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
		21st July 2009

Lord Justice Elias:

1. Ms Roberts was dismissed by the appellant ("Aegon") for redundancy and paid an enhanced redundancy payment. The Employment Tribunal found that this was also an unfair dismissal. She was ultimately awarded compensation of £37,180.30, following a marginal reduction of the original award made by the Industrial Tribunal on a review.
2. The case is somewhat unusual in that she obtained alternative employment with another company, Just Retirement Limited, which took effect immediately following her dismissal on 15 January 2007. The total remuneration in that new employment, not taking into account pension loss, was worth £136 per week net more than her package with Aegon. This took account not only of salary but also of other benefits such as the value of a car and car insurance, and permanent health insurance.
3. Under the pension arrangement with Aegon, she was a member of a final salary pension scheme. When she joined Just Retirement she was subject to a money purchase scheme which was significantly less favourable. However, the loss in pension benefits was more than offset by the other more favourable remuneration terms. Overall, therefore, she was better off at Just Retirement than she had been at Aegon.
4. Before the tribunal came to consider its remedies award, Ms Roberts lost her job with Just Retirement. She had completed the six months' probationary period successfully, but shortly thereafter her employers told her that they were unhappy with her performance and they gave her the option of either being dismissed or choosing to resign. She resigned and raised a grievance alleging both constructive dismissal and disability discrimination. The latter arose out of the fact that she had just endured two eye operations, having had eye problems from early childhood, and it was her belief that any shortfall in performance was attributable to her health difficulties. That grievance was compromised on 11 October 2007 on terms that Ms Roberts was paid three months' pay in lieu of notice, an accrued bonus, holiday pay and an ex-gratia payment of £10,000. The contract was deemed to have ended on 3 September 2007.
5. The tribunal conducted the remedies hearing in February 2008. At that point Ms Roberts was still unemployed. The tribunal made a number of findings potentially relevant to the calculation of future loss. They concluded that had Ms Roberts not been dismissed, she would have remained in employment with Aegon until the age of 50. They also found that she would secure employment within six months and that her future earnings pattern would broadly reflect what it would have been with Aegon, save that she would not in any future employment be offered the benefit of a final salary pension scheme.

The law

6. There are two elements in the calculation of unfair dismissal compensation: the basic award, which in this case was met by the statutory redundancy payment, and the compensatory award. The latter is assessed in accordance with section 123(1) of the Employments Rights Act which provides that, subject to certain exceptions which are not material in this case,

"…the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."

7. The two key elements are therefore loss and causation. As to the question of loss, the House of Lords has affirmed in Dunnachie v Kingston Upon Hull CC [2004] ICR 1052 that this restricts compensation to financial loss and it is not legitimate to award a larger sum than the loss actually sustained. (The principle established in Norton Tool v Tewson [1972] ICR 501 is a limited exception to that principle but is not relevant in this case). As Lord Steyn pointed out, the just and equitable formula does not permit a tribunal to award compensation on an unprincipled or arbitrary basis. It may justify a tribunal awarding less than the loss actually incurred (see for example Devis v Atkins [1977] ICR 662) and it gives a degree of flexibility to proving and assessing the items of loss, but it cannot justify paying more than the loss so assessed.
8. The relevant loss is, however, only that which is attributable to the dismissal by the employer. When assessing future loss, a tribunal is sometimes faced, as in this case, with a situation where an employee has been employed in fresh employment and dismissed prior to the hearing. Where that is the position, it has to determine whether the original employer remains liable for the loss which continues after the second dismissal. Can the loss be attributed to the first dismissal or should the second employment be treated as having broken the chain of causation? As the Court of Appeal pointed out in Dench v Flynn and Partners [1998] IRLR 653, it does not necessarily follow that loss consequent upon an unfair dismissal must be deemed to have ceased once someone has obtained permanent employment on the same or more favourable terms. Beldam LJ, with whose judgment Mummery LJ and Sir Christopher Staughton agreed, said this:

"19. No doubt in many cases a loss consequent upon unfair dismissal will cease when an applicant gets employment of a permanent nature at an equivalent or higher level of salary or wage than the employee enjoyed when dismissed. But to regard such an event as always and in all cases putting an end to the attribution of the loss to the termination of employment cannot lead in some cases to an award which is just and equitable."

