United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR F EVANS (of Counsel) Instructed by: Messrs Sheridan & Stretton Solicitors 22A Bradmore Park Road Hammersmith London W6 ODT
For the Respondent	MS R CRASNOW (of Counsel) Instructed by: Messrs Hempsons Solicitors Portland Tower Portland Street Manchester M1 3LF


 


SUMMARY Sex discrimination: compensation
1. An award of compensation for injury to feelings, pursuant to a finding of unlawful discrimination on the grounds of gender or victimisation is to be made without reference to taxation. The Tribunal correctly decided this matter.
2. Where an employee had, in mitigation of her losses, undertaken an education course, it was a question of fact for the Tribunal to decide whether or not such step was reasonable. The Respondent's appeal against this Decision was dismissed.
3. The calculation of loss of pension should be based upon the guidelines to Employment Tribunal Chairmen and, where such pension loss is claimed to extend beyond two years, the substantial loss formula rather than the "simplified approach" should be adopted. Remitted for written submissions to the Employment Tribunal.

.


 


HIS HONOUR JUDGE McMULLEN QC

4. This case raises three points of general application in the assessment of compensation for sex discrimination. They relate to whether a Tribunal award for injury to feelings should include some recognition of taxation; whether a respondent should be liable for compensation in respect of a period of time when the Applicant made a voluntary decision to abstain from the labour market, which decision was held to be reasonable; and what approach the Tribunal should take to the assessment of pension loss for a period of four and a half years.
5. The judgment represents the views of all three members. We shall refer to the parties as "Applicant" and "Respondent". This judgment follows a judgment on two preliminary points, taken at the first day's hearing of this case. A second day had to be fixed because the two preliminary points filled the whole of the agreed one day hearing. Our judgment should be read with that judgment. The judgment, sent in draft to Counsel before handing down, has been delayed to the end of the period held to be acceptable in EAT cases by an inadvertent administrative error by the EAT. Adventitiously, it has allowed for further submissions to be made at our invitation and we are grateful to Counsel for these additional arguments, and for their continued discretion.

Introduction

6. It is an appeal by the Respondent in those proceedings against a Decision of an Employment Tribunal sitting at London Central on 17 and 18 December 2002, followed by a day in Chambers on 20 June 2003, Chairman Ms V Cook, sitting with Mrs Jay and Ms Jones, registered as a Reserved Decision with Reasons in extended form on 1 August 2003. For reasons which we explained, there were exchanges of written submissions. The Applicant and Respondent were represented at the Tribunal and here by, respectively, Ms Rachel Crasnow and Mr Franklin Evans, of Counsel.
7. The Applicant claimed unfair dismissal and unlawful sex discrimination. The Respondent denied the claims. The Tribunal upheld the Applicant's complaints. The Respondent did not appeal. At the remedy hearing the Tribunal awarded the Applicant £2,400 by way of a basic award, and £500 for loss of statutory rights, both under section 123 of the Employment Rights Act 1996 for unfair dismissal. In respect of sex discrimination, it said this:
   

"The Respondent is ordered to pay the Applicant the sum of £2,400 basic award with £500 for loss of statutory rights. The Respondent is ordered to pay the Applicant such amount as will comply with the Tribunal's directions at paragraph 18-21 for loss of earnings. Together with interest on that amount. The Respondent is ordered to pay the Applicant damages for injury to feelings of £15,000 with £2,156.25"

8. Thus the loss of earnings award was £94,781.82, and an award of £15,000 for injury to feelings with 2,160.55 interest on top of the injury to feelings award. The order of the Tribunal provided as follows:

"The Respondent is ordered to pay the Applicant the basic award of £2,400 plus £500 for loss of statutory rights. The Tribunal makes a further award for loss of earnings of £94,781.82 and directs that the first £30,000 of this amount shall be paid as a gross amount, without deduction of tax. The parties are directed to agree this element of the award subject to 'grossing up' provisions together with interest to be calculated as above. The Tribunal makes a further award of £15,000 for injury to feelings. We award £2,160.55 interest on the injury to feelings award."

9. So far as is relevant to these proceedings in issue are: the award for injury to feelings; the award for future loss of earnings during the time when the Applicant was said to be unavailable for work because she was to undertake a university course; and the award for actual and future loss of pension contributions.

The appeal

10. Directions sending this appeal to a preliminary hearing were given by His Honour Judge Burke QC in Chambers. At the preliminary hearing, His Honour Judge Peter Clark and members allowed a number of grounds in the Notice of Appeal to go forward to a full hearing, excluding certain others which were withdrawn by the Respondent. In addition, the Commissioners of Inland Revenue were served with a copy of the Notice of Appeal, and other relevant documents, and were invited to consider whether they wished to be joined as a party to the proceedings. They wrote declining the invitation.

The legislation

11. The sole provisions of the Sex Discrimination Act 1975 which are relevant to the appeal are section 65(1) and 66(4) which provide as follows:

"Where an employment tribunal finds that a complaint presented to it under section 63 is well-founded the tribunal shall make such of the following as it considers just and equitable -

….

(b) an order requiring the respondent to pay to the complainant compensation of an amount corresponding to any damages he could have been ordered by a county court or by a sheriff court to pay to the complainant if the complaint had fallen to be dealt with under section 66;

66(1) A claim may be made the subject of civil proceedings in like manner as any other claim in tort …

(4) For the avoidance of doubt it is hereby declared that damages in respect of an unlawful act of discrimination may include compensation for injury to feelings whether or not they include compensation under any other head."

12. By way of contrast, assessment of compensation for unfair dismissal includes a basic award, as the Tribunal awarded here, and also a compensatory award. This is regulated by section 123(1) of the Employment Rights Act 1996 which provides as follows:

"123 Compensatory award

(1) Subject to the provisions of this section and sections 124, 126, 127 and 127A(1) (3) and (4), 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."

13. Such an award is also affected by the same duty to mitigate, as is found in section 66(4) of the SDA. There is a limit on a compensatory award, currently £53,500, which does not apply to an award under the SDA. There is also a provision for compensating a person in respect of acts which are both unfair dismissal and discrimination in section 126(2):

"(2) An employment tribunal shall not award compensation under any one of those… Acts in respect of any loss or other matter which is or has been taken into account under [any other of them] by the tribunal (or another [employment tribunal] in awarding compensation on the same or another complaint in respect of that act."

