United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR DEREK O'CARROLL (of Counsel) Instructed by: Law At Work 151 St Vincent Street Glasgow G2 5NJ
For the Respondent	MRS P THOBURN (Representative)


 


THE HONOURABLE MR JUSTICE RIMER

1. This appeal is against parts of a decision on liability given by an employment tribunal sitting at Thornaby on Tees over three days in May and July 2004 and chaired by Dr I. J. Watt. The tribunal's extended reasons were sent to the parties on 26 July. The applicant was Mrs M. L. Mitchell, whose claim was for compensation for wrongful dismissal. The respondent, which is the appellant before us, was her former employer, The Wise Group ("Wise"). The tribunal held that Mrs Mitchell had been wrongfully dismissed and there is no appeal against that. What Wise does appeal against is the tribunal's decision that Mrs Mitchell's wrongful dismissal entitled her to two particular heads of compensation. Wise was represented before us by Mr Derek O'Carroll. Mrs Mitchell was represented by Mrs P. Thoburn.

The facts found by, and decision of, the employment tribunal

2. Wise is a registered charity. It is a company limited by guarantee with a head office in Glasgow. Mrs Mitchell was employed by Wise as a programmes manager from 10 June 2002 until 1 May 2003. She worked at its Middlesbrough office.
3. Mrs Mitchell's employment contract provided that it could be terminated by Wise on one month's notice. There was no provision in it for payment in lieu of notice. On 1 May 2003, Wise summarily dismissed her without notice, although it also paid her one month's salary in lieu of notice. Wise admitted that its summary dismissal of Mrs Mitchell constituted a breach of her employment contract but it claimed that the maximum compensation to which the breach entitled her was damages in a sum equal to the net contractual salary she would have earned during the month's notice that she should have been given. As she had been paid a month's salary for that period, Wise claimed that she had suffered no loss for which she could recover compensation.
4. The reason for Mrs Mitchell's dismissal was her alleged inability to adjust to organisational changes within Wise and, in consequence, her allegedly obstructive and uncooperative behaviour. The tribunal held that that was a reason relating to conduct. They also found that the terms of her employment contract were such that, if any allegation of misconduct were made against her, she was contractually entitled to the operation by Wise of its code of disciplinary procedure. This required the interviewing of witnesses, the taking of statements and a full investigation. Counselling was one option which was then open to Wise. Another was the holding of a formal hearing, to be held upon not less than five working days' notice, followed by the imposing of any appropriate disciplinary remedy. At any such hearing, the employee would be entitled to an opportunity to state his or her case before any decision was reached. Wise did not comply with any of these provisions of the disciplinary code before dismissing Mrs Mitchell. A right of appeal was also available to anyone subject to a disciplinary decision. Wise complied with this to the extent that it granted Mrs Mitchell an appeal hearing whilst at the same time, so the tribunal found, "denying that there was any disciplinary offence or procedure in respect of which an appeal could be intimated [sic: the tribunal may have meant 'initiated']." The tribunal found that the appeal "hardly merits that description" and was "an utter travesty and a complete sham." They found that, in reality, Mrs Mitchell was denied an appeal, which added to Wise's other breaches of the disciplinary code.
5. The tribunal found, therefore, that Mrs Mitchell was summarily dismissed for a disciplinary offence. They also found that, until the final weeks of her employment, she had an exemplary work record and that Wise "had no basis for [her] summary dismissal …." They said that, had the disciplinary code been operated, the extent to which any disciplinary action would have been justified and the outcome of any such disciplinary procedure was very much in issue between Mrs Mitchell and Wise. They said that, had Wise given Mrs Mitchell one month's notice on 1 May 20003, the notice would have expired on 1 June 2003, which would still have determined her employment before she had had one year's continuous service. The relevance of that was that, had Mrs Mitchell's dismissal post-dated such a year's service, she would then have had a statutory claim for unfair dismissal. But Mrs Mitchell's case was that Wise had also failed to honour its contractual obligation to operate the disciplinary code before dismissing her. The tribunal asked themselves what would have happened had Wise first properly operated that code. They held that its operation would not have been accomplished before "5 June 2003" so that, whatever the outcome, Mrs Mitchell would by that date have achieved at least one year's continuous service. We comment that 5 June 2003 was of course just short of the expiry of such year and regard it as clear that the tribunal's reference to this particular date was an error and that they were in fact finding that the operation of the disciplinary procedure would not have been accomplished before 10 June 2003, by which time a year's continuous service would have been achieved. Having made that finding (to which there is no challenge), the tribunal identified the heads of damage to which they held Mrs Mitchell was entitled in consequence of Wise's breaches of contract. These fell under three heads, as follows:

1. Compensation for the period during which the disciplinary processes would have lasted before the contract of employment could be lawfully terminated.

