England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th March 2004

Lord Justice Brooke :

1. This is an appeal by the applicant Sally Harper against a decision of the Employment Appeal Tribunal ("EAT") on 9^th July 2003 which allowed an appeal by the respondent Virgin Net Ltd from the award of damages for wrongful dismissal made in her favour by an Employment Tribunal sitting at London (Central) on 8^th May 2002. The tribunal in an earlier decision dated 29^th November 2001 had found that she had been wrongfully dismissed, and there was no appeal against that finding. The respondent did not dispute the element of the award which amounted to £9,514.04 in respect of three months' net pay, being the amount she would have received during her contractual notice period if she had not been summarily and wrongfully dismissed.
2. The dispute between the parties both on the appeal to the EAT and on the appeal to this court centred around the correctness or otherwise of an additional sum awarded to her by the Employment Tribunal which represented the full award she would have received if she had been permitted to bring a claim for unfair dismissal under the terms of the Employment Rights Act 1996 ("the 1996 Act"). The tribunal held that she would have succeeded in such a claim because her dismissal was so clearly unfair, but she was precluded from bringing it because she had no statutory right not to be unfairly dismissed by her employer at the time of her summary dismissal. Her employment with the respondent commenced on 4^th April 2000 and was summarily terminated on 2^nd March 2001, 33 days short of the date when she would have completed the qualifying one-year period of employment needed for a claim for unfair dismissal to be open to her. The Employment Tribunal assessed her damages at £30,844.57 under this head, although it was obliged to cap her total award at the statutory maximum of £25,000. The EAT, for its part, ruled that this extra award was not available as a matter of law. It reduced her award accordingly to the sum of £9,514.04 which was not in dispute.
3. The issue we have to resolve falls within a comparatively small compass. A statutory right not to be unfairly dismissed was first granted to employees by section 22 of the Industrial Relations Act 1971 ("the 1971 Act"). In order to qualify for this right, an employee must have completed a specified period of continuous employment at the effective date of termination ("EDT") of the contract of employment. This period was originally set at 104 weeks' continuous service (1971 Act, s 28). After some variations over the years it is currently set at one year's continuous employment (1996 Act, as amended, s 108(1)).
4. Soon after the 1971 Act came into force, a question arose in the Court of Appeal as to the position that would arise if an employer wrongfully dismissed an employee just before the end of his first 104 weeks of service in circumstances in which he would have qualified to have a right not to be unfairly dismissed if he had been given proper notice. In Brindle v Smith [1972] IRLR 125 Lord Denning MR held that the dismissal took place when the contract was terminated, and that the termination took place when the notice expired or was due to expire. He continued:

"I would add at this point that I do not think the Act can be got round by wrongfully dismissing a person summarily or by giving him a notice that is too short. No person should be able to take advantage of his own wrong in that way. If an employer should try to escape the Act by giving no notice at all or a notice that was too short, I should have thought that the tribunal, by means of a claim for wrongful dismissal (see s 113 of the Act), or by some such way, would see that the employee would get the same compensation as he would have done if he had been given notice of a proper length."

5. Megaw LJ said that he wanted to reserve consideration on this point, and after he had agreed that the appeal should be allowed, the third member of the court, Sir Gordon Willmer, said, delphically:

"I have reached the same conclusion."

6. The 1971 Act was repealed in its entirety by section 1 of the Trade Union and Labour Relations Act 1974 ("TULRA"). Section 1(2) of TULRA provided that Schedule 1 of that Act was to have effect for re-enacting the unfair dismissal provisions of the 1971 Act (among other provisions) together with certain amendments to which reference was then made. The position was then governed by paragraphs 5 and 10 of that schedule until the Employment Protection Act 1975 ("the 1975 Act") was enacted. Paragraph 5(5)(b) of Schedule 1 to TULRA provided that "the effective date of termination", in relation to an employee whose contract of employment was terminated without notice, meant the date on which the termination took effect. In Dedman v British Building and Engineering Appliances [1973] IRLR 379 this court had held that where there was an immediate dismissal with salary in lieu of notice, the effective date of termination was the date of the dismissal and not the expiry of the period in respect of which the salary in lieu was paid.
7. A significant change to the original statutory scheme was enacted in paragraph 10 of Part III of Schedule 16 of the 1975 Act. This provision inserted a new sub-paragraph 5(6) in Schedule 1 of TULRA to the following effect (so far as is material):

"Where the notice required to be given by an employer by section 1(1) of the Contracts of Employment Act 1972 (minimum period of notice) would if duly given by the employer, or (where no notice was given) when the contract of employment was terminated by the employer, expire on a date later than the effective date of termination as defined by sub-paragraph (5) above, that later date shall be treated as the effective date of termination in relation to the dismissal for the purposes of paragraph 10(a) below …"

Paragraph 10(a) of the schedule provided:

"… [T]he right of an employee not to be unfairly dismissed does not apply to the dismissal of an employee from any employment if the employee was not continuously employed for a period of not less than 26 weeks ending with the effective date of termination."

