Employment

Unfair dismissal - Constructive dismissal - Damages - Two appeals being heard together

Edwards v Chesterfield Royal Hospital NHS Foundation Trust; Botham v Ministry of Defence (Lords Phillips P, Walker, Mance, Kerr, Dyson and Wilson, Lady Hale): Supreme Court: 14 December 2011

In the instant proceedings two appeals were heard together. The claimant in the first claim (the first claimant) was employed as a consultant orthopaedic surgeon by the first defendant NHS trust (the trust). His contract of employment stated that, in matters of professional misconduct, he would be subject to a separate procedure which had been negotiated and agreed by the local negotiating committee.

In December 2005, disciplinary proceedings were instituted against him. Following a disciplinary hearing, the first claimant was summarily dismissed from his employment on grounds of gross personal and professional misconduct. In April, his appeal against that decision was dismissed. In May, the first claimant commenced unfair dismissal proceedings before the employment tribunal (the tribunal). He contended that the disciplinary panel (the panel) had been 'inappropriately constituted'.

If the panel had been properly constituted, it would not have made incorrect findings and he would not have been dismissed. Prior to the pre-hearing review before the tribunal, the first claimant withdrew his claim for unfair dismissal and it was dismissed by order of the tribunal. In August 2008, the first claimant issued proceedings in the High Court in which he claimed damages for breach of his employment contract and its wrongful termination. He alleged that the termination of his contract had been wrongful and in breach of contract in a number of procedural respects.

He alleged that he had suffered a loss of earnings, including future earnings. In February 2009, the trust successfully applied to the court for an order that the first claimant's claim for damages for loss in respect of a period in excess of his three months’ contractual notice period be struck out under civil procedure rule 24.4. The first claimant appealed to the High Court (see [2009] All ER (D) 67 (Oct)). The judge allowed the appeal, but only to the extent of holding that, subject to liability for breach of contract being established, in addition to compensation for the three months’ period of his contractual notice, he was also entitled to compensation for the additional period that it would have taken to conduct the disciplinary procedure if it was conducted and completed with reasonable expedition.

The first claimant appealed to the Court of Appeal. The focus of the hearing before the Court of Appeal was the first claimant's claim for damages for loss of reputation resulting from the panel's findings. The court held that that claim did not fall within the exclusion area established in Johnson v Unisys Ltd [2001] 2 All ER 801 (the Johnson exclusion area) and that the first claimant was, in principle, entitled to whatever damages he could prove he had suffered as a result of the trust’s failure to carry out the proper disciplinary procedure and that he was not limited in respect of that cause of action to compensation for the three months’ period or the three months’ period plus the additional period. The trust appealed.

The claimant in the second claim (the second claimant) was employed by the second defendant Ministry of Defence (MOD). In December 2002, he was suspended from work and, in June 2003, was charged with gross misconduct: it was alleged that he had behaved inappropriately in relation to two teenage girls. Following disciplinary proceedings he was summarily dismissed for gross misconduct. The second claimant brought a claim for unfair dismissal and wrongful dismissal in the tribunal.

In May 2007, the tribunal found that he had been unfairly dismissed and that his summary dismissal was in breach of contract. The tribunal found, inter alia, that the MOD had committed breaches of the express and implied terms of the second claimant's contract of employment. The express terms were set out in the discipline code contained in the MOD’s personnel manual and contained various requirements in relation to the disciplinary procedures that were to be followed. In April 2009, the second claimant issued proceedings in the High Court seeking damages for breach of the express terms of his contract of employment.

He relied on a number of findings made by the tribunal that, in conducting the disciplinary process, the MOD had failed to comply with several provisions of the discipline code. He contended that by reason of those breaches of contract, he had been dismissed from his employment, had suffered a loss of reputation and had been precluded from further employment in his chosen field. His claim for damages included a claim for loss of future earnings. His claim was dismissed (see [2010] All ER (D) 264 (Mar)). The judge noted that all the breaches of contract relied on by the second claimant were alleged to have resulted in his dismissal and the damages claimed were consequential on the dismissal. Accordingly, the claim fell within the Johnson exclusion area and the damages were not recoverable. The Court of Appeal allowed his appeal by consent. The MOD appealed.

It was established in Johnson that loss arising from the manner of a dismissal was not recoverable as damages for breach of the implied term of trust and confidence; such loss fell within the Johnson exclusion area. The principal questions that fell to be determined were: (i) whether the reasoning in Johnson applied so as to preclude recovery of damages for loss arising from the unfair manner of a dismissal in breach of an express term of an employment contract; and if so (ii) whether the claimants' claims fell within the Johnson exclusion area. The claimants submitted that the first question should be answered in the negative and that their claims for damages should be assessed in accordance with orthodox common law principles. The appeals would be allowed (Lady Hale, Lord Kerr and Lord Wilson dissenting).

