United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR P THOMPSON (Solicitor) Dibb Lupton Alsop Solicitors Windsor House Temple Row Birmingham B2 5LP
For the Respondent	MR S SIMBLET (of Counsel) Peter Kandler & Co Solicitors 60 Golborne Road London W10 5PR


 


JUDGE PETER CLARK: This appeal concerns the proper award of compensation in circumstances where an applicant is found to have been unfairly dismissed and a reinstatement order is made by the Industrial Tribunal but not complied with by the employer. Employment Rights Act 1996 ["ERA"] s.124(4).

Background

By an Originating Application presented on 16th September 1996 the applicant, Mr Malik, complained that his dismissal by the respondent, Selfridges, from his employment as a sales associate at their Oxford Street store on 28th June 1995 was unfair.

The complaint came before an Industrial Tribunal sitting at London (North) on 27th March 1996. The tribunal found the dismissal to be unfair. It proposed an order of reinstatement, which was the remedy sought by the applicant, but due to lack of time adjourned the question of remedies for further hearing in the absence of agreement. Extended reasons for that decision ["the first decision"] are dated 9th April 1996.

No agreement having been reached the case came back before the same tribunal on 5th September 1996. On that occasion the tribunal made an order for reinstatement under s.114 ERA. The terms of the order were as follows:

(1) the applicant was to be reinstated in the respondent's furniture department on the same terms as to salary, seniority and pension rights as applied before his dismissal;

(2) that the date by which the reinstatement order was to be complied with was 16th September 1996.

(3) that the loss of benefits which he would have received between the date of dismissal and the date by which reinstatement was to take place was calculated at £24,885.67, subject to any further bonus payments or employer's pension contributions which were to be agreed, or failing agreement, to be dealt with at a further remedies hearing. See ss.114(2)(a) and (3) ERA.

That decision ["the second decision"] was promulgated on 16th September 1996. There is no appeal against the first and second decisions.

Finally, the matter returned to the same tribunal on 4th October 1996. On that occasion the respondent informed the tribunal that it would not comply with the reinstatement order. Accordingly the tribunal proceeded to calculate the applicant's compensation. It approached its task in the following way:

(1) It calculated the basis award at £1,845. There is no dispute as to that award.

(2) In relation to the compensatory award it began by assessing how long it would take the applicant to find new employment after 16th September 1996, the date for compliance with the reinstatement order. It estimated that period of future loss at 26 weeks, and applying a multiplicand of £399.86 per week reached a total of £10,396.36.

Next, it assessed compensation for loss of statutory rights at £200.00.

Finally, it assessed his loss of pension rights at £800.00.

The total, of what the tribunal described as the compensatory award, came to £11,396.36. To that sum the tribunal applied the statutory maximum to be found in s.124(1)(b) of ERA, of £11,300.00. That was the compensatory award made by the tribunal.

(3) Additional award. Under s.117(3)(b) ERA it awarded the maximum of 26 weeks pay at the maximum of £210.00 per week: £5,460.00.

(4) Further, the tribunal made adjustments to the sum of £24,885.67, calculated in the second decision as the loss for the period from dismissal to the 16th September 1996, and revised the original figure to £25,042.89. It awarded that sum also to the applicant.

The tribunal totalled up all its four heads of award and awarded that final sum. £43,647.89 to the applicant.

The Appeal

This appeal by the respondent employer is directed to the third decision. In essence, it is said that the correct approach under the Act is to calculate the compensatory award in this way:

(1) calculate the loss of benefits for the period between dismissal and the date for reinstatement under s.114(2)(a) and (3). In this case, £25,042.89.

(2) calculate the additional award under s.117(3)(b). Here, £5,460.00.

(3) apply the statutory maximum to the compensatory award calculated by reference to s.124(4). That involves deducting the additional award under s.117(3)(b) from the award made under s.114(2)(a), £25,042.89 - £5,460.00, giving a maximum compensatory award of £19,582.89.

The total award is therefore the sum of

(1) Basic award: £ 1,845.00

(2) Maximum compensatory award: £19,582.89

(3) Additional award: £ 5,460.00

TOTAL: £26,887.89

Accordingly the tribunal's final award of £43,647.89 exceeds the statutory maximum by £16,760.00, and the award should be reduced accordingly.

The legislation

In order to consider the submissions in this case it is necessary to set out the statutory framework of remedies for unfair dismissal currently contained in ERA.

(1) Compensation where reinstatement or re-engagement is not ordered

Although reinstatement or re-engagement is the primary remedy for unfair dismissal, in the vast majority of cases no such order is made.

Where no order is made for reinstatement or re-engagement, by s.112(4) the tribunal shall make an award of compensation for unfair dismissal calculated in accordance with ss. 188 to 127 to be paid by the employer to the employee.