8. It will be seen that Parliament expressly legislated to the effect that an employee dismissed without the statutory period of notice attributable to his employment would be deemed to have an EDT at the end of the statutory notice period. The complication in the present case lies in the fact that whereas Ms Harper's statutory period of notice was only seven days (see the 1996 Act s 86(1)), she had a contractual entitlement to three months' notice.
9. The modern equivalent of the statutory provisions I have quoted is to be found in section 97 of the 1996 Act:

"(2) Where

(a) the contract of employment is terminated by the employer, and

(b) the notice required by section 86 to be given by an employer would, if duly given on the material date, expire on a date later than the effective date of termination (as defined by subsection (1)),

for the purposes of section 108(1) … the later date is the effective date of termination.

(3) In subsection (2)(b) 'the material date' means

(b) where no notice was given, the date when the contract of employment was terminated by the employer."

10. After the changes introduced in 1974 there were two further occasions when senior judges expressed views similar to those expressed by Lord Denning in the Brindle case, although neither was material to the ruling they were then making. In Robert Cort & Son Ltd v Charman [1981] IRLR 437 Browne-Wilkinson J, the President of the Employment Appeal Tribunal, said (at para 14 of the report):

"As a result, in our view Mr Charman has no right to complain to the Industrial Tribunal of unfair dismissal. Even if, as one must, one treats the effective date of termination as being 3 October (the combined effect of s 49 and s 55 [of the Employment Protection (Consolidation) Act 1978] requiring one to add the seven days after 26^th September) he had not the necessary 52 weeks' employment. However, he may have another remedy. The dismissal without notice seems to us to be a clear breach of contract. The measure for such breach may not be limited to one month's loss of wages but may also include the loss of the right to compensation for unfair dismissal which he would have had if the correct notice had been given. Mr Charman therefore may not be left without remedy by our decision."

11. In Stapp v The Shaftesbury Society [1982] IRLR 326, a decision of this court, both Stephenson LJ (at para 32) and Sir David Cairns (at paras 40-41) referred to the dicta in Brindle and Court without approval or disapproval, except to the extent that Sir David Carins said that it might well be that in a common law action for wrongful dismissal the dismissed employee could recover damages for the loss of his right to allege unfair dismissal "particularly if the summary dismissal had been effected for the specific purpose of depriving him of his right".
12. By the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 the jurisdiction of Employment tribunals was extended for the first time to include claims for wrongful dismissal, subject to a statutory cap of £25,000 (see Article 10 of that order). In Raspin v United News Shops Ltd [1999[ IRLR 9 the EAT was concerned for the first time to decide the point which had been discussed in Brindle, Cort and Stapp.
13. In that case Judge Hicks QC applied orthodox principles relating to the recovery of damages for breach of contract. He said (at para 59) that what must be compared for the purposes of assessing damages was the position in which the employee found herself when dismissed, at a date when she had no right to complain of unfair dismissal, with the position in which she would have found herself had she been dismissed on or after the date at which the right to bring such a complaint arose. He added:

"Once one makes that comparison then one is inevitably, in our view, and in a perfectly orthodox way, in a situation where chances have to be evaluated, because there is no certainty as to what would have happened had she still been employed on 16^th May [when the statutory right would have accrued to her] but the possibilities are limited."

The EAT therefore remitted the case to the employment tribunal to assess damages in accordance with these principles.

14. In Johnson v Unisys [2001] UKHL 13; [2003] 1 AC 518 the House of Lords held that the existence of a statutory remedy for unfair dismissal precluded the development of a common law obligation on an employer to exercise a power of dismissal in good faith. Lord Millett ended his speech (at para 80) in these terms:

"…[T]he creation of the statutory right has made any such development of the common law both unnecessary and undesirable. In the great majority of cases the new common law right would merely replicate the statutory right, and it is obviously unnecessary to imply a term into a contract to give one of the contracting parties a remedy which he already has without it. In other cases, where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And, even more importantly, the coexistence of two systems, overlapping but varying in matters of detail and heard by different tribunals, would be a recipe for chaos."