The facts

14. The Tribunal made the following findings:

"The Applicant Sarah Vince-Cain commenced her employment with the Respondent on 24 August 1992. Orthet Limited is the holding company for the Gorgio Armani Group and her first position was as store manager in the newly opened Emporio Armani store in Manchester. Her final salary was £32,000 per annum plus a bonus and when the case came before the Tribunal the Applicant was 34 years old. In August 1995 she was promoted to regional manager. She subsequently had two periods of maternity leave the first on 20 December 1998 to 20 March 1999, and the second from 25 December 2000 to until 30 April 2001. She complains that because of her absences on maternity leave she was subjected to detrimental treatment by the Respondent which culminated in her dismissal on 26 October 2001. …."

15. The Tribunal upheld the Applicant's claims of sex discrimination, victimisation, breach of contract and unfair dismissal. In its decision on compensation, the Tribunal was anxious to ensure that the Applicant would receive the amount which the Tribunal awarded free of any further liability in respect of taxation, so it said this:

"19 We thought it best to set out the principles we followed in making the awards in the way we did, to ensure that, whatever the calculations the Inland Revenue may make, the result will be that the Applicant will receive the amounts we have awarded. These have been based on an assumption that any liabilities to tax will be met by the Respondent, and are in addition to the awards which represent net amounts. Any liability to tax over these amounts should be treated as part of the gross award for which the Respondent is liable.

20 This principle is qualified only to the extent that we believe that section 148 ICTA [1998] will mean that the first £30,000 of compensation to the Applicant is not chargeable to tax by virtue of section 148(1)(a). To that extent, the parties need agree that the Applicant receives that which represents the first £30,000 of her loss of earnings gross. This will mean that the first part of her schedule of loss for past loss, and the element of the future loss from December 2002 until June 2003 will be higher. The Tribunal does not have the information on which to make this calculation.

21 The Tribunal hopes that the parties will co-operate in achieving and implementing the award in the way we have set out. In the event the Applicant receives less than the amounts in our award, we will consider any application to review these amounts. Any disagreement with the principles on which these awards have been made, however, would in our opinion, be more suitably made by way of appeal."

16. The Tribunal's findings of fact in relation to the three issues under appeal can be summarised as follows. In respect of award for injury to feelings, the figure of £15,000 is not challenged by the Respondent, falling as it does within the middle band of "serious cases" as described in Vento -v- Chief Constable of West Yorkshire Police (No 2) [2003] IRLR 49 CA.
17. As for pension loss, the Tribunal accepted the Applicant's unchallenged evidence as follows:

"The Applicant gave evidence that she had been informed by Carmen Manku, the Respondent's Human Resources Manager, that they were about to introduce a Pension Scheme at the time of her dismissal. She said that this represented 5% of salary."

The award under this head for pension loss prior to the hearing and until 2006 was £4,973.86.

18. The Tribunal's award for future losses included a period when the Applicant was to go on a university course. That is the second issue in the appeal. Between the date of her dismissal on 26 October 2001 and 1 June 2003, the Tribunal made awards which recognised that the Applicant had fully discharged her duty to mitigate. She had taken other work. She was looking for "suitable employment" and "similar work". The nature of the work was that of an area manager or regional manager in the retail sector. The Tribunal held that the position of a store manager, that is downgrading from her position with the Respondent, was not at that stage appropriate.
19. Being a store manager did not include the degree of flexibility which a senior manager's position would afford, since the Applicant required a flexible approach to her family and child care responsibilities, as the principal breadwinner. As the Tribunal put it:

"She was not asking for greater flexibility with a prospective employer than she had been given by the Respondent prior to dismissal."

20. The Tribunal made a number of observations about the difficulty of women with child care responsibilities in finding employment in the labour market, particularly following a complaint to an Employment Tribunal. It then went on to decide as follows:

"(g) Mrs Vince-Cain said she had a "two pronged approach" to securing employment. Her preferred action, Plan A, was to get back into retail management. She also had a Plan B, to retrain as a dietician if she was unable to find suitable work. To keep open her options she applied in January 2002 for a BSc course in dietetics at Leeds University. She gave no contractual undertakings to make this application and continued to look for work. Indeed, she re-registered with recruitment consultants prior to enrolling as a full-time student and we accept that had suitable employment become available, she would have abandoned her University course to take it up. Her evidence is that she would still do this today and we accept it.

(h) We are satisfied that the Applicant was not able to find suitable work in the retail industry and that this was principally because of her childcare responsibilities which meant she needed a certain degree of flexibility during the early years of her childrens' lives. Her career before the birth of her first child had reflected her drive and ability. She was in a very senior position within a competitive industry working for a well-regarded niche sector firm. The Respondent had had no criticism of her performance or her commitment, which even during her first maternity leave, was impressive.

…

(j) Mrs Vince-Cain had no realistic opportunity of finding suitable work in retail sales and her decision to retain as a dietitian arose directly as a consequence of the dismissal. ……. We are satisfied that Mrs Vince-Cain's preferred option at all stages would have been to continue in their employment or, within the sector where she had chosen to make her career, had this been possible. At the time of her dismissal she was a higher earner and in her own words a "significant breadwinner". Her family had to make financial sacrifices to enable her to undertake the course and her need for retraining arose out of the Respondent's unlawful act of discrimination.

(k) No criticism was made by the Respondent of her choice of course. Her evidence, supported by that of Mr Challis, is that she will easily find work once she has qualified as a dietician in the NHS. This will be in the summer of 2006. She accepts that initially at least, this will be at a lower salary than the one she received with the Respondent. However, she makes no claim for future loss after the expiry of her training course."

21. In its conclusions, the Tribunal upheld the Applicant's decision to go on the degree course "as an acceptable form of mitigation". Her future losses claims should be met in full.