His Lordship emphasised that it would be for the tribunal as a tribunal of fact to consider in any particular case whether the effect of the second employment was to break the chain of causation or not.

The tribunal's assessment

9. Having made its findings of fact, and having expressly referred to the Dench case, the tribunal turned to determine the financial loss attributable to the dismissal. They noted that they had to ask themselves:

" … whether we can, fairly and equitably, attribute to the Respondent the loss of earnings suffered by the Claimant subsequent to the dismissal by Just Retirement Ltd."

10. They were satisfied that the employment with Just Retirement was intended to be permanent and they summarised the circumstances in which Ms Roberts' employment with Just Retirement came to an end. They concluded that at least as far as the question of remuneration was concerned, the employment with Just Retirement broke the chain of causation. They said this at paragraph 22:

"Whether the reason for the termination is a shortcoming in the Claimant's performance or disability discrimination by Just Retirement, we do not think that it can fairly be said that the loss of earnings subsequent to that dismissal is attributable to the unfair dismissal by the Respondent. We conclude, therefore, that the claimant is not entitled to be awarded any compensation in respect of her loss of earnings subsequent to the dismissal by Just Retirement Ltd."

11. However, they did not apply that same causation principle to the pension loss. They had earlier noted that in their view the guidance given in Dench, whilst of great assistance when calculating loss of earnings, was of less relevance when applied to pension loss. The reason they gave was that:

" … a pension loss flowing from the original unfair dismissal can continue even though the claimant obtains permanent employment paying an equivalent or higher salary."

12. Accordingly they considered it justified in an appropriate case to distinguish between pension loss and loss of earnings. In the tribunal's view this was such a case. Although the new employment had broken the chain of causation for the loss of salary, it had not done so with respect to pension loss. The tribunal explained its reasoning as follows:

"23. We next considered whether the pension loss subsequent to the termination by Just Retirement Ltd. was attributable to and consequent upon the unfair dismissal by the Respondent. We asked ourselves whether our conclusion that the loss of earnings was not attributable to the unfair dismissal by the Respondent must lead to the same conclusion for the pension loss. We also asked ourselves whether the correct approach would be to throw in the pension loss with the loss of other benefits and then to compare the whole remuneration package, and if the new package was the same as or more than the old to conclude that the pension loss had ceased when the Claimant obtained the new employment. We came to the conclusion that the answer to both questions was in the negative. The Claimant's pension loss stems from the fact that she enjoyed the benefit of a final salary scheme with the Respondent, which she lost when she was unfairly dismissed by the Respondent. it is a unique type of benefit. She did not obtain the benefit of a final salary scheme when she joined Just Retirement Ltd. and she is unlikely to do so n any other employment. It is, therefore, a continuing loss that does not cease when the Claimant obtains permanent employment that pays the same or more. It is a loss that can be reduced by obtaining the benefit of a money purchase scheme and/or by giving credit for any benefits that the Claimant has received or is likely to receive from a money purchase scheme or a salary increase. It is, therefore, our conclusion that … any pension loss subsequent to the termination by Just Retirement Ltd. is attributable to and in consequence of the unfair dismissal by the Respondent."

13. The tribunal then calculated the pension loss by considering three elements, namely loss of enhancement of pension rights prior to dismissal, the loss of rights from the date of dismissal to the date of hearing and any future loss of rights from the date of hearing. They gave credit for future pension receipts and for the higher salary received from Just Retirement and the enhanced element of the redundancy payment. It is not necessary to become embroiled in the detailed calculations.
14. The employers appealed to the Employment Appeal Tribunal, effectively on the same grounds as are now advanced before us. The employers' case was that any difference in pension had been entirely offset by the higher salary package received from Just Retirement. The tribunal had concluded that no loss of earnings should be attributed to the unfair dismissal by Aegon after Ms Roberts had taken up employment with Just Retirement. Logically, that principle should apply not only to the elements going to remuneration but also to pension loss. There was simply no basis for distinguishing the various heads of compensation and giving pension some special status. If the employment with Just Retirement had broken the chain of causation for remuneration purposes, then it must equally have done so for all aspects of remuneration including pension.
15. The claimant contended before the EAT, as she does before us, that it was entirely a matter for the tribunal to assess compensation and it was open to them to treat pension loss and other aspects of remuneration differently. It is not the case that obtaining permanent employment necessarily breaks the chain of causation and it does not have to do so for all purpose and with respect to each benefit. Dench was concerned with loss of earnings and lays down no principle with regard to pension loss.
16. The Employment Appeal Tribunal accepted that submission. They said:

