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House of Lords - Eastwood v Magnox

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A busy day for employment lawyers. As well as handing down judgment in Dunnachie, the House of Lords has handed down its judgment in the conjoined appeals of Eastwood & Williams v Magnox and McCabe v Cornwall County Council.

This is not an easy decision to summarise. The two cases concern the overlap between common law claims for damages for breach of trust and confidence, and the statutory unfair dismissal regime. In Johnson v Unisys, the House of Lords held that employees could not bring a common law claim for damages arising out of an allegation that the dismissal was, itself, a breach of trust and confidence - thereby circumventing the statutory cap for compensation for unfair dismissal.

The House of Lords has confirmed that principle is correct. Lord Nicholls (with whom Lords Hoffman, Rodger and Brown agreed), stated that a distinction must be drawn between:

(a) cases where the employer has breached the term of trust and confidence prior to the dismissal - for which an (unlimited) common law claim can be brought; and

(b) cases where the decision to dismiss, itself, is a breach of trust of confidence - which falls within the statutory unfair dismissal regime, is subject to a cap on compensation, and which cap (imposed by parliament) cannot be circumvented by bringing a breach of contract claim in the civil courts.

Lord Nicholls recognised the practical difficulties which arise. He said "In the ordinary 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. Them the resultant claim for loss falls squarely within the Johnson exclusion zone." (para. 28)

However, he went on to point out two exceptions where problems will arise. First, financial losses flowing from suspension without pay. Second, financial losses (as in these two appeals) flowing from psychiatric illness caused by pre-dismissal unfair treatment. He said "In such cases, the employee has a common law cause of action which precedes, and is independent of, his subsequent dismissal." (para. 29)

He went on to give examples of the artificiality of the distinction (para. 31) but said it was nevertheless a distinction which had to be observed. He pointed out that "An employer may be better off dismissing an employee than suspending him" (para. 32) and called for "urgent attention by the government and the legislature" (para. 33)

Lord Steyn agreed with the result, but went further. In a fascinating critique, he thoroughly deconstructs and (almost) ridicules the reasoning of the majority of the House of Lords in Johnson v Unisys (recognising, at para. 36, that he had given the sole dissenting judgment in Johnson). He also gave a clear hint that he thought the statutory cap on compensation for unfair dismissal should be abolished (para. 51).

The end result of the appeal is that both Messrs Eastwood, Williams and McCabe are now permitted to proceed with their cases in the civil courts (the strike-outs of their actions having been overturned).

Eastwood and anor v Magnox Electric plc HL 2004