The award for injury to feelings

22. The way in which this issue has been presented to us is highly unusual. The background is found in our earlier decision, relating to whether or not the Respondent could challenge the system of "grossing-up" of awards for loss of earnings. We accept the description of the principle of grossing up, put forward by Mr Evans before the Employment Tribunal as follows

"1.1 Damages awarded in settlement of a claim for wrongful or unfair dismissal which are directly referable to earnings - such as failure to give notice or loss of future earnings -are 'emoluments' subject to income tax under the general principles of Schedule E (see Income and Corporation Taxes Act ('ICTA ') 1988, s-19 [Enc.1]

1.2 Where this is the case the award is subject to a charge to tax in the Applicant' s hands and is subject to grossing up by the Tribunal to ensure that the Applicant receives the intended amount of compensation.

….

3.1 Where the damages are not directly referable to earnings, the sums are taxable under Schedule E as termination payments within ICTA 1988, s.148 (Enc.2) subject to the statutory exceptions at ICTA 1988, Schedule 11.IEnc.3]"

The authority defining this approach is Shove -v- Downs Surgical Plc [1984] ICR 532 EAT.

23. A Tribunal's power under section 65(1)(b) is to award an amount corresponding to damages in tort. It must of course set out the principles which inform its decision as to such amount, and it must reach a finite figure. In this case, the Tribunal acknowledged a number of difficulties in applying the grossing-up formula for loss of earnings and set out its intention quite clearly that that principle should apply. That is why it directed the parties to agree the figures which would emerge from application of the principles. In the passage we have cited from the order at the end of the Tribunal's Decision, there is as a matter of construction a clear distinction between the Tribunal's treatment of loss of earnings, to which grossing-up applied, and its treatment of the award for injury to feelings. The second and third sentences plainly deal with the Tribunal's concern relating to the incidence of tax. That concern is not transmitted in the sentence "the Tribunal makes a further award of £15,000 for injury to feelings". It is different from and "further to" the award for loss of earnings and for interest. No mention is made of grossing-up, or that it should be paid gross. In our judgment that reflects what we regard as the Tribunal's clear understanding that its award for injury to feelings was not subject to tax. It did not award £15,000 subject to any other matter. It simply ordered that sum.
24. In the light of that construction, the circumstances in which an appeal against it arises are unusual. In written submissions, at the request of the Employment Tribunal relating to grossing-up, Mr Evans submitted that an injury to feelings award "must therefore be outside any charge to income tax". This drew the response from Ms Crasnow: "The Tribunal are asked to reject the Respondent's submissions …. it is not clear that injury to feelings awards are outside any charge to income tax." She submitted that it would be unfair for the Tribunal to refuse to gross-up and that the uncertainty should be resolved by the Respondent giving an undertaking to meet any tax liability the Applicant should have, or the Tribunal should give the Applicant liberty to apply for an additional award, should that circumstance arise.
25. The Tribunal made clear both the principles behind, and the amounts of, the awards it was making. It then said that the Applicant could apply for a review if those aspirations were not met. (See Reasons paragraph 21). On appeal, it is contended by Mr Evans that "it is wrong in principle to "gross-up" an award for injury to feelings … [I]f and to the extent the Tribunal has ordered an amount equivalent to tax to be paid on these awards, it cannot stand". The Applicant contends that since the Tribunal did not gross-up the award for injury to feelings, the appeal on this ground is misconceived.
26. The position reached at the end of the Employment Tribunal hearing is that the parties were content to leave alone the award of £15,000, provided that is an end of the matter. A year later, the Applicant is concerned that the Inland Revenue might seek to charge tax on this sum, and the Respondent seeks to avoid a further award, should this occur and the Applicant apply for a review, and the Tribunal in that event gross-up to meet the charge to tax. The approach of the Revenue has not been particular helpful. On 28 January 2004 the Applicant's solicitors sought a tax assessment of the Tribunal's award prior to the appeal. The Revenue's response was as follows:

"The Tribunal seems to me to be seeking to operate the general law "Gourley" principles and I have enclosed my guidelines covering this point.

All the Revenue can do is to tax the damages which emerge from the Tribunal and of the correct tax section, regardless of whether or not the Tribunal has correctly analysed the tax position. If the Tribunal has made an inappropriate calculation then the remedy lies between the individual and the Tribunal - not the Revenue."

The guidelines included the following:

"A payment of damages falls within Section 148 ICTA 1988 ….. Whether a payment is "damages" can be a difficult issue and close attention to facts is essential … If mistakes are made during this process then what is actually paid is taxed, under the appropriate tax law, if doing so leaves the individual "out of pocket", that is a matter for the parties to remedy between themselves."

Strictly speaking, no ground of appeal emerges out of the Tribunal's finding. But since both parties put arguments before the Tribunal relating to whether or not an injury to feelings award should be grossed-up, an express finding should have been made, in which case the disappointed party could appeal as a matter of law. We will infer that the impact of the Tribunal's order is that it decided the grossing-up principle did not apply to an award for injury to feelings. In deference to the arguments which have been put before us, we have decided to determine this point, and we will uphold the Tribunal's Decision as to which both sides acknowledge there is no binding authority.

27. The Applicant was originally employed as store manager for the Respondent's retail outlet known as Emporio Armani in Manchester. By the time of her dismissal she was regional manager responsible for all of the Respondent's stores outside London. The Tribunal found that discrimination against her occurred over the course of several months from her return to work following maternity, until her dismissal. The Tribunal also found that the Applicant tried to bring a grievance and was victimised for that, and that the manner in which the Respondent dealt with the grievance was a sham. The Applicant had to seek counselling. She found work in the retail sector rewarding and stimulating. She would have wished to continue in the employment of the Respondent, within the section which she had chosen to make her career. She was a high-earner and a significant breadwinner, and her family had to make financial sacrifices. The Tribunal accepted the Applicant's claim for aggravated damages and, following submissions on the judgment of the Court of Appeal in Vento (above), which had been delivered prior to the Tribunal's Decision in our case, the award of £15,000 was made. On analysis, the award is targeted upon injury to feelings suffered during, on, and after, termination of the employment relationship. This reflected the summary of the way the Applicant put her case in her Originating Application at paragraph 21. She complained of a continuing period of undermining of her position, victimisation and dismissal. In part, the Applicant's claim for aggravated damages was recognised, for the Tribunal held that the Applicant's grievance was not handled correctly, and was "high-handed, insulting and oppressive" behaviour. This is a reference to Alexander -v- The Home Office [1988] IRLR 190 CA, which set out those epithets as being a justification for an award of aggravated damages.
28. The approach to the assessment of compensation is described by Mummery LJ in Vento (above) as follows:

"50. It is self evident that the assessment of compensation for an injury or loss, which is neither physical nor financial, presents special problems for the judicial process, which aims to produce results objectively justified by evidence, reason and precedent. Subjective feelings of upset, frustration worry, anxiety, mental distress, fear, grief, anguish, humiliation, unhappiness, stress, depression and so on and the degree of their intensity are incapable of objective proof or of measurement in monetary terms. Translating hurt feelings into hard currency is bound to be an artificial exercise. As Dickson J said in Andrews v. Grand & Toy Alberta Ltd (1978) 83 DLR (3d) 452 at 475-476, ( cited by this Court in Heil v. Rankin [2001] QB 272 at 292, paragraph 16) there is no medium of exchange or market for non-pecuniary losses and their monetary evaluation

"... is a philosophical and policy exercise more than a legal or logical one. The award must be fair and reasonable, fairness being gauged by earlier decisions; but the award must also of necessity be arbitrary or conventional. No money can provide true restitution."

51. A1though they are incapable of objective proof or measurement in monetary terms hurt feelings are none the less real in human terms. The courts and tribunals have to do the best they can on the available material to make a sensible assessment, accepting that it is impossible to justify or explain a particular sum with the same kind of solid evidential foundation and persuasive practical reasoning available in the calculation of financial loss or compensation for bodily injury….."

29. The Court of Appeal approved the approach of the EAT, Smith J and members in H M Prison Service -v- Johnson [1997] ICR 275, which included the following, at 283B:
    

"… awards should be restrained as excessive awards could, to use the phrase of Sir Thomas Bingham MR, be seen as the way to 'untaxed riches' (iii) awards should bear some broad general similarity to the range of awards in personal injury cases"

Mummery LJ accepted the principle of comparison with personal injury awards for pain, suffering, disability and loss of amenity (at paragraph 61), following citation of a range of decisions of the Court of Appeal and the Criminal Injuries Compensation Board, providing general damages for:

"post traumatic stress disorder, for psychological harm involving serious personality change and damage and dysfunctional relationships, feelings of low self-esteem, eating disorders, panic attacks, personal and social unhappiness, anger and distress …." (paragraph 60)

30. It is plain from Alexander that a Tribunal awarding damages for injuries to feelings will have made a finding that the claimant suffered "hurt" of a particular kind, such as injury to feelings or preventing the complainant obtaining a better more remunerative job. The OED shorter edition includes within the definition of injury "suffering or mischief, wilfully or unjustly inflicted …. insult ….. hurt or loss caused to or sustained by a person …. harm, detriment, damage." The derivation in legal terms is injuria, an essential element of the Roman law of delict.
31. It is also helpful to note (although our decision does not depend upon it) that the Court of Appeal, since the oral hearing in our case, has decided Khan -v- Trident Safeguards Ltd [2004] EWCA Civ 624 on 19 May 2004. In that case a majority of the Court of Appeal followed Ord -v- Upton [2000] Ch 352, in dealing with a claim of race discrimination brought by a bankrupt. It was held that the claim for loss of earnings and injury to feelings would be a "hybrid" case vested in the trustee in bankruptcy. If the claim were limited to seeking a declaration and compensation for injury to feelings, it would fall on the "personal" side of the line drawn by Erle J in Beckham -v- Drake (1849) 2HL Cas 579 604 for cases in which:

"the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body mind or character, and without reference to his rights of property".

32. All of the foregoing indicates that the Court's approach to the assessment of damages for injury to feelings is unrelated to special damages, for example for loss of earnings. The question is: should such awards be taxed? We are acutely conscious that decisions relating to tax liability may be appealed and determined only by General Commissioners, pursuant to sections 31(1) and 31B of the Taxes Management Act 1970. On the other hand, once an issue is placed before an Employment Tribunal relating to how an applicant's loss is to be compensated, the Tribunal must decide that issue by reference, if necessary, to the incidence of taxation, as demonstrated by the grossing-up principle in Shove (above) and the net loss principles in British Transport Commission -v- Gourley [1956] AC 185 HL.
33. Pursuant to section 19 of and Schedule E to, the Income and Corporation Taxes Act 1988, tax is charged "in respect of any office or employment or emoluments therefrom …". There is, however, an exception under section 148 and Schedule 11, relating to payments and benefits "received in connection with … the termination of a person's employment" which is made

"3(a) in connection with the termination of the employment by the death of the employee or

(b) on account of injury to or disability of the employee."

34. That regime is replicated in the Income Tax (Earnings and Pensions) Act 2003 in respect of what is called, under the modern terminology, "employment income" which involves "general earnings" (see sections 4 and 6 and the exceptions for death or disability at section 406). The 2003 statute may be relevant to the present case, depending upon the year of assessment of the payments of the awards. In any event, as we explained in our first judgment, Mr Evans accepts there is no relevant distinction in principle between the terminology of one and the other. It is from these passages in the tax statutes that, it is said, the problem in our case arises.
35. It must be recalled that the principle of damages for injury to feelings is restitution, for as May LJ said in Alexander[1988] ICR 685 at 692:

"As with any other awards of damages, the objective of an award for unlawful racial discrimination is restitution … for the injury to feelings ….. for the humiliation, for the insult it is impossible to say what is restitution and the answer must depend on the experience and good sense of the [relevant Tribunal]."

The imprecation against awarding "untaxed riches" (cited above by Smith J in H M Prison Service -v- Johnson) derives from the comment in a libel case involving the singer Elton John: John -v- MGN Ltd [1996] 3 WLR 593 CA, in which the Court of Appeal, Sir Thomas Bingham MR presiding, very substantially reduced awards for damages for injury to reputation and feelings awarded by a jury.

