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Contractual Damages for Manner of Dismissal

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[Thanks to Laurie Anstis of Boyes Turner, who is standing in for Daniel Barnett during his absence, for preparing this case summary]

Can an employee who is dismissed in breach of a contractual disciplinary procedure claim damages for breach of contract flowing from the manner of their dismissal?

No, says the Supreme Court, with Lady Hale, Lord Kerr and Lord Wilson dissenting, and Lord Philips finding against the employees on different grounds.

In Johnson v Unisys Limited [2001] UKHL 13), the House of Lords refused to award damages where the manner of the employee's dismissal was in breach of the implied term of trust and confidence, and suggested that Parliament had intended the employee's remedy in such a case to be by way of an unfair dismissal claim, rather than a breach of contract claim.

In Eastwood v Magnox Electric and McCabe v Cornwall County Council ([2004] UKHL 35), the House of Lords developed the concept of the "Johnson exclusion area". This prohibited claims for damages in relation to a breach of the implied term of trust and confidence arising out of the dismissal itself, but allowed claims which "precede and are independent of" the dismissal.

Giving the leading judgment, Lord Dyson (with whom Lord Walker and Lord Mance agreed) emphasises the development of disciplinary procedures in the context of unfair dismissal law, before holding that:

  • Johnson operates as a bar to a claim for damages for the manner of dismissal in the case of both implied and express contractual terms.
  • Both Edwards and Botham fell, on their facts, within the Johnson exclusion area.

Lord Phillips considered that the claims were effectively for "stigma" damages caused by wrongful dismissal, and were precluded by Addis v Gramophone Co Ltd [1909] AC 488.

In her dissent, Lady Hale notes that she is the only member of the Supreme Court to have been an employee, rather than a self-employed barrister or office holder, and holds that unfair dismissal law ought not to be used as a basis for limiting the rights of employees.

Lords Kerr and Wilson distinguished between the two cases, finding that Edwards had established a cause of action before dismissal, which should be permitted, whereas Botham's claim arose solely from the fact of the dismissal, and should be barred.