2. Compensation for the lost opportunity to continue in Wise's employment. The tribunal's point was that one outcome of the operation of the disciplinary code might have been that Mrs Mitchell would have remained in Wise's employment. Wise's breach had, however, deprived her of that opportunity. The tribunal said that the measure of damages under this head required a comparison between the benefits her continued employment would have given her and her actual position following her dismissal.

3. If, however, the outcome of the operation of the disciplinary code would have been her dismissal, then she would have had a statutory claim for unfair dismissal. The tribunal said that, in that event, she was entitled to damages assessed as "the hypothetical outcome of [unfair] dismissal proceedings based on the propositions of misconduct advanced by [Wise] in evidence."

6. The tribunal directed a remedy hearing to assess damages on those bases. As between Heads 2 and 3, we understand these to be alternatives. If the outcome of the Head 2 inquiry were to be that Mrs Mitchell would have continued in her employment, then she would be entitled to Head 2 damages and no question of Head 3 damages could arise. If, however, the outcome of the Head 2 inquiry were to be that Mrs Mitchell would still have been dismissed anyway, then she could recover no damages under Head 2 but would be entitled to damages under Head 3 for her lost chance of recovering compensation for an unfair dismissal.

The appeal to this appeal tribunal

7. Before coming to the grounds of appeal, it is important to note that although Mrs Mitchell's claim for compensation was brought before an employment tribunal, it was exclusively a claim for compensation for wrongful dismissal. It was not, and could not have been, a claim for compensation for unfair dismissal, because Mrs Mitchell had not completed the minimum one year's continuous service which is a pre-condition to any such claim: see sections 94 and 108(1) of the Employment Rights Act 1996 ("the ERA"). The claim was, therefore, a common law one for damages for breach of contract, although the tribunal had jurisdiction to hear it under the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994. But for the jurisdiction conferred upon employment tribunals by that Order (and its Scots counterpart), Mrs Mitchell's claim would have had to be brought in the ordinary civil courts.
8. By its appeal, Wise only challenges the correctness of the tribunal's decision that Mrs Mitchell is entitled to compensation under Heads 2 and 3. It concedes the correctness of Head 1, which finds support in authorities in the Court of Appeal, although Mr O'Carroll drew our attention to the possibility that the House of Lords may more recently have favoured a different view in Johnson v. Unisys Ltd [2001] IRLR 279. Although Head 1 is not in issue, it is convenient to refer first to the authorities relating to it, since they set the scene for a consideration of Heads 2 and 3.

Head 1

9. Mr O'Carroll submitted that at common law an employee's only remedy for wrongful dismissal - that is, a dismissal without due notice - is a claim for damages measured by reference to the payment of the wages or salary he would have earned during the notice period that he ought to have been given, less anything he has earned elsewhere during that period or has been paid by the employer in respect of it. Beyond that, he has no claim for compensation. This is essentially how the limits of the common law remedy were described in the 1968 Donovan Report (see paragraph 22 of Lord Steyn's speech in Johnson; and also paragraph 41 of Lord Hoffmann's speech).
10. In this case, Wise paid Mrs Mitchell a month's salary in lieu of notice and so it satisfied the remedy to which these statements of the law would have entitled her. Head 1 of the tribunal's award, however, also entitled her to compensation calculated on a like basis for the additional period during which her employment would have lasted had the contractual disciplinary code been operated before a dismissal on proper notice.
11. Justification for that extension to the basic common law remedy is found in the majority decision of the Court of Appeal in Gunton v. The Mayor, Aldermen and Burgesses of the London Borough of Richmond-upon-Thames [1980] IRLR 321. In that case, the Borough dismissed Mr Gunton by giving him one month's notice, which was the notice period provided by his contract. Regulations prescribing a procedure for the dismissal of employees on disciplinary grounds also formed part of his contract but that procedure was not operated. An issue arose as to the compensation to which Mr Gunton was entitled if, as was held, his dismissal was wrongful. Buckley LJ explained (in paragraphs 34 and 35) that an employee who is wrongfully dismissed is entitled to damages measured by reference to his lost earnings from the date of dismissal until the earliest date on which his employer could properly dismiss him. He then explained (in paragraph 37) that if the employer gives a notice of dismissal on disciplinary grounds without first operating any disciplinary procedure incorporated into the employee's contract, the period for which the employee will be entitled to compensation is a reasonable period for carrying out that procedure plus the applicable notice period. He held that to be the measure of compensation to which Mr Gunton was entitled. Brightman LJ agreed with him (see paragraphs 42, 48, 52 and 53). Shaw LJ dissented on this point, saying (in paragraph 4) that he did not consider that the regulations as to staff discipline in the procedural code deprived the Borough of its right to determine the contract on the one month's notice provided by the contract, although he recognised that any failure first to operate the disciplinary procedure might be relevant to any statutory claim brought by an employee for unfair dismissal.
12. The majority view in Gunton was recognised by the Court of Appeal in Boyo v. London Borough of Lambeth [1995] IRLR 50 as binding upon it (see paragraphs 37, 48, 50 and 59 of the judgments), although Staughton LJ offered his view that he preferred Shaw L.J.'s dissenting view to that of Buckley and Brightman L.JJ (see paragraph 52). The majority view in Gunton was also applied by this appeal tribunal in Focsa Services (UK) Ltd v. Birkett [1996] IRLR 325, a wrongful dismissal claim, in a judgment delivered by HH Judge Peter Clark. Judge Clark said:

"22. The fact is that Mr Birkett was dismissed. In so far as he did not receive his full notice, he is generally entitled to damages to reflect the pay during the notice period and no more. The only exception is where employment would have been extended by operating the disciplinary procedure: Boyo v. London Borough of Lambeth [1996] IRLR 50; Gunton v. London Borough of Richmond-upon-Thames [1980] IRLR 321. In this case there is no evidence to suggest that use of this employer's disciplinary procedure would have extended beyond the one week's contractual notice which was given. Accordingly no additional loss under this head arises." (Our emphasis)

13. We referred at the beginning of this section of the judgment to the question of whether the majority's view in Gunton was shared by their Lordships in Johnson. Gunton was cited in argument in Johnson (see [2003] AC 518, 524), although Boyo and Focsa were not. In paragraphs 60 to 66, Lord Hoffmann (with whose speech Lord Bingham of Cornhill and Lord Millett agreed) discussed the impact of the incorporation into an employment contract of a disciplinary procedural code, although he did not refer to Gunton. We will return later to what he said, but the thrust was that the operation (or non-operation) of such a code was relevant only to the question of whether or not any dismissal was fair or unfair: it did not create contractual duties which were independently actionable. Those observations perhaps provide a basis for concluding that Lords Hoffmann, Bingham and Millett would have preferred the dissenting view of Shaw LJ in Gunton and of Staughton LJ in Boyo to that of the majority view of Buckley and Brightman L.JJ in Gunton. As we have said, Mr O'Carroll recognised the possibility of arguing that the Head 1 damages awarded by the tribunal gave Mrs Mitchell more than she was entitled to, but he also informed us that Wise had decided against seeking leave to amend the Notice of Appeal in order to do so. Wise therefore accepts that the Head 1 damages were properly ordered against it and so we will say no more about that limb of the tribunal's decision.
14. We turn to consider the two heads of damage which are in issue on this appeal, Heads 2 and 3. Mr O'Carroll argued them in reverse order and we will consider them in the same order.

Head 3

15. We will call this head of damages "unfair dismissal damages." The tribunal's point was that Wise's failure, in breach of Mrs Mitchell's employment contract, to operate the procedural code applicable to alleged misconduct meant that, in breach of contract, she was dismissed earlier than the earliest date on which she could lawfully have been dismissed. They found that the latter date was not before 10 June 2003 so that, had Wise faithfully operated the disciplinary procedure, Mrs Mitchell would not have been dismissed before she had completed one year's continuous service. In that event she could have brought an unfair dismissal claim against Wise before an employment tribunal. Wise's action in dismissing her in breach of contract, and ahead of the completion of such year, therefore deprived her of the chance of doing so. We comment that, as Mrs Mitchell had been employed by Wise for more than a month, she was entitled by statute to at least a week's notice of the termination of her employment (see section 86(1)(a) of the ERA) and so the effective date of the termination of her employment ("EDT") was, for the purposes of Part X (Unfair Dismissal) of the ERA, not 1 May 2003, but 8 May 2003 (see section 97(1)(b) and (2) of the ERA). However, this would still have left her over a month short of the year's service requisite for the bringing of an unfair dismissal claim.
16. Against this background, the tribunal's view was that the measure of damages to which Mrs Mitchell is entitled by way of compensation for Wise's breach of contract must include unfair dismissal damages, meaning compensation for her lost chance of bringing an unfair dismissal claim.
17. Approaching the point apart from authority, we regard it as easy to sympathise with the tribunal's view in this respect, which can be said to fit logically into the principles by reference to which the courts award damages for breach of contract. The starting point is Baron Parke's familiar statement in Robinson v. Harman (1848) 1 Exch. 850, at 855:

"The rule of common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position with respect to damages as if the contract had been performed."