(1) The reasoning in Johnson was a bar to a claim for damages for breach of an express term of an employment contract as to the manner of a dismissal (see [49] of the judgment). Parliament had intended provisions about disciplinary procedure to apply to contracts of employment, inter alia, in order to protect employees from unfair dismissal and to enhance their right not to be unfairly dismissed. It had specified the consequences of a failure to comply with such provisions in unfair dismissal proceedings.

It could not have intended that the inclusion of those provisions in a contract would also give rise to a common law claim for damages for all the reasons given by the House of Lords in Johnson for not extending the implied term of trust and confidence to a claim for damages for the unfair manner of dismissal. It was necessarily to be inferred from the statutory background that, unless they otherwise expressly agreed, the parties to an employment contract did not intend that a failure to comply with contractually binding disciplinary procedures would give rise to a common law claim for damages.

The unfair dismissal legislation precluded a claim for damages for breach of contract in relation to the manner of a dismissal, whether the claim was formulated as a claim for breach of an implied term or as a claim for breach of an express term which regulated disciplinary procedures leading to a dismissal. Parliament had made certain policy choices as to the circumstances in which and the conditions subject to which an employee might be compensated for unfair dismissal. Any such complaint was intended by parliament to be adjudicated on by the specialist employment tribunal subject to various constraints.

Parliament did not intend that an employee could choose to pursue his complaint of unfair dismissal in the ordinary courts, free from the limitations carefully crafted by parliament for the exercise of the statutory jurisdiction. However, it could not be said that an employer who started a disciplinary process in breach of the express terms of the contract of employment was not acting in breach of contract. He plainly was. If that happened, it was open to the employee to seek an injunction to stop the process and/or to seek an appropriate declaration. An injunction to prevent a threatened unfair dismissal did not cut across the statutory scheme for compensation for unfair dismissal. None of the objections based on the co-existence of inconsistent parallel common law and statutory rights applied (see [39]-[40], [44] of the judgment).

Johnson v Unisys Ltd [2001] 2 All ER 801 applied; Gunton v Richmond-upon-Thames London Borough Council [1980] 3 All ER 577 considered; Saeed v Royal Wolverhampton Hospitals NHS Trust [2000] All ER (D) 2387 considered; Skidmore v Dartford and Gravesham NHS Trust [2003] 3 All ER 292 considered.

(2) It was an established principle that, suspension apart, an employer's failure to act fairly in the steps leading to dismissal did not of itself cause the employee financial loss. The loss arose when the employee was dismissed and it arose by reason of his dismissal. Then the resultant claim for loss fell squarely within the 'Johnson exclusion area'. Exceptionally, financial loss might flow directly from the employer's failure to act fairly when taking steps leading to dismissal.

In such cases, the employee had a common law cause of action which preceded the, and was independent of, his subsequent dismissal. The question in each case was whether or not the loss founding the cause of action flowed directly from the employer's failure to act fairly when taking steps leading to dismissal and preceded and was independent of the dismissal process. The court had to decide whether earlier events did or did not form part of the dismissal process. That was a fact specific question (see [50]-[51] of the judgment).

In respect of the first claim, it was impossible to divorce the findings on which the first claimant sought to found his claim for damages for loss of reputation from the dismissal when they had been the very reasons for the dismissal itself. In those circumstances, his claim for damages for loss of reputation was not one of those exceptional cases where an employer’s failure to act fairly in the steps leading to a dismissal had caused the employee financial loss. The claim did not arise from anything that was said or done before the dismissal. It was not independent of the dismissal.

It arose from what was said by the trust as part of the dismissal process. Where the findings reached in the disciplinary proceedings and the dismissal were, as in the instant case, a part of a single process, the remedy for unjustified stigma lay, short of circumstances establishing a claim for defamation, in the restoration of reputation which might in the ordinary course be expected to result from a claim for wrongful or unfair dismissal (see [56]-[57], [99] of the judgment). Eastwood v Magnox Electric plc; McCabe v Cornwall County Council [2004] 3 All ER 991 considered.

(3) In the second claim, the claim was a fortiori to that of the first claimant. For the reasons already given, it fell within the Johnson exclusion area (see [59] of the judgment). The consent order made by the Court of Appeal would be set aside (see [59] of the judgment). Decision of Court of Appeal [2010] All ER (D) 247 (May) reversed.

Mary O'Rourke QC and Oliver Williamson (instructed by Ryan Solicitors) for the first claimant; Frederic Reynold QC and Philip Mead (instructed by Dean Wilson LLP) for the second claimant; Mark Sutton QC and Marcus Pilgerstorfer (instructed by DAC Beachcroft LLP) for the trust; Wendy Outhwaite QC (instructed by the Treasury solicitor) for the MOD.