36. With these principles in mind, the central question in the instant case is whether the Employment Tribunal was correct to pay no attention to the tax implications of its award of £15,000 for injury to feelings. In our judgment, it was correct to make the award it did. At first sight it might appear to be the exercise by a Tribunal of its decision on the balance of probability that no tax would be payable on the award, in the light of the evidence the Tribunal heard that the Revenue was inconsistent in its approach to such figures. If it were as simple as that, the Tribunal's decision could not be disturbed as a finding of fact. It, on the other hand, a more rigorous analysis is called for, the result is the same. The factors point all in one direction and in our judgment are as follows:

a) In Vento (above) the Court of Appeal acknowledged (paragraph 46) that this was the first time for many years that that Court had had the opportunity to consider "the appropriate level of compensation for injury to feelings in discrimination cases". Not a word was said about the possibility of the award being taxed. There was no challenge to the principles in Gourley, which is that any award which has a tax implication must be reflected in the final award of damages.

b) In Vento the approach previously adopted in HM Prison Service -v- Johnson of consideration of analogies for damages for "pain and suffering, disability and loss of amenity" in personal injury claims was considered correct. Such an award is not subject to tax.

c) In Essa v Laing [2004] IRLR 313 para 42, Pill LJ said "while there may be a difference between "injury to health or personal injury" and "injury to feelings", the two are not inconsistent, may overlap and injury to feelings may contribute to injury to health".

d) The assessment of such awards is to be based upon the guidelines of the Judicial Studies Board. Those guidelines say nothing about tax.

e) The exception in the tax statutes of payments made on account of "injury to or disability of the employee" is accepted to include mental and physical injury. Injury to feelings, as expressly included in section 66(4) of the SDA carries the dictionary definition of "hurt" and humiliation. Mr Evans argues that injury, wherever it appears, carries with it the same meaning. We agree.

f) Where the award is in respect to injury to feelings occurring during the course of employment, section 19 of ICTA cannot apply, since the award is not made in respect of the employee's acting as employee, and section 148 cannot apply since the employment continues. See the guidance given to Tribunal Chairmen, under the heading "Aims: to consider areas of Tribunal work where the impact of income tax may affect the amounts of an award and give guidance to a Chairman", promulgated to all Chairmen and available to the parties in the instant case. If the award includes injury to feelings as a result of a dismissal, but is not separated from the overall award for injury to feelings occurring during employment, it seems invidious to conduct that exercise.

g) The advice of the EOC, published on its website www.eoc.org.uk, is that an award of this nature is arguably not taxable and for injury to feelings per-employment should not be taxable.

h) In at least one appeal to Special Commissioners, it has been accepted by the Revenue that such an award is not taxable: Walker -v- Amanda Adams (HMI Taxes) SPC 344 DMF O'Brien Special Commissioner 15 April 2003, on a reference relating to the taxation of an award by the Fair Employment Tribunal in Northern Ireland, in respect of provisions relating to religious and/or political discrimination.

37. We have been referred to no authority and to no authoritative commentary which holds or asserts that tax is payable on such an award. In practice, where a dispute arises between the parties, we accept that it is resolved by an indemnity given by the paying party that if the Revenue attacks the award in the hands of the receiving party, the paying party will make good. Alternatively, as here, a power to seek review can be sought and given at the Employment Tribunal itself.
38. To summarise our conclusions on this topic in the order in which we place them, we hold that the Tribunal committed no error for:

a) No dispute properly arises on appeal from the way in which the parties argued the case below.

b) No appeal would lie if the finding by the Tribunal were based upon a decision of fact relating to the probability that tax would not be payable on the award it made.

c) If it is correct that the Tribunal made no specific decision on the issue, or that the implication is that it did decide the issue, the Tribunal correctly decided to exclude from considerations the incidence of taxation.

The finding on the Applicant's decision to go to university

39. The point in this ground of appeal is: did the Tribunal err in law when it ordered the Respondent to compensate the Applicant for loss of earnings during nine out of twelve months, for four years, when the Applicant was, or was to be, a student on a BSc course in Dietetics at Leeds Metropolitan University? Before answering this question, it is necessary first to look at the chronology and secondly at the way in which this issue is classified, for we conclude that it is correctly classified as mitigation.
40. Both Judge Clark and the EAT, presided over by Judge Burke QC, ordered the Respondent to produce a chronology. It failed to do so and we will have to set out our own, from our understanding of the dates.

1 August 1968	Applicant born
24 August 1992	Applicant employed as store manager, Manchester
27 April 1995	Applicant promoted to Regional Manger
December 1998 - March 1999	First maternity leave
December 2000 - 30 April 2001	Second maternity leave
26 October 2001	Applicant dismissed
26 January 2002	Payment in lieu of notice expires
17 January 2002	Part time job at Blazes
13 June 2002	Mr Challis's report
19 August - 17 October 2002	Tribunal liability hearing
30 September 2002	Applicant starts at University
20 November 2002	Tribunal Decision and Directions
17, 18 December 2002	Remedy hearing
January to June 2003 1 June 2003	Further submissions Applicant completes first year at University
20 June 2003	Tribunal in Chambers
1 August 2003	Tribunal Decision on remedy
1 June 2006	Applicant due to graduate

In making the above short chronology, we exercise our power under Employment Tribunals Act 1996 s 35 to make corrections to the Tribunal's Decision, for in paragraph 5(b) the date should read "17 January 2002" and the date on which the Decision was signed should read "1 August 2003" and we accept as cited in the Notice of Appeal that the Decision was sent to the parties on 1 August 2003.

41. Mr Barry Challis produced an employment and earnings report, which was served on the Respondents prior to the liability hearing. It conforms to the protocols for such a report under the CPR. Directions were given inviting the Respondent, if advised, to respond. It did not produce an expert's report and Mr Challis's report was lodged and read at the Tribunal without objection. The opinion of Mr Challis was that as at the time of his writing, 13 June 2002, some eight months after dismissal, the Applicant had taken reasonable steps to mitigate her loss. The Respondent had contended that within six months of the termination of her employment, she would have been able to gain suitable alternative employment, and thereafter she did not mitigate. The Tribunal upheld Mr Challis's opinion.
42. However, in submissions before the Tribunal, the Respondent appeared to take a more generous approach, for the Tribunal recorded this submission (page 4 of its Reasons):
    

"The Respondent maintained that the Applicant gave up her search for suitable employment too soon and instead, unreasonably opted to re-train as a dietitian undertaking a four year university course. Mr Evans argued that had she persisted in her search for work, she would have found suitable work within a year of her dismissal."