18. Mrs Mitchell can point to that principle as justifying the tribunal's award of unfair dismissal damages. Wise's breach of contract in dismissing her without first operating the disciplinary procedure resulted in the wrongful termination of her employment before she had acquired a right to bring an unfair dismissal claim. Had Wise not so breached her contract, she would have had such a right. Wise's breach has therefore deprived her of that right and has caused her a loss. That loss is the loss of the chance of bringing a successful unfair dismissal claim, which, but for the breach, she would have been able to bring. To allow Mrs Mitchell to recover damages from Wise for that lost chance would, so far as money can do it, put her in the same position as if the contract had been performed. The Robinson v. Harman principle is of course subject to the restrictions on foreseeability imposed by the rule in Hadley v. Baxendale (1854) 9 Exch 341, but this head of loss can fairly and reasonably be regarded as arising naturally from the breach and so can be said to fall within the first branch of the rule.
19. There is, moreover, nothing novel about the notion that a wrongfully, and prematurely, dismissed employee such as Mrs Mitchell ought to be able to include a claim for unfair dismissal damages in her claim for breach of contract against her former employer. First, in Brindle v. H.W. Smith (Cabinets) Ltd [1972] IRLR 125, Lord Denning MR (at paragraph 9) made some obiter observations to that effect, relying on the point that an employer should not be entitled to take advantage of his own wrong. Second, in Robert Cort & Son Ltd v. Charman [1981] 437,
    Browne-Wilkinson J said, obiter, at paragraph 14:

"… However, [the employee] may have another remedy. The dismissal without notice seems to us to be a clear breach of contract. The measure of damages for such breach may not be limited to one month's wages but may also include the loss of the right to compensation for unfair dismissal which he would have had if the correct notice had been given. Mr Charman may therefore not be left without remedy by our decision."

20. Third, in Stapp v. Shaftesbury Society [1982] IRLR 326, Stephenson LJ and Sir David Cairns made similar obiter references to the possibility that a common law claim for damages for wrongful dismissal might include a claim for unfair dismissal damages, and referred to the like observations in Brindle and Charman (see paragraphs 32, and 39 to 41).
21. The points made in those obiter remarks finally arose for decision in Raspin v. United News Shops Ltd [1999] IRLR 9, a decision of this appeal tribunal in which the judgment was delivered by HH Judge Hicks QC. The tribunal's decision was that unfair dismissal damages were recoverable as part of the heads of damages for wrongful dismissal for which a claim may be made at common law.
22. The facts bore a close outline similarity to those of the present case. Mrs Raspin was wrongfully dismissed for alleged misconduct just before she had completed two years' continuous service with the employer (that was then the requisite period of service before an unfair dismissal claim could be brought). In addition, the employment tribunal had found that she had been dismissed in breach of the disciplinary procedures which formed part of her contract, being procedures which required various processes to be gone through in cases of alleged misconduct. The tribunal had also found that, had those procedures been operated, Mrs Raspin's employment would have continued until after she had completed two years' service. The employment tribunal awarded her damages calculated on the Gunton basis, but declined also to award her unfair dismissal damages as part of her common law compensation. She appealed against the latter refusal. The employer cross-appealed against the tribunal's finding that the operation of the disciplinary procedures would have taken Mrs Raspin over the two-year period of service, but that cross-appeal was dismissed. That therefore set the stage for the consideration by this appeal tribunal of whether the wrongful dismissal of Mrs Raspin - in breach of the disciplinary procedures and with the timing consequences we have mentioned - entitled her to unfair dismissal damages.
23. Judge Hicks opened by referring to Robinson v. Harman. He then referred to passages in McGregor on Damages, 15^th edition, to the effect that the measure of damages in wrongful dismissal claims is essentially limited to lost earnings or other benefits during the notice period, less any receipts in mitigation that the employee either obtained or should reasonably have obtained. He expressed the view that those passages could not, however, detract from the generality of the Robinson v. Harman principle. That required a comparison between Mrs Raspin's actual position when she was dismissed (with no statutory right to bring an unfair dismissal claim) and the position she would have been in had the employer dismissed her at the earliest opportunity at which it could lawfully have done so (when she would have had such a right). Of course, any such claim might have succeeded or failed and, if the latter, Mrs Raspin would have suffered no relevant loss. But what the breach had deprived her of was the chance of bringing a successful claim for unfair dismissal. Judge Hicks said that the courts are used to making assessments of the monetary value of lost chances.
24. Judge Hicks therefore concluded that, in principle, Mrs Raspin was entitled to unfair dismissal damages to compensate her for her lost chance. He then considered whether there was any authority precluding such an award. He referred to the dicta in Brindle, Charman and Stapp. He pointed out that they did not focus on the situation in which the claimed loss is caused by a breach of contract consisting in a failure to operate a disciplinary procedure (rather than by the dismissal itself) but said that Gunton and Boyo showed that common law damages are recoverable for a dismissal in circumstances in which there has been a failure to operate a contractual disciplinary procedure. He also pointed out that in both those cases the claim was for damages in respect of the lost wages for the additional period and that a further claim for unfair dismissal damages did not arise. He said (in paragraph 40) that Mrs Raspin's claim therefore lay