By s.118(1) an award for compensation for unfair dismissal under s.112(4) shall consist of a basic award (calculated in accordance with ss.119 to 122 and 126) and a compensatory award calculated in accordance with ss.123-4 and 126-7.

S.123 re-enacts the familiar provisions formerly contained in s.74 of the Employment Protection (Consolidation) Act 1978. By s.123(1) it is provided that subject to the provisions of ss.124 and 126 the amount of the compensatory award shall be such amount as the tribunal considers just and equitable having regard to the loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer.

S.123(2) provides that the loss shall be taken to include:

(a) any expenses reasonably incurred by the complainant in consequence of the dismissal; and

(b) subject to subsection (3), loss of any benefit which he might reasonably be expected to have had but for the dismissal.

The remainder of s.123 is not material for present purposes. We shall return to s.124 when dealing with the statutory limits on compensatory awards. S.126 concerns compensation awarded for both unfair dismissal and unlawful discrimination on the grounds of sex and/or race which again does not arise in this case.

(2) Reinstatement/re-engagement orders

S.113 empowers the Industrial Tribunal to make an order for reinstatement in accordance with s.114 or re-engagement under s.115. The essential difference is that an order for reinstatement under s.114 puts the employee back in the position in which he would have been but for the dismissal; re-engagement provides for his return in employment comparable to that from which he was dismissed or other suitable employment. In this case we are concerned with an order for re-instatement, but the principles to which we shall refer are equivalent to those where a re-engagement order is made.

S.114 provides, so far as is material:

"(2) On making an order for reinstatement the tribunal shall specify-

(a) any amount payable by the employer in respect of any benefit which the complainant might reasonably be expected to have had but for the dismissal (including arrears of pay) for the period between the date of termination of employment and the date of reinstatement,

(b) any rights and privileges (including seniority and pension rights) which must be restored to the employee, and

(c) the date by which the order must be complied with.

(3) If the complainant would have benefited from an improvement in his terms and conditions of employment had he not been dismissed, an order for reinstatement shall require him to be treated as if he had benefited from that improvement from the date on which he would have done so but for being dismissed.

(4) In calculating for the purposes of subsection (2)(a) any amount payable by the employer, the tribunal shall take into account, so as to reduce the employer's liability, any sums received by the complainant in respect of the period between the date of termination of employment and the date of reinstatement by the way of-

(a) wages in lieu of notice or ex gratia payments paid by the employer, or

(b) remuneration paid in respect of employment with another employer,

and such other benefits as the tribunal thinks appropriate in the circumstances."

In this case the tribunal calculated the loss under s.114 at £25,042.89 ["the s.114 loss"]. Had the respondent complied with the order for reinstatement on 16th September 1996, the applicant would have resumed work on that date on the same terms (subject to pay increases) as he enjoyed at the date of dismissal, 28th June 1995, and been entitled to receive the s.114 loss, £25,042.89. However, the respondent refused to reinstate him.

(3) Non-compliance with an order for reinstatement.

S.117 provides for enforcement of orders for reinstatement or re-engagement. S.117(1) and (2) deals with cases in which such order is not fully complied with and is not relevant in this case.

We are concerned with s.117(3) which provides:

"(3) ... if an order under section 113 is made but the complainant is not reinstated or re-engaged in accordance with the order, the tribunal shall make-

(a) an award of compensation for unfair dismissal (calculated in accordance with sections 118 to 127), and

(b) except where this paragraph does not apply, an additional award of compensation of the appropriate amount,

to be paid by the employer to the employee."

S.118(1) applies to awards of compensation for unfair dismissal under s.117(3)(a) as well under s.112(4); see under (1) above.

(4) the limit of compensatory award:

S.124 provides, so far as is material:

"(1) The amount of-

(a) any compensation awarded to a person under section 117(1) and (2), or

(b) a compensatory award to a person calculated in accordance with section 123,

shall not exceed £11,300.

...

(4) Where-

(a) a compensatory award is an award under paragraph (a) of subsection (3) of section 117, and

(b) an additional award falls to be made under paragraph (b) of that subsection,

the limit imposed by this section on the compensatory award may be exceeded to the extent necessary to enable the aggregate of the compensatory and additional awards fully to reflect the amount specified as payable under section 114(2)(a) or section 115(2)(d)."

