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Can contractual damages be awarded over the manner of a dismissal?

31st January 2012

The Supreme Court recently gave a ruling on the issue of the availability of compensation for  breach of a contractual disciplinary procedure.

The basic question which the Supreme Court was asked to answer in this case was can an employee who is dimissed in breach of a contractual disciplinary procedure claim damages for breach of contract flowing from the manner of their dismissal?

Just over a decade ago the House of Lords gave an important ruling on a similar case, Johnson v Unisys LimitedIn that case the House of Lords refused to award compensation where the manner of the dismissal had been in breach of the implied contractual term of trust and confidence. The House suggested that Parliament had established the law of unfair dismissal as providing the remedy to an individual over the fairness and reasonableness of dismissal (which would encompass issues relating to the manner of the dismissal) and refused to allow the individual to obtain similar compensation in a breach of contract claim. This was important in light of the restriction on the size of award of compensation that can be made in a claim of unfair dismissal, and in light of the fact that there is a qualifying period (currently of one year) before which an individual employee is protected against unfair dismissal. Allowing a claim for contractual compensation over the manner of dismissal would have opened up the chance for any employee that had yet to serve the full qualifying period to still bring a claim for similar compensation over the manner of his/her dismissal in the civil courts (county court and High Court) rather than the Employment Tribunal, without an upper compensation limit.

In the case of Eastwood v Magnox Electric the House of Lords developed the concept of a "Johnson exclusion area". This effectively prohibited claims for damages in respect of a breach of the implied term of trust and confidence arasing from the dismissal itself, but allowed a claim that was separate, which preceded and was independent of the dismissal itself.  

The combination of the two cases of Johnson and Eastwood has resulted in arguments over the dividing line between the dismissal and acts that were separate and preceded the dismissal. This can be challenging when one looks at the way in which dismissals actually occur, usually following a disciplinary process which may involve a number of stages. In particular the question arose about the failure of an employer to follow a contractually binding disciplinary process. This latter point is the point that the Supreme Court had to address recently in the case of Edward v Chesterfield Royal Hospital NHS Trust, and Botham v MoD, where the claimants alleged that the breaches of the contractual disciplinary procedures had resulted in damage to their reputations. 

The majority of the Supreme Court ruled that claims arising from a breach of the express contractual disciplinary procedure could not result in an award of damages.In both the latter cases the employers failed to follow the contractually binding disiplinary procedures, causing damage to the reputations of the employees concerned and making it difficult for them to find alternative employment. However,the court held that in these cases it was not possible to divorce the bases for the claims for damages for lossof reputation from the dismissals. The majority in the Supreme Court held that unless agreed otherwise a breach of contractual disciplinary process will not give rise to a claim for common law damages. However, an employer that breaches such a contractual procedure would still be acting in breach of contract, and an employee affected by this could still seek an injuction to stop the breach of contract. 

It is important to note that there was a strong dissenting decision given by Lady Hale, who noted that she was the only memebr of the court that had spent a large period of heer career as an employee. She concluded that the case of Johnson should simply be applied to distinguish between cases brought on the basis of implied terms of the contract rather than express written contractual terms. She would have allowed a suitable claim arising from the breach of a written contractually binding disciplinary procedure.

The impact of this decision is that it will not be possible for an individual to obtain compensation for a breach of a contractually binding disciplinary procedure (although an injunction to stop the breach of contract will still be available).

Thise effected by this decision are in the main likely to be high earners that have yet to completed the qualifying period for protection against unfair dismissal, and cases where the capp on compensation for unfair dismissal failed to fully compensate an employee for losses arising from his/her dismissal. These high earners will not, following this case, be able to pursue claims for breaches of a contractual disciplinary procedure, or use a claim in the County Court to "top-up" any award that the Employment Tribunal could make over the dismissal.

This ruling is also significant in view of the fact that the qualifying period will shortly be increased to 2 years.


As a simple legal point is does appear anomolous that the effect of this case is to deprive an individual of compensation for a clear breach of a contractually binding disciplinary procedure.

If you need any advice on issues raised in this article please do not hesitate to contact us at Hallett Employment Law Services Ltd.                   


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