Dealing strictly with the terms of that submission, it would seem that the Respondent did not criticise the Applicant's being unavailable for work, from the time of her taking up the university course on 30 September 2002 until the anniversary of her dismissal on 26 October 2002. Thus the proper question is whether she failed to mitigate thereafter. The Tribunal made a simple finding.

"We are satisfied that the Applicant did not fail to mitigate her loss during the period up to the date of the remedy hearing"

43. As noted, the oral hearing concluded on 18 December 2002 but the proper way of looking at this is to consider the period between the close of that oral hearing and the registration of the decision. Six months passed during which there were exchanges of submissions on the direction of the Tribunal. When the Tribunal says "remedy hearing" we take that to include both the oral hearing and the meeting in Chambers following written submissions. The Tribunal therefore found that there was no breach of the Applicant's duty to mitigate during the whole of her first year as an undergraduate. It then went on to hold that there was no such breach up to 1 June 2006, for the Applicant had given credit for three months of gainful employment during the university vacations and sought compensation for only nine months. In addition, she did not seek compensation for any period after 1 June 2006. This was because she anticipated entering into the NHS as a career dietitian. Mr Challis's evidence was that her starting salary at 2002 prices would be £17,745 but that the most senior levels of dietitian are paid at £36,530. This would put her above what she was earning with the Respondent. For whatever reason, therefore, the Applicant made no claim against the Respondent to be compensated after the end of her university course, when she would be thirty seven.
44. The Tribunal held that the Applicant had reasonably restricted her recruitment opportunities to seeking suitable similar work to that which she had with the Respondent. The Respondent gave the Applicant a degree of flexibility in her working hours, to accommodate her child care and family responsibilities. One feature of this, noted by the expert and accepted by the Tribunal was that it was reasonable for her to seek to maintain that flexibility in any new work which she found. Secondly, the expert noted and the Tribunal accepted, that there were negative factors creating difficulty in employment for anyone who had activated Employment Tribunal procedures and was assisted by solicitors. This may sound a fairly gloomy outlook for all those engaged in enforcing the law on discrimination, but the expert evidence in this and other cases, in our experience, does indicate that if you bring Tribunal proceedings, you are less marketable. Thirdly, the expert noted the difficulties in re-employment increase the longer a former employee is away from work, for coming on to the market each day are people with more recent experience.
45. In the light of those observations, the expert turned his attention to what jobs the Applicant might possibly do, and considered a range of lesser paid, less senior positions for which the Applicant had no specific training, such as sales representative, recruitment consultant, telephone sales and customer care person. The Respondent's case is that the evidence disclosed that the Applicant had a "residual earning capacity" which she had not lost by reason of the dismissal.
46. Examining the evidence, fourteen months after the Applicant's dismissal, the Tribunal concluded that, in the light of her (reasonable) aim for flexibility of hours, predicated upon child care, the Applicant's prospects of obtaining "similar work" or "suitable work" were small. It examined carefully a "large bundle of documents" produced by Mrs Stretton, a witness for the Respondent who was not an expert in employment opportunities. This witness accepted that many of the opportunities suggested by this bundle were "not a realistic option". The Tribunal concluded that the Applicant could not have been expected to apply for any of those which she had not already applied for, without success.
47. The Tribunal also made this important finding.

"Indeed, she re-registered with recruitment consultants prior to enrolling as a full-time student and we accept that had suitable employment become available, she would have abandoned her University course to take it up. Her evidence is that she would still do this today and we accept it."

The findings about Mrs Stretton's evidence of vacancies, and the Applicant's state of mind, combine to produce a firm conclusion. Even if the Respondent were right that the Applicant should have lowered her sights and continued looking, no suitable work was produced by the Respondent as evidence of a failure to mitigate; further, if such became available, the Applicant would abandon her course and take it up. By those two findings the Tribunal rejected Mr Evans's submission that she had set her sights too high and had failed to lower them early on in her job search. Quite simply, the Respondent was unable to prove that there was suitable work which the Applicant could and should have taken. Given that evidence was taken on 18 December 2002 at the earliest, and was still under consideration on 1 August 2003, it is a powerful finding in support of the Applicant's contention that in becoming a student on 30 September 2002, she was not in breach of her duty to mitigate. Those of course are all matters of fact, which are not susceptible to an appeal here. The question of law which Mr Evans advances is one based upon the classification of the Tribunal's role. He submits that the Tribunal erred, for it should have considered, first, what the Applicant's losses were and then, whether she had failed in her duty to mitigate. The first question is one of attribution or causation. Mr Evans made reference to the basic principles of damage in tort. He relied on the restatement of principle by Lord Nicholls of Birkenhead in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2002] HL 19 [2002] 2 WLR 1353

69 How, then, does one identify a plaintiff's "true loss" in cases of tort? This question has generated a vast amount of legal literature. I take as my starting point the commonly accepted approach that the extent of a defendant's liability for the plaintiff's loss calls for a twofold inquiry: whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable. The first of these inquiries, widely undertaken as a simple "but for" test, is predominantly a factual inquiry. …

70 The second inquiry, although this is not always openly acknowledged by the courts, involves a value judgment ("ought to be held liable"). Written large, the second inquiry concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable (the epithets are interchangeable). To adapt the language of Jane Stapleton in her article "Unpacking 'Causation' " in Relating to Responsibility, ed Cane and Gardner (2001), p 168, the inquiry is whether the plaintiff's harm or loss should be within the scope of the defendant's liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. In the ordinary language of lawyers, losses outside the limit may bear one of several labels. They may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant's responsibility may be excluded because the plaintiff failed to mitigate his loss. Familiar principles, such as forseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this.