"… at the conjunction of those two lines of authorities, one binding and the other merely persuasive. The question is: are both applicable, so that this head of damages claimed by Mrs Raspin is recoverable? We have already expressed our view on the point of principle. The authorities so far referred to, although not directly in point, in our view support that conclusion."

25. Judge Hicks then observed that, although the employment tribunal had been attracted to the view that Mrs Raspin should be entitled to unfair dismissal damages, they regarded themselves as bound by Focsa to reject it. Judge Hicks then focused on what Focsa had decided and concluded that the employment tribunal had been in error in regarding it as decisive of the question whether Mrs Raspin was entitled to unfair dismissal damages. We agree with Judge Hicks that Focsa was not relevant to the point in question. No question of claiming what we have called "unfair dismissal damages" arose in Focsa. The case concerned the dismissal of a probationer within the first six months of his employment, the dismissal being in breach of the disciplinary and appeals procedures that applied to his contract. The employment tribunal had held that a consequence of the incorporation of those procedures into the contract was that there was also impliedly incorporated into it a contractual right not to be unfairly dismissed and they awarded him damages for breach of that implied term. This appeal tribunal reversed that decision on the basis that it was impossible to imply any such term into the employment contract. The appeal therefore turned simply on the narrow question of whether or not such a term could be implied. It did not concern an employee who had been dismissed in breach of contract in circumstances in which, but for such breach, his employment would have continued for a sufficient length of time to entitle him to bring a statutory unfair dismissal claim.
26. Judge Hicks referred next to the decision of the Court of Session in Morran v. Glasgow Council of Tenants Associations [1998] IRLR 67. That too concerned a claim to recover unfair dismissal damages in circumstances in which it was said that the employer's short notice terminating the employee's contract deprived the claimant of the opportunity of bringing a statutory unfair dismissal claim. The court concluded, however, that it did not have to decide this question, since it felt able to dispose of the appeal on the ground that the case was one in which the employer had had the contractual option to dismiss the employee summarily, with a payment in lieu of notice, with the consequence that the employment could have been lawfully terminated before the expiration of the minimum period of service requisite for a statutory unfair dismissal claim. That being so, and applying the principle in Lavarack v. Woods of Colchester Ltd [1967] 1 QB 278, the court held that damages were only recoverable against the employer on the basis that he had fulfilled his legal obligations and no more: that is, that he had terminated the contract at the earliest moment he could lawfully do so. Judge Hicks did not, therefore, regard Morran as advancing the issue before him one way or the other. We do, however, draw attention to the employer's argument on the claim for unfair dismissal damages, summarised as follows in paragraph 7 of the Lord President's judgment:

"The pursuer's claim is for the loss of an opportunity to acquire a right. It is thus a claim of a kind which is sometimes described as a claim for a lucrum cessans. But the defenders did not criticise it on that ground, but rather on the basis that in a common law claim for loss due to the breach of a contract of employment a pursuer could not recover damages for the loss of a statutory right which Parliament had decided was not to vest in him for two years. There could be no cross-over between common law and statutory remedies."

That point is not one which Judge Hicks expressly considered, but it is close to the basis on which the Court of Appeal were later to decide Harper v. Virgin Net Ltd [2004] IRLR 390, a decision on which Mr O'Carroll places reliance and to which we shall come.

27. Judge Hicks then referred at length to the decision of this appeal tribunal in Janciuk v. Winerite Ltd [1998] IRLR 63. We will have to return to Janciuk when considering the appeal against Head 2 of the damages awarded by the employment tribunal and say no more about it now than that Judge Hicks regarded Mrs Raspin's case as materially distinguishable.
28. The only further argument referred to by Judge Hicks which we consider we should mention was the employer's argument that the effect of section 97(2) of the ERA is to defer the EDT until the date of expiry of any statutory notice prescribed by section 86. Section 97(2) does not, however, extend the EDT to the date on which any contractual notice would have expired, or to that date plus the time by which any disciplinary procedures might be completed. The point being made was, we presume, that the ERA had therefore gone to express lengths to identify the EDT of an employee's contract in the context of the right to bring an unfair dismissal claim and had made clear that Mrs Raspin had no such right. We presume the further point was that, rather as was argued in Morran, Mrs Raspin could not therefore claim damages at common law as compensation for the loss of a statutory right which she had never had. Again, a point to like effect was at the heart of the Court of Appeal's later decision in Virgin. Judge Hicks rejected the argument, saying in paragraph 63:

"In our view that is a completely misunderstood point. The whole basis of this head of claim is that the effective date of termination is not, and was not, and could not be, extended and that is precisely what has caused the employee her loss, as compared with what the situation would have been had the disciplinary procedure been complied with."