See also Lord Hoffmann at paras 54-58 and 66.

15. In the present case the EAT held that the decision of the House of Lords in Johnson precluded them from upholding the Employment Tribunal's additional award. In paragraph 39(1) of the judgment of the EAT, Judge Peter Clark explained the position in these terms:

"Parliament has decided that the statutory right not to be unfairly dismissed under section 94(1) ERA will be subject to certain limitations. One restriction on the right, in ordinary unfair dismissal cases (cf the special cases under section 108(3)), is that the complainant must first have completed one year's continuous service (section 108(1)). The end date of the period of continuous service is the EDT, to be calculated in accordance with section 97 ERA. Originally, that was simply the date on which the termination took effect (see now section 97(1)(b)). However, since the 1975 EPA the EDT has been extended to include, in a case of summary dismissal, the length of statutory notice to which the employee was then entitled under what is now section 86 ERA (see section 97(2)(b)). It was open to Parliament then and has been open to Parliament since in succeeding legislation, to extend the date not simply by reference to the statutory minimum notice entitlement, but by reference to the contractual notice period where that is longer. Parliament has chosen not to do so. That is why, in the present case, Miss Harper is unable to bring a statutory claim of unfair dismissal. In these circumstances, it seems to us, the observations in Johnson v Unisys by Lord Hoffmann (paragraph 66) and Lord Millett (paragraph 80) apply with equal force to the loss of a chance claim advanced by the Applicant in this case. Quite simply, she is seeking to circumvent the restrictions and limits which Parliament has imposed on compensation for unfair dismissal. That is impermissible. To allow such a head of claim would, in the words of Lord Millett, 'be a recipe for chaos'. All coherence in our employment laws would be lost."

He continued at paras 39(3) and (4):

"(3) As a matter of binding authority, we consider ourselves required to follow the ratio in Johnson v Unisys, as explained by the Court of Appeal in Eastwood and McCabe. Applied to the present case, that means that an Applicant cannot recover, by way of damages for breach of the contract of employment, loss flowing from the fact of and manner of the dismissal itself. The present case is a paradigm example. The Applicant's complaint is directed solely to Mr Knox's decision to summarily dismiss her at 5.15 pm on 2^nd March 2001. Until then she had been subject to disciplinary proceedings which had, only four hours earlier, resulted on internal appeal in a formal written warning, that is action short of dismissal, being upheld. It is solely the fact of dismissal, itself certainly unfair in the view of the Tribunal, which gives rise to this head of loss.

(4) True is that had the Applicant received her full three month's contractual notice she would, following termination, have qualified for unfair dismissal protection. In that sense she has suffered a potential loss. However, in fact she has suffered no loss because the statutory scheme precludes an employee from complaining of unfair dismissal in these circumstances."

16. I cannot fault this reasoning. I agree with the judge that it would have been open to Parliament, when it reviewed the scheme following Lord Denning's observations in Brindle, to enable someone in Ms Harper's position to have a statutory right to claim compensation for unfair dismissal by crafting the new sub-paragraph 5(6) in Schedule 1 of TULRA (see para 7 above) and its subsequent re-enactments (see para 9 above) so that the EDT in the case of an employee whose contract of employment was terminated by no or inadequate notice would be the date on which a contractual period of notice, if given, would have expired. But Parliament decided not to adopt its statutory scheme in this way, and I do not consider it is open to the courts, through the machinery of an award of damages for wrongful dismissal, to rewrite Parliament's scheme and to place a financial burden on employers which Parliament decided not to impose on them. In this context I accept Ms McCafferty's submission on behalf of the respondent to the effect that Ms Harper did not lose the right to claim compensation for unfair dismissal: she never had such a right because she fell short of the requirement of one year's continuous service which Parliament has prescribed as the gateway to such a right.
17. To take any other course would be to expose courts and tribunals to something akin to the chaos which Lord Millett feared. Everyone is now familiar with the statutory scheme for claiming compensation for unfair dismissal. The EDT can generally be identified without too much difficulty, and provided that it falls at a time when the employee has attained his/her statutory right not to be unfairly dismissed (see para 3 above), then an application may be made to an employment tribunal, subject to the observation of the strict time limits for such applications.
18. If Mr Cramsie's submissions on behalf of Ms Harper are well-founded, a wrongfully dismissed employee whose EDT predates the end of his/her first year of employment (perhaps by a number of months) will have the benefit of a much longer limitation period in which to make a claim that the dismissal deprived him/her of the chance of continuing in employment for a longer period and then making a claim for compensation for unfair dismissal. In Ms Harper's case, this claim cannot be based on the actual facts of her actual dismissal because by statute she has no right to claim compensation for unfair dismissal in respect of that dismissal. Instead, the court would have to speculate about the chances of her being unfairly dismissed on some later hypothetical occasion after her statutory right had accrued. This, in my judgment, would be a very unsatisfactory way of proceeding and would attract the justified opprobrium that was of concern to Lord Millett.
19. Ms McCafferty, in her powerful submissions, referred us to passages in the speeches in Johnson of Lord Nicholls (at para 2), Lord Steyn (at para 17, final sentence) and Lord Hoffmann (at para 37) as showing variously that the House of Lords recognised in that case that the law relating to employment contracts had always possessed certain special features, and that today the judges when developing the law must have regard to the policies expressed by Parliament in legislation. To permit a claim such as that now being advanced by Ms Harper would, in Lord Nicholls's words (as adapted to the different situation we are considering):