71 In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response. This is informed common sense by another name. Usually, there is no difficulty in selecting, from the sequence of events leading to the plaintiff's loss, the happening which should be regarded as the cause of the loss for the purpose of allocating responsibility. In other cases, when the outcome of the second inquiry is not obvious, it is of crucial importance to identify the purpose of the relevant cause of action and the nature and scope of the defendant's obligation in the particular circumstances. What was the ambit of the defendant's duty? In respect of what risks or damage does the law seek to afford protection by means of the particular tort? …"

48. These principles were cited in a sex discrimination case by the Court of Appeal in Essa v Laing [2004] IRLR 313 para 22, Pill LJ decided that loss (in that case psychiatric illness) does not have to be reasonably foreseeable, but must have arisen in accordance with the normal rules on causation, intervening acts and mitigation (para 43). Mr Evans submitted that the decision by the Applicant to go to university was a new intervening act, and loss of earnings from that time could not be attributed to the discrimination. In marshalling the basic principles enunciated by Mr Evans, we were assisted by submissions on McGregor on Damages, 17^th ed 2003. What is said below is instructive of the difficulties in distinguishing between the various principles as set out in the following paragraphs:

"4-014 Even when firmly past the hurdle of establishing the existence of a liability, further difficulties arise in distinguishing amongst themselves the various limits set by the court upon the recovery of damages ….

4-015 A claimant may have his damages cut down because his own conduct has constituted contributory negligence, has rendered some of the damage too remote, or has constituted a failure to mitigate the damage, which may be defined as a failure on the part of the claimant to take reasonable steps either to reduce the original loss or to avert further loss. This covers the whole ground of contributory negligence and mitigation, but damage may be too remote from causes other than the claimant's conduct …

…..

6-009 Causation in law, unlike causation in fact, is a knotty problem … In all the difficult cases on causation it will be found that there is a third factor in the situation, beyond the plaintiff's damage and the defendant's act: direct consequences are defined as those where this third factor preceded the defendant's act; consequences following upon a new intervening force are defined as those where the third factor follows the defendant's act. The total formulation, therefore, of what falls to be decided in these questions of causation is whether, given a third factor, the claimant's damage results from the defendant's act, a formulation which has the great merit of a commonsense approach [citing Hart and Honore Causation in the Law 2^nd Ed 1985, chapter 6]

6-039. … Where there is a full and free choice in the intervening act, the defendant is much less likely to be held liable….[citing Casey v Morane Ltd [2001 ICR 316 CA]

6-070 Where the claimant is a free chooser, the defendant is much more likely to be relieved of liability for increased damage resulting from the claimant's act. It is at this point that the distinction between contributory negligence, remoteness and mitigation becomes most acute. Since it is here that it becomes most likely that the claimant may fail in his action in respect of the increased damage, it is of great practical important whether the axe falls by way of contributory negligence, where the claimant can at least recover an apportioned part of his increased damage; by way of remoteness where the onus is on the claimant to prove the defendant liable for the increased damage; or by way of mitigation where the onus is on the defendant to show himself not liable for the increased damage …

6-071 Most of the cases here form the complement to those where the claimant has succeeded because his intervening act has been reasonably taken for the safeguarding of his own or another's interests. Here the claimant fails because his act is unreasonable although similarly motivated …

6-072 … Where the event depends upon the defendant's act in the sense that it would not have occurred had the defendant not acted as he did, then the defendant will be liable for all the damage …

6-074 Where, however, the intervening event, although independent of the defendant's act, is one which is in no way abnormal but in the ordinary course of things, then the defendant will remain liable for the further damage.

7-016…. [T]he question of mitigation of damages is a question of fact …."whether a loss is avoidable by a reasonable action on the part of the defendant is a question of fact not law"…. [citing authorities]

7-019 The onus of proof on the issue of mitigation is on the defendant. If he fails to show that the claimant ought reasonably to have taken certain mitigating steps, then the normal measure will apply …."

49. In the instant case, the Tribunal heard submissions both on mitigation and on remoteness. It appears to have decided this case on mitigation, since the use of the words mitigation and reasonable throughout and the conclusion in paragraph 22(e) indicates the latter. Prior to reaching its decision on mitigation, the Tribunal heard submissions from the Applicant that she would continue to suffer loss until 1 June 2006, when she would graduate from university, obtain a job in the NHS and not seek further compensation from the Respondent. The Tribunal was under a duty to consider all those losses flowing from the dismissal. In basing its calculations on the period from 26 October 2001 to 1 June 2006, and the figures in her schedule of loss, the Tribunal must have accepted that the Applicant's loss of earnings, in those sums, was attributable to the dismissal. The next question, logically, is whether the Applicant acted reasonably to reduce those losses or to avert future losses. In the light of the Respondent's approach (cited at para 39 above) to the first year's unemployment, i.e up to 26 October 2002, and the Tribunal's rejection of the evidence of the Respondent relating to available vacancies up to both "the date of the hearing" i.e. at the earliest 18 December 2002, or even 1 August 2003, the Applicant was adjudged not to have acted unreasonably in taking up the university course, while holding herself available to take any suitable work which appeared in the meantime. In the absence of evidence of any further such opportunities, it must be presumed that the Applicant behaved reasonably in continuing on her university course, for the three succeeding years, giving credit for three months each year for work during the vacations.
50. Another way of looking at it is to consider whether or not losses flowed after 1 June 2000. If they did, the Applicant was entitled to change career so as to avoid losses continuing beyond that date and long into the future. In other words, finding no work in her chosen career as a retail area manager, she changed to training as a dietitian, which would cause a short term drop in earnings (being available to work for only three months a year, subject always to being available to take up a suitable job) but which in due course would give her the opportunity of rising to a salary which, comparing like for like, was above that of her job with the Respondent.
51. Mr Evans submitted that the residual earning capacity should be calculated by reference to those cases where a claimant has been injured at work and is thereafter facing reduced career opportunities. This is a simple question posed in Parry -v- Cleaver [1970] AC1 by Lord Reid, who said:

"First, what did the plaintiff lose as a result of the accident? What are the sums which he would have received but which by reason of the accident he can no longer get"