29. We do not fully follow that observation, which does not appear to us wholly to meet the point that was being made. The outcome, however, was that this appeal tribunal allowed Mrs Raspin's appeal, awarded her unfair dismissal damages and remitted the matter to the employment tribunal for a remedy hearing.
30. The employment tribunal in the present case regarded Raspin as authority supporting the award of the Head 3 damages. Mr O'Carroll's submission to us was that Raspin was wrongly decided and that the tribunal were in error in applying it. He said that this was made clear by the subsequent decision of the House of Lords in Johnson and the recent decision of the Court of Appeal in Harper. We turn now to those decisions.
31. Johnson is an important case, which has been much in the legal news since it was decided. Mr Johnson had been employed by Unisys. He began to suffer from work-related stress, of which Unisys was aware. In January 1994, Unisys made an allegation against him about a matter of conduct. He was asked to attend a meeting on 17 January 1994, but no specific allegations were put to him. He was summarily dismissed later that day. He lodged an internal appeal but on 3 March 1994 his dismissal was confirmed. He complained to the employment tribunal of unfair dismissal and recovered the then maximum statutory compensation, subject to a 25% reduction for contributory fault. The tribunal found that Unisys had not given him a fair opportunity to defend himself and had not complied with its disciplinary procedures.
32. It was common ground that the circumstances and fact of his dismissal caused Mr Johnson a major psychiatric illness and that his health remained severely affected. In August 1997, he sued Unisys in the county court for damages for breach of contract and negligence on the ground of the manner of his dismissal. He relied upon an alleged breach by Unisys of the implied contractual term as to trust and confidence and asserted that the manner of his dismissal and the circumstances leading up to it caused his mental breakdown and inability to find work. In the House of Lords, Lord Hoffmann (in paragraph 32) summarised the breaches of the terms upon which he sued as lying "in the fact that he was dismissed without a fair hearing and in breach of the company's disciplinary procedure." The circuit judge struck Mr Johnson's action out as being in substance a claim for damages for unfair dismissal. In doing so he applied the decision of the House of Lords in Addis v. Gramophone Co. Ltd. [1909] AC 488 that an employee's damages at common law for wrongful dismissal cannot include compensation for the manner of dismissal, for injured feelings or for the fact that the dismissal makes it more difficult for him to obtain fresh employment. The Court of Appeal dismissed Mr Johnson's appeal as did the House of Lords.
33. Lord Hoffmann gave the principal speech, with which Lord Bingham of Cornhill and Lord Millett agreed. Lord Nicholls gave a one-paragraph speech concurring with the main point on which Lord Hoffmann's speech was based. Lord Steyn gave a minority speech which differed in certain respects from those of the other members of the House, although he concurred in the dismissal of the appeal.
34. Lord Hoffmann pointed out that Mr Johnson's contract provided for its termination on four weeks' notice given by either side. He referred to dicta by McLachlin J and Lord Reid respectively in Wallace v. United Grain Growers Ltd [1997] 152 DLR (4^th) 1, at 39, and Malloch v. Aberdeen Corporation [1971] 1 WLR 1578, at 1581, to the effect that a "wrongful dismissal" claim is not concerned with the rightness or wrongness of the dismissal itself, or whether the employer has acted unreasonably or capriciously in dismissing the employee. The employee has no remedy at common law unless the dismissal is in breach of contract. That means that he only has a claim if, absent any just cause for a summary dismissal, the employer does not give him proper notice. If proper notice is given, then no matter how capricious and unreasonable the decision to dismiss him may be, the employee has no remedy at common law. Lord Hoffman explained (in paragraph 41) that it followed from this that an action for wrongful dismissal could yield no more than the salary which should have been paid during the contractual period of notice, adding in paragraph 42:

"42. My Lords, in the face of this express provision that Unisys was entitled to terminate Mr Johnson's employment on four weeks' notice without any reason, I think it is very difficult to imply a term that the company should not do so except for some good cause and after giving him a reasonable opportunity to demonstrate that no such cause existed."

