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Damages for Manner of Dismissal - House of Lords

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A busy day for the House of Lords, who have handed down five judgments - three of which are employment related.

First, in Johnson v Unisys Ltd. (, the House of Lords upheld the rule in Addis v London Gramaphone Co Ltd. [1909] AC 488 that damages are not recoverable at common law for the manner of dismissal. The Lords differed in their reasoning but, unanimously, held that such damages could not be recovered.

It therefore remains the case that damages for wrongful dismissal are limited to the net monies that would have been earned during the notice period.

Mr Johnson is now 52 years old. He worked for over 20 years for a computer software company. Over the years he suffered from work-related stress, of which the employers were aware. In January 1994, general allegations were made of misconduct and, without any specific allegations being put or any fair hearing held, he was summarily dismissed.

As a result, he developed a severe psychiatric illness involving in-patient treatment, hypnotherapy for 2 years, intensive psychotherapy, anti-depressant drugs etc., and his health continued to remain severely affected. He still remains unemployed, and his loss of earnings was pleaded in excess of £400,000.

He brought a claim for unfair dismissal, but was awarded only £11,698 due to the (then) statutory maximum.

Accordingly he issued a claim in the county court for (as later amended) breach of the implied term of trust and confidence, in that the manner of dismissal should not be such so as to damage/destroy the relationship between the parties. The County Court Judge, upheld by the Court of Appeal, struck out the claim. Mr Johnson appealed to the House of Lords. NOTE that the claim was solely for financial losses, not for general damages for the psychiatric illness.

A number of issues arose:

(i) Was Addis v Gramaphone Co Ltd truly authority for the proposition that damages are irrecoverable for manner of dismissal?
4 of the 5 Lords said that it was authority, albeit that it was a difficult decision to understand. In a minority, Lord Steyn held that the headnote was wrong and that, properly constructed, Addis did not give rise to any such rule of law.

(ii) Should Addis be overruled?
The House of Lords unanimously agreed that social conditions since Addis in 1909 were wholly different. "It is no longer right to equate a contract of employment with commercial contracts (Lord Steyn)". "...over the last 30 years or so, the nature of the contract of employment has been transformed. It has been recognised that a person's employment is usually one of the most important things in his or her life...The law has changed to recognise this social reality (Lord Hoffman)". It was therefore open, if appropriate, to depart from the rule in Addis.

However, the policy arguments divided the House of Lords (even if the end result was the same). The two main arguments were:

Policy Argument 1: Can the implied term of mutual trust and confidence 'trump' an express term entitling an employer to dismiss on notice?
Lord Steyn thought the two terms could co-exist. Even if employment could be terminated on notice, it did not abrogate the employer from the co-existent implied term not to exercise the right to dismiss in a way which damaged the employee's prospects of future employment. He described the term of trust and confidence as "an overreaching obligation implied by law as an incident of the contract of employment."

Three of the others (Lords Bingham, Hoffman and Millett) considered that the terms could not co-exist. The express term trumps the implied term. The term of trust and confidence was only relevant to an ongoing employment relationship, and ceased to have effect in connection with the termination of that relationship.

Lord Nicholls did not consider this point.

Policy Argument 2: Does the Unfair Dismissal legislation provide an adequate remedy?
On this point the House of Lords was divided 4:1.

In the majority, Lords Bingham, Nicholls, Hoffman and Millett held that parliament had intended all issues relating to losses flowing from the unreasonableness of the manner of a dismissal to be dealt with by the unfair dismissal legislation. Parliament having intervened in this way, and provided a effective remedy to resolve such disputes, it was inappropriate for the civil courts to introduce a right to bring claims for losses flowing from dismissal in the civil courts - particularly when such claims would bypass the time limits and compensation limits for unfair dismissal. Malik v BCCI was not an exception - in Malik the breaches of contract by the bank occurred before the dismissal.

Lord Steyn, in the minority, considered that the unfair dismissal legislation would still be perfectly workable if the House of Lords departed from Addis. The fact that parliament legislated because it thought the courts lacked the right at common law to provide an effective remedy did not preclude the courts from deciding that, in fact, they do have the right at common law to provide a remedy.

For the above reasons, by a 4:1 majority the House of Lords held that the rule in Addis should stand.

Lord Steyn, in the minority, held that Addis should be overruled. However, he held that Mr Johnson's appeal must fail in any event because Mr Johnson had no realistic prospect of establishing causation on the facts of the case. His losses, on the facts, were too remote and there was no reasonable prospect of success.

My summary of today's two other employment decisions by the House of Lords will follow>