"[The Tribunal] were entitled to form the view that the loss of the final salary pension scheme was a very significant factor the loss of which could not be quantified in purely monetary terms. In our view the Tribunal were entitled to differentiate between the purely arithmetic exercise in comparing the remuneration packages of the two employments coupled with the permanent qualities of the second employment with Just Retirement and to differentiate those from the significant loss of pension rights."

Discussion

17. The starting point for a tribunal when assessing what compensation should be awarded under Section 123 is to determine what financial loss flows from the dismissal. In the context of this case, this required the tribunal to determine whether Aegon should continue to be liable for losses occurring after the dismissal by Just Retirement. After carefully considering the facts in the light of the Dench decision, they concluded that the new employment had broken the chain of causation. They accepted that the consequence was that as far as all aspects of remuneration other than pensions were concerned, Aegon's liability was crystallised at that stage. Of course, Aegon will have remained liable for any shortfall in Ms Roberts' remuneration package with Just Retirement when compared with her Aegon package and that would have continued until the age of 50, which is when the tribunal found that she would have left Aegon in any event. But in this case there was no shortfall and therefore no loss. The tribunal's finding on causation meant that Aegon were not to be liable for the loss of remuneration continuing after the contract with Just Retirement came to an end.
18. The tribunal chose not to apply this same principle to the pension loss. I do not think that they could legitimately fail to do so by carving out pensions for this special treatment. With all due respect to the Employment Tribunal and the EAT, I do not accept that pensions have some special status in this calculation. The pension is simply part of the overall remuneration package- in essence deferred remuneration- albeit an important part, and must be assessed accordingly. Nor do I accept the observation of the EAT that having the benefit of a final salary pension scheme is an unquantifiable benefit which justified pension loss being treated differently. The tribunal cannot avoid translating pension values into money terms. It is not possible to make any assessment of loss otherwise. That is admittedly often a difficult and highly speculative exercise, but it is one that must be undertaken nonetheless.
19. Had the Employment Tribunal applied the Dench principle to the whole of the remuneration package, they would necessarily have concluded that there was no loss arising out of the change in pension arrangements. Even taking account of the pension loss, the overall package with Just Retirement was more favourable than it had been with Aegon. No doubt it would have been open to the tribunal to find that Ms Roberts' period with Just Retirement did not break the chain of causation. Had they reached that conclusion then on the assumption that any future employment would be on Aegon rather than Just Retirement terms, the future loss would indeed have been measured principally by the loss of pension plus the loss incurred during the period of unemployment following termination of the contract with Just Retirement. But that was not their conclusion, and in my judgment they were not entitled to apply different principles of causation to different aspects of the remuneration package.
20. I recognise that an appellate court should only interfere with the decision on compensation if the Employment Tribunal has either erred in principle or reached a perverse conclusion: see the decision of the Court of Appeal in Bentwood Bros (Manchester) Ltd v Shepherd [2003] EWCA Civ 380, [2003] IRLR 364, per Peter Gibson LJ, paragraph 10. In my judgment it was an error of principle to apply different principles of causation to different aspects of the remuneration package.
21. It follows that in my judgment the appeal must succeed. It is accepted that in those circumstances the only compensation now that needs to be paid to Ms Roberts is the sum of £300 which the tribunal determined should be paid for loss of statutory rights.

Lord Justice Dyson:

22. I agree

Lord Justice Keene:

23. I also agree. The appeal will therefore be allowed and we shall order that the tribunal's award be set aside and we shall substitute the award of £300 for loss of statutory rights.

Order: Appeal allowed