So the application of first principles yields the result that a claimant who can no longer work at all is entitled to restoration to his full earnings; a claimant whose ability to work is reduced to lower paid jobs is entitled to the difference between that rate and the old rate; and a claimant who is able fully to get back into the labour market, and does, receives nothing This means that the claimant has established liability of the defendant, subject to the claimant mitigating his loss. The defendant remains liable for those elements of loss, in respect of which the Court has determined that the claimant has behaved reasonably in mitigation. The taxonomy of the issues in cases such as this remains important. Once it is determined that the focus is on mitigation, the onus is upon the Respondent to show a breach of that duty by the Applicant. In the instant case, the Tribunal made ample findings that the decision by the Applicant to change careers was a reasonable step (in mitigation of the otherwise unlimited loss). Such a question is one of fact and does not give grounds for an appeal. In our judgment, the findings by the Tribunal, although at first sight surprising, must be seen in the context that during the first year of post-dismissal unemployment, no attack was made by the Respondent upon her decision to take up the university course; and secondly, the Tribunal's finding that at all times during the course the Applicant would have abandoned it had suitable work been available to her.

52. To take a simple example we put in our hearing, an employee who is dismissed and suffers no physical or mental impairment ought to be able to obtain a job straight away. A manager of a number of retail stores will not get that sort of job immediately, but has an ability to work as a cleaner at a quarter of her earnings. There are many such vacancies. It could be said that her residual earning capacity is therefore a quarter of her previous earnings. Whether or not it is reasonable for her to take such a job relates to the second question which is mitigation. For a period of time, which is measured by the Tribunal as a matter of degree, it is unreasonable for her to be expected to lower her sights. After the conclusion of such a period, it may become reasonable for her to accept a lesser paid job of lesser status. At that time the employer's duty to compensate her is capped as the difference between what she could be expected to earn and what in fact she earned from the employer. So long as the Tribunal approaches the question of principle correctly, its assessment of these matters of fact and degree is a matter for it and it will not be overturned on appeal.
53. A refinement of this occurs when the employee decides it is in her long term interests to continue to be unemployed for a longer period so as to be in a better position in the long run to seek to avoid further losses to her and further compensation payable by the employer. During this time it may be inappropriate for the former employee to be seeking employment, for he or she may be seeking to become self employed. It is not an error of law for the Tribunal to decide that it was reasonable for such an employee to take that step: Gardner-Hill -v- Roland Burger Technics Ltd [1982] IRLR EAT Browne-Wilkinson J, a case cited by both parties. It follows that a person may have a residual earning capacity, in our example, to work as a cleaner, yet it is unreasonable to expect her to take up that position while she is taking steps to become self-employed (Gardner-Hill) or, in our case, undertake training which will ultimately put her in paid employment at a rate higher than that paid by the Respondent.
54. The Tribunal was no doubt fortified by the evidence of Mr Challis in its finding that the Applicant's bringing of Tribunal proceedings was a "negative factor" which made her "less attractive to a prospective employer" when it decided that entering university rather than staying in the labour market was a reasonable decision. It is axiomatic that the Respondent directly caused that particular handicap on the labour market.
55. It was submitted to us, without any response from the Respondent, that the question of residual earning capacity had not been put to the Applicant so that she was not able to deal with the question of whether or not she would have taken, or should have taken, any of the jobs suggested by Mr Challis. If we are thus far incorrect in our analysis, this matter would have to be remitted to the Tribunal.

The Tribunal's finding on pension loss

56. The Tribunal awarded a sum in respect of loss of pension rights totalling £4,973.86. The sole evidence for this was the finding by the Tribunal that the Applicant would have benefited from membership of the Respondent's projected pension scheme if she had not been dismissed. This is a finding based upon the Applicant's unchallenged evidence that the Respondent was about to introduce a pension scheme at the time of her dismissal, which represented 5% of her salary. The Tribunal accepted that this would have constituted a benefit, had her employment continued. The Applicant's evidence was that she would immediately begin employment in the NHS after the completion of her degree. There was no investigation and evidence as to the nature of any pension scheme which would be available to her.
57. The point is that the existence of such a scheme which is likely to have been a final salary scheme might have been a valuable benefit extinguishing or significantly reducing the pension loss which she would hitherto have suffered. After all, compensation for pension loss is based upon the diminution at some future date of a pension, caused by the wrongful act of an employer, in this case by dismissing her and excluding her from the benefit of the employer's contributions to a pension scheme. On the Tribunal's award, the Applicant was being compensated in 2003 for a loss which might not occur at all, or which might be significantly changed, depending on the options available to the Applicant upon employment in the NHS. We accept the Respondent's submission that it is no answer to this for the Applicant to limit her claim to compensation to the period ending on 1 June 2006, for compensation in respect to pension loss is in an entirely different context.
58. The guidelines available to Employment Tribunals Compensation for Loss of Pension Rights, 3^rd edition, TSO 2003 postulate two different approaches to the calculation of future pension loss (see paragraph 4 to 10). These are the "simplified approach" and the "substantial loss approach". It is suggested under the guidelines at paragraph 7.1 that the simplified approach of adding employer's contributions should not be used where the period of loss is likely to be more than two years for

"in such cases the Tribunal may be making a finding which subsequent events may prove entirely incorrect, particularly where the applicant is in white collar employment".

In our judgment, the substantial loss approach is correct, and in any event, the Tribunal's award took no account of the fact that the payment to the Applicant of an award of compensation ought to reflect early receipt. In this respect, we accept the Respondent's submission that the Tribunal made an error of law.

59. Having declared the principle applicable to the calculation, the pension loss should be remitted to the Employment Tribunal unless the parties can either reach an agreement on the sum to be reflected in the award, or can jointly agree that we should make this decision and award the appropriate sum..

Disposal

60. Apart from the pension loss, we consider the Tribunal reached the correct conclusions on the law. We are grateful to both Counsel for their oral and written submissions. The case will be remitted to the Employment Tribunal for a decision on the pension loss which can be dealt with by written submissions to the Employment Tribunal to be lodged within 14 days, unless within fourteen days an agreed order is put before us, or an application is made for us to decide it, or the parties require an oral hearing before the Employment Tribunal. Save for the foregoing, the appeal is dismissed.