35. Having said that, Lord Hoffmann went on to explain that, even given the express term as to notice in Mr Johnson's contract, it would not be beyond the powers of judicial creativity to find that there was an implied term in his contract to the effect that the power of dismissal should be exercised in good faith, meaning that the employer should refrain from untruthful, unfair or insensitive conduct, should recognise that an employee losing his job was exceptionally vulnerable and should behave accordingly. He referred to the fact that McLachlin J in the Wallace had (in a minority judgment) been prepared to find that such a term was implied into Mr Wallace's contract. He said that the development of such a remedy would require a reconsideration of the decision of the House of Lords in Addis, which decided that an employee cannot recover damages for injured feelings, mental distress or damage to his reputation arising out of the manner of his dismissal. He said, however, that he did not regard this as an appropriate incremental step for the law to take although, but for the impact of the unfair dismissal legislation into this area of the law, he would have regarded the matter as a finely balanced one. He went on to explain that it was wholly inappropriate for the common law to develop a remedy for what was (in effect) a claim for unfair dismissal when elaborate legislation (now in the ERA) had been enacted to provide a statutory remedy for unfair dismissal. He said:

"54. My Lords, this statutory system for dealing with unfair dismissals was set up by Parliament to deal with the recognised deficiencies of the law as it stood at the time of Malloch v. Aberdeen Corporation [1971] 1 WLR 1581. The remedy adopted by Parliament was not to build upon the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith, leaving the courts to give a remedy on general principles of contractual damages. Instead, it set up an entirely new system outside the ordinary courts, with tribunals staffed by a majority of lay members, applying new statutory concepts and offering statutory remedies. Many of the new rules, such as the exclusion of certain classes of employees and the limit on the amount of the compensatory award, were not based upon any principle which it would have been open to the courts to apply. They were based upon policy and represented an attempt to balance fairness to employees against the general economic interests of the community. And I should imagine that Parliament also had in mind the practical difficulties I have mentioned about causation and proportionality which would arise if the remedy was unlimited. So Parliament adopted the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount."

36. Lord Hoffmann's opinion, developed in paragraphs 55 to 58, was that, as Parliament had provided a limited statutory remedy in Part X of the ERA for the type of claim that Mr Johnson was now seeking to bring in the ordinary civil courts, it was not appropriate for the courts to develop the common law so as to give an unlimited parallel remedy.
37. Lord Hoffmann then considered the impact of the fact that Unisys operated a system of disciplinary procedures for matters of alleged misconduct, all of which were referred to in the employee handbook which accompanied the letter of engagement which Unisys had provided to Mr Johnson. He then said:

"63. So did the disciplinary procedures constitute express terms of the contract of employment? Perhaps for some purposes they did. But the employee handbook has to be construed against the relevant background and the background which fairly looms over the disciplinary procedure is Part X of the [ERA]. The whole disciplinary procedure is designed to ensure that an employee is not unfairly dismissed. So the question is whether the provisions about disciplinary procedure which (to use a neutral phrase) applied to Mr Johnson's employment were intended to operate within the scope of the law of unfair dismissal or whether they were intended also to be actionable at common law, giving rise to claims for damages in the ordinary courts.

64. Section 199(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 gives ACAS power to issue 'Codes of Practice containing such practical guidance as it thinks fit for the purpose of promoting the improvement of industrial relations'. By s. 207, a failure to comply with any provision of a Code is not in itself actionable but in any proceedings before an industrial tribunal 'any provision of the Code which appears … relevant to any question arising in the proceedings shall be taken into account in determining that question.' In 1977 ACAS issued a Code of Practice entitled 'Disciplinary Practice and Procedures in Employment'. It explained why it was important to have disciplinary rules and procedures which were in writing and readily available to management and employees. It said in paragraph 4:

'The importance of disciplinary rules and procedures has also been recognised by the law relating to dismissals, since the grounds of dismissal and the way in which the dismissal has been handled can be challenged before an industrial tribunal.'

65. In paragraph 10 it listed what disciplinary procedures should include. The Unisys procedures have clearly been framed with regard to the Code of Practice.

66. My Lords, given this background to the disciplinary procedures, I find it impossible to believe that Parliament, when it provided in s. 3(1) of the [ERA] that the statement of particulars of employment was to contain a note of any applicable disciplinary rules, or the parties themselves, intended that the inclusion of those rules should give rise to a common law action in damages which would create the means of circumventing the restrictions and limits which Parliament had imposed on compensation for unfair dismissal. The whole of the reasoning which led me to the conclusion that the courts should not imply a term which has this result also in my opinion supports the view that the disciplinary procedures do not do so either. It is, I suppose, possible that they may have contractual effect in determining whether the employer can dismiss summarily in the sense of not having to give four weeks' notice or payment in lieu. But I do not think that they can have been intended to qualify the employer's common law power to dismiss without cause on giving such notice, or to create contractual duties which are independently actionable."