"…fly in the face of the limits Parliament has already prescribed on matters such as the classes of employees who have the benefit of the statutory right … and the short time limits for making claims. It would also defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law."

20. For these reasons I would dismiss this appeal.

Lord Justice Chadwick:

21. Section 94(1) of the Employment Rights Act 1996 confers on an employee the right not to be unfairly dismissed by his employer. But that section has effect subject to section 108 of the Act – section 94(2). And section 108(1) of the Act provides (in the cases to which it applies) that section 94 has no application to the dismissal of an employee unless he or she has been continuously employed for a period which, for the purposes of this appeal, is one year ending with the effective date of termination. The "effective date of termination" may, therefore, be critical in determining whether an employee has a right not to be unfairly dismissed.
22. In the present case it is common ground that the effective date of determination of the appellant's contract of employment was 9 March 2001. That is the effect of section 97(2) of the Act, read with section 86(1), in circumstances where her employment commenced on 4 April 2000 and was terminated by the employer without notice on 2 March 2001. It is common ground, also, that – in those circumstances – she had no right under the Act not to be unfairly dismissed.
23. It is important to keep in mind that the Act provides its own criteria for determining whether, for the purposes of Part X, the dismissal of an employee is unfair - sections 98 to 107. It would, I think, be conceptually possible to incorporate, as an express term of a contract of employment, an obligation upon the employer not to act unfairly (having regard to those statutory criteria) when dismissing an employee; but there was no such express term in the appellant's contract. In Johnson v Unisys Ltd [2001] UKHL 13, reported at [2003] 1 AC 518, the House of Lords explained why the courts should not imply such a term – see, in particular, the observations of Lord Hoffmann at paragraph [37].
24. In the present case, therefore, the appellant's rights in relation to dismissal were confined to the rights conferred upon her by her contract of employment. Those rights included, of course, a right not to be wrongfully dismissed; that is to say, a right not to be dismissed in breach of the contractual terms. The employment tribunal held, in the decision sent to the parties and entered on the register on 29 November 2001, that in dismissing her without notice on 2 March 2001, the respondent had acted in breach of the contract term as to notice. Following a subsequent hearing to assess the damages to be awarded in respect of that breach, the tribunal held that the appellant was entitled not only to the salary that she would have received if she had been given the three months' notice for which her contract provided but also to a further sum described as "loss of opportunity to claim unfair dismissal". In quantifying that further sum the tribunal treated the appellant, in effect, as a person who had been unfairly dismissed by a notice given on 2 March 2001 in accordance with the contractual requirements.
25. In my view, that approach was wrong in principle. It required the tribunal to ask itself what compensation it would have awarded if the appellant had been dismissed, in the circumstances in which she was dismissed, by a notice given on 2 March 2001 in accordance with the terms of her contract. Such a notice would have expired on 1 June 2001; that would have been the effective date of termination for the purposes of Part X of the 1996 Act – see section 97(1)(a); and, in those circumstances, the right not to be unfairly dismissed conferred by section 94(1) of the Act would not have been excluded by section 108(1). But that approach does not involve the quantification of the loss of an opportunity – or, as it is often put, "the loss of a chance". It would be wholly artificial for an employment tribunal to ask itself what compensation it would have awarded if the employee had been dismissed in the circumstances in which he or she was dismissed (but with proper notice) and then discount that figure to reflect the "chance" that it might not have awarded that sum. And, of course, this employment tribunal did not engage in such an artificial exercise. It simply asked itself what compensation it would have awarded for unfair dismissal if it had been dealing with the matter as an unfair dismissal claim under the Act.
