Act”), which provides:
“A party to proceedings before the Labour Court under this section may appeal to the High Court from a determination of the Labour Court on a point of law and the determination of the High Court shall be final and conclusive.”
The background to the litigation is that on 25th October 2005 a Rights Commissioner heard complaints under the 2003 Act brought by the two Defendants (“the claimants”), both of whom are members of the Technical, Engineering and Electrical Union (T.E.E.U) (“the Union”). The Plaintiff company (“the company”) submitted that both claimants had signed a severance agreement which, inter alia, stated as follows:-
“Lump Sum
This is in full and final settlement of any and all outstanding entitlements whether statutory or otherwise, e.g. Notice Pay, Collective Agreement Notice, Holidays, Statutory Redundancy, and any other discretionary payments/allowances. This is subject to the Parting Terms document.”
“Acknowledgement
This agreement is based on any/all claims in relation to my employment with Sunday Newspapers Limited and/or Terenure Printers Limited, stated or as yet un-stated, being fully resolved (including, but not limited to all claims under the Unfair Dismissals Acts, the Minimum Notice and Terms of Employment Acts, the Protection of Employment Acts and the Redundancy Payments Acts and all or any employment legislation). I have read and understand the above agreement and by my signature below acknowledge and accept the terms in full and final settlement.”
….Much learned argument was put before the Court by counsel for the parties under ss. 6 and 12 of the 2003 Act. It is unnecessary to seek to resolve all the differences of interpretation of nice points of statute law. In the instant case there is as an undisputed fact, a written agreement signed by the parties on 13th July 2005. Section 12 of the 2003 Act provides:-
“Save as expressly provided otherwise in this Act, a provision in an agreement (whether a contract of employment or not and whether made before or after the commencement of the provision concerned of this Act) shall be void insofar as it purports to exclude or limit the application of, or is inconsistent with, any provision of this Act.”
The Labour Court noted that this provision is in similar terms in other employment rights statutes (e.g. s.13 of the Unfair Dismissals Act, 1977, s.11 of the Payment of Wages Act, 1991 and s.14 of the Protection of Employment (Part-time Work) Act, 2001. In Hurley v. Royal Yacht Club [1997] E.L.R. 225 Judge Buckley in the Circuit Court considered “under what circumstances can claims be legitimately compromised”? In the context of s.13 of the Unfair Dismissals Act, 1997, and stated:
“In several areas of the law the Supreme Court has held that any consent by a person to waive a legal right which that person has, must be an informed consent. This doctrine must surely apply to contracting out provisions and to section 13 in particular.”.
(The judge then having reviewed various determinations of the Employment Appeals Tribunal) continued as follows:-
“I am satisfied that the applicant was entitled to be advised of his entitlements under the employment protection legislation and that any agreement or compromise should have listed the various Acts which were applicable, or at least made it clear that this had been taken into account by the employee. I am also satisfied that the applicant should have been advised in writing that he should take appropriate advice as to his rights, which presumably in his case, would have been legal advice. In the absence of such advice I find the agreement to be void.”
Mr Kerr, B.L, for the claimants accepted that the important aspect of advice was that it be, as stated by the Circuit Judge “appropriate advice”. It is not imperative that it be professional legal advice in writing. In the instant case it is undisputed that at all material times prior to 13th July 2005 an issue existed between the parties as to whether the claimants (fixed term employees or workers) were being treated in a less favourable manner than comparable permanent employees of the company. While the status and skill of the relevant trade union officials representing the claimants differed such was not an issue of moment in the Labour Court determination.
Even if, as determined by the Labour Court, the form of agreement was of a stereotype and even if as determined
“The claimants were called into the office and presented with the waiver and asked to sign it so as to obtain the payment which they had been offered. As a result of the advice which the claimants had obtained from the Department of Enterprise Trade and Employment, and the subsequent advice from their Union, they believed that they could not contract out of their rights and that any document which they signed would not prevent them from pursuing a claim under the Protection of Employees (Fixed-Term Work) Act, 2003.”
altogether from any question of an absence of good faith and straight dealing, if such was the belief of the claimants, there is in point of law the difficulty that the Labour Court in an earlier part of its determination held (referring to the Defendants) “They were advised as to the provisions of the Protection of Employees (Fixed-Term Work) Act, 2003″. If the claimants believed as determined by the Labour Court they could not credibly or at all sign “in full and final settlement”. If the claimants or either of them signed the Severance Agreement in the form in which they did with the intention of taking further action in the matter – they so deceived the company (Appellant employer), that makes a sham and a mockery of seeking to conclusively resolve an employment dispute. In my judgment the Labour Court erred in law in allowing the claimants to consider as void the Severance Agreement because they mistakenly believed they had been advised that s.12 of the 2003 Act meant that the severance agreements would not preclude them from bringing claims pursuant to the 2003 Act. The section does not preclude severance agreements, settlement agreements or other compromises of claims or potential claims pursuant to employment legislation (Talbot v. The Minister for Labour (The High Court, Barron, J. Unreported 12th December, 1984); PMPA Insurance Company Limited v. Keenan & Others [1985] ILRM 173; Minister for Labour v- O’Connor and Irish Dunlop Ltd. (The High Court, Kenny, J. Unreported 6th March 1973).
It was submitted on behalf of the Claimants that the Court should follow the decision of the Supreme Court in PMPA v- Keenan [1985] ILRM 173, but in my judgment that case is clearly distinguishable from the instant case. In Keenan’s case there was no evidence that the Defendant’s claim was included in the settlement which covered their claims. In the instant case the very claim made subsequent to the Severance Agreement was in fact made before the Severance Agreement was arrived at and signed and its all claims provision clearly states such to be in the context of severally enumerated Acts and “all or any employment legislation”.
I accept the submissions of Mr Connaughton, S.C., on behalf of the company that the decided cases indicate that a party may enter into an agreement in relation to his or her statutory rights and the question of whether or not such rights have been compromised is a matter for the proper construction of the agreement itself. In the instant case the agreement is expressly stated to be in full and final settlement and that means what it says. It says so in express terms referable to enumerated Acts and all or any employment legislation in respect of any and all outstanding entitlements whether statutory or otherwise stated or as yet unstated.
In the instant case there was some meaningful discussion and negotiation (which is not to be equated with interminable talks, documents and meetings) and professional advice of an appropriate character before the agreement was signed. The fact that the written document proffered for signature was prepared by one party for signature by another after discussion and negotiation however one might view such “negotiation” – which is “to confer for the purposes of an arrangement or some matter by mutual agreement or to discuss a matter with a view to a settlement or compromise” (per the Shorter Oxford English Dictionary) does not make the agreement void. In my judgment the instant case is clearly distinguishable from that of Fitzgerald v. Pat the Baker [1999] E.L.R 227 cited by Mr Kerr in support of his arguments under s.12 of the 2003 Act.”
.