Mr Simblet points out that s.124(4) was originally introduced by the insertion of s.74(8) of the 1978 Act effected by s.30(3)(b) of the Trade Union Reform and Employment Rights Act 1993. That amendment was made to deal with a particular problem identified by Lord Donaldson MR in O'Laoire v Jackel (No.1) [1990] IRLR 70. In that case the Court of Appeal held that where the employer failed to comply with an order for reinstatement, the employee's remedy lay in claiming a compensatory award, an additional award and a basic award. He could not, in addition, recover payment of the arrears of pay and benefits assessed under what is now s.114. See O'Laoire, paragraphs 10 to 11. Under the 1978 Act prior to the 1993 amendment, the compensatory award made where an order for reinstatement was not complied with was subject to the ordinary maximum, now £11,300.00 under s.124(1) ERA. Thus in some cases it was cheaper for an employer to refuse to reinstate the unfairly dismissed employee and pay the maximum compensatory award plus an additional award and a basic award than to reinstate the employee and pay what we have called the s.114 loss. The facts of this case provide an illustration. But for s.124(4) if the respondent had reinstated the applicant he would have had to make a payment of £25,042.89, the s.114 loss. Under the law prior to s.74(8) of the 1978 Act the penalty for not complying with the reinstatement order would have been:

Basic award: £ 1,185.00

Compensatory award (current maximum): £11,300.00

Additional award: £ 5,460.00

TOTAL: £18,605.00

The real questions in this appeal are at what point does the cap on the compensatory award bite; what is the compensatory award comprised of in cases of non-compliance with an order for reinstatement, and is the employee entitled to the s.114 loss in addition to the compensatory, basic and additional awards where the employer refused to reinstate.

The parties submissions

For the applicant Mr Simblet invites us to approach the matter in this way.

Stage 1: the tribunal orders reinstatement and specifies the s.114 loss at a figure, finally after adjustments of £25,042.89. That sum, he submits is due and payable on or after 16th September 1996, the date set by the tribunal for compliance with the tribunal order for reinstatement, and remains payable and registerable under s.15 of the Industrial Tribunals Act 1996 in any event.

Stage 2: the date for reinstatement passes. The respondent refuses to reinstate. The matter returns to the Industrial Tribunal. At this stage s.117(3) bites. He submits that s.117(3) is concerned only with loss sustained after 16th September 1996, since an employee reinstated pursuant to the tribunal's original order would not suffer any further loss beyond that date. It is that future loss which is subject to the limits contained in s.124. The £11,300.00 limit in s.124(1) applies to such future loss. S.124(4) is concerned only with any loss between the date for reinstatement and the final remedies hearing date. The Industrial Tribunal, he submits, approached the calculation correctly.

For the respondent, Mr Thompson contends that s.124(4) does no more than to correct the problem identified in O'Laoire; it ensures that an employer will be no better off by not reinstating than if he complies with the tribunal's reinstatement order. The subsection means what it says.

Conclusion

In our judgment the construction contended for by the respondent is correct for the following reasons:

(1) the s.114 loss is payable on reinstatement by the employer pursuant to the tribunal's order.

(2) if the order is not complied with, the applicant is entitled under s.117(3) to a compensatory award calculated in accordance with ss.118 to 127, together with an additional award in accordance with s.117(5)(b) and a basic award.

(3) By s.123 the gross compensatory award, in this case, will include the s.114 loss and the future loss calculated by the tribunal, as well as the loss of statutory rights.

(4) However, that compensatory award is limited by s.124. It is not limited to £11,300.00 by s.124(1) because of the overriding provisions of s.124(4).

(5) S.124(4) provides that where, as here, the compensatory award is made under s.117(3)(a) the limit under s.124(1) may be exceeded to the extent only of the s.114 loss less the additional award made under s.117(3)(b). That is the calculation advanced the respondent.

(6) This tribunal fell into error by treating the s.114 loss as a free-standing head to be awarded whether or not the order for reinstatement was complied with. It is not. It is payable under a reinstatement order which is complied with. In the event of non-compliance it forms part of the compensatory award made under s.117(3)(a). That award, calculated in accordance with s.123, will include the s.114 loss and any future loss post the date ordered for reinstatement. However, the gross loss so calculated is limited to the maximum provided for in s.124(4), which in this case cannot exceed the s.114 loss less the additional award. To that compensatory award so limited the additional award and basic award must be added to arrive at the total compensation payable.

In short, the tribunal has erroneously treated the future loss as the compensatory award for the purposes of s.124(1)(b) and added the s.114 loss, which is not separately recoverable under ss.118 to 127 for the purposes of s.117(3)(a), and has failed to apply the provisions of s.124(4) at all.

In these circumstances we shall allow this appeal, set aside the tribunal's award of compensation, and substitute an award totalling £26,887.89 made up as follows:

Basic Award £ 1,845.00

Compensatory Award £19,582.89

Additional Award £ 5,460.00

together with interest at the rate ordered by the tribunal.

Leave to appeal refused.