26. On a true analysis, as it seems to me, the approach adopted by the employment tribunal in the present case cannot properly be described as the assessment of the loss of a chance. It is an assessment of the compensation for unfair dismissal to which the appellant would have been entitled if she had been given the three months notice to which she was contractually entitled. But, if Parliament had intended employment tribunals to award compensation for unfair dismissal on the basis that the effective date of termination was the end of the contractual notice period, it would have said so when it enacted paragraph 10 in Schedule 16 to the Employment Protection Act 1975 – the origin of the provisions now found in section 97(2)(b) and (3) of the 1996 Act. It did not do so.
27. It is, I think, plain – as Lord Justice Brooke has pointed out – that paragraph 10 in Schedule 16 to the 1975 Act was Parliament's response to the observations of Lord Denning, Master of the Rolls, in Brindle v H W Smith (Cabinets) Ltd [1972] IRLR 125, 126 (para. 9). There are two features in that provision which are of significance in the present context. First, Parliament did not leave the matter to be dealt with in an action for wrongful dismissal. It dealt with the problem directly; by postponing the effective date of termination. Second, Parliament did not think it appropriate to have regard to the contractual period of notice. It postponed the effective date of termination by reference to the period of statutory notice. In particular it did not – as it easily could have done – postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice. That must be seen as a deliberate policy choice.
28. The decision not to postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice is of significance because it must have been obvious to the legislature that there would be cases in which the period of statutory notice required by section 86(1) of the 1996 Act would exceed a period of contractual notice – and vice versa. It would be bizarre to attribute to Parliament an intention that, if the period of statutory notice were the longer, compensation for unfair dismissal (in a case to which section 97(2) applied) should be dealt with under the Act; but that, if the contractual period of notice were the longer, the same result would be achieved by a claim for wrongful dismissal at common law.
29. The point may be illustrated by an example. Suppose a case in which the employee is dismissed, wrongfully without notice, eleven weeks before the end of the first year of continuous employment. If the contract provides for twelve weeks notice, but the notice period required under section 86(1) of the Act is only ten weeks, compensation in respect of unfair dismissal can only be awarded (if at all) by treating the claim as one for damages for wrongful dismissal. If the contract provides for ten weeks notice, but the statutory notice required is twelve weeks, compensation for unfair dismissal can be awarded under the Act. If the appellant is correct, the amount awarded will be the same in each case. But, if so, why should Parliament be taken to have intended that the same result be reached by two different routes? The answer, as it seems to me, is that Parliament must be taken to have intended that the result would not be the same in the two cases. It is only in the latter case that the employee is to be compensated for unfair dismissal.
30. Lord Hoffmann pointed out, in Johnson v Unisys, that:

"Employment law requires a balancing of the interests of employers and employees, with proper regard not only to the individual dignity and worth of the employees but also to the general economic interest. Subject to the observance of fundamental human rights, the point at which this balance should be struck is a matter for democratic decision. . . ."

For whatever reason, the democratic decision has been to deal with the problem which arises where a contract is determined summarily - in circumstances where determination on proper notice would have given a right to compensation for unfair dismissal - by postponing the effective date of termination to the end of the period of statutory notice and to disregard (in that context) the contractual period of notice.

31. In my view that legislative decision must be respected. Employment tribunals should not seek to circumvent that decision by awarding compensation for unfair dismissal in cases which are outside the statutory scheme by the pretence that what they are doing is to value the loss of a chance.
32. For those reasons, and for the reasons given by Lord Justice Brooke with which I agree, I too would dismiss this appeal.

Lord Justice Scott Baker

33. I agree with both judgments.
Order: Appeal dismissed; Appellant to pay the costs of the appeal agreed at £7,566.00 plus VAT; Appellant's application for leave to appeal to the House of Lords dismissed; order for the staying of enforcement of the order for costs is made on the terms set out in the consent order signed by the parties. (Order does not form part of the approved judgment)