38. Lord Millett, whilst agreeing with Lord Hoffmann's speech, gave a substantive speech of his own explaining why it was not appropriate for the common law to be developed by providing a remedy for unfair dismissal when Parliament had already provided a statutory remedy for such claims. He said:

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

39. Lord Nicholls (in paragraph 2) described Mr Johnson's claim as being one for damages suffered as the result of the manner of his dismissal. He regarded Mr Johnson's argument as, in principle, having much to commend it but held that a common law claim of such a nature could not co-exist with the statutory right conferred by the ERA not to be unfairly dismissed. Were the common law to develop any such claim, it would:

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

40. Mr O'Carroll submitted that the effect of that decision meant that the employment tribunal's award of unfair dismissal damages (Head 3) to Mrs Mitchell could not be sustained. We have earlier explained our understanding of this head of damages. We understand the tribunal's decision to be that, were the outcome of the Head 2 inquiry to be that Mrs Mitchell would have been dismissed anyway (even if the proper disciplinary procedures had been operated), she would be entitled in that event to Head 3 unfair dismissal damages. We further understand the tribunal to have been of the view that the Head 3 inquiry would require them to assess the likely outcome of any statutory unfair dismissal proceedings that Mrs Mitchell could have brought had she had the necessary continuous service to entitle her to do so. We presume that, having made an assessment of the amount that she might have recovered in any such proceedings, the tribunal would then discount it by an appropriate percentage so as to reflect the possibility of failure and would award Mrs Mitchell the discounted figure by way of damages.
41. We comment at this stage that we do not regard Johnson as a decision to the effect that this head of damages was one which it was not open to the tribunal to award. Put generally, Johnson decided that there is no parallel remedy available at common law running alongside the statutory remedy of unfair dismissal. A dismissal of an employee unfairly, capriciously or in circumstances which involve a lack of good faith may, if it is also a dismissal in breach of contract, entitle the employee to compensation of the limited nature described by Lord Hoffmann in paragraph 41 of Johnson. But any wider claim based on the unfairness of the dismissal is one which can only be brought (if at all) under the statutory regime now contained in the ERA.
42. In the present case, however, Mrs Mitchell was not attempting to mount what we might characterise as a common law unfair dismissal claim against Wise. In so far as she was claiming what we have described as "unfair dismissal damages", she was not making a claim against Wise of the like nature that Mr Johnson was making against Unisys. What she was doing was making a common law claim for wrongful dismissal against Wise, and was claiming that her damages recoverable in such claim should include compensation for her lost opportunity of being able to make a statutory unfair dismissal claim. If that part of her claim is well founded, it would not amount to making a common law unfair dismissal claim. In particular, any recoverable compensation would be limited to the statutory maximum that might have been recovered in a statutory unfair dismissal claim.
43. We regard it as clear that the House of Lords in Johnson cannot have intended to decide that in no circumstances can it be open to a claimant to include, as part of a common law breach of contract claim, a claim for a lost opportunity to bring a statutory unfair dismissal claim. A simple illustrative example would be one in which an employee who claims he has been unfairly dismissed is negligently advised by his solicitor that he has six months in which to make his application for compensation to the employment tribunal. He relies on the advice, makes his application in the sixth month and has it rejected by the tribunal as being out of time. He sues his solicitor for damages for negligence. We can see no reason why his damages should not include compensation for his lost opportunity to bring a statutory unfair dismissal claim.
44. In that example, the claimant would of course have lost the benefit of a claim to which he had been entitled. Suppose, however, that the facts are changed slightly to a case in which he seeks his solicitor's advice in the eleventh month of his employment, and tells him that his employer has behaved so intolerably towards him that he cannot endure it any more. Assume that his solicitor negligently advises him that he can resign there and then, that his resignation will amount to constructive unfair dismissal and that he will be able to bring a statutory unfair dismissal claim. Assume that he relies on that advice, resigns immediately, fails in his unfair dismissal claim (as he will, not having completed a year's continuous service) and that, but for such advice, he would have hung on until the expiration of the first year of continuous service before resigning. In those circumstances, the employee would never have had a statutory right to claim unfair dismissal whereas, but for his solicitor's negligent advice, he would have remained in employment for a brief further period sufficient to acquire such a right. Again, we cannot see why in principle his claim for damages for breach of contract against his solicitor should not include a claim for damages for the lost opportunity of acquiring a statutory right to claim unfair dismissal.
45. Mrs Mitchell's case is not obviously all that remote from the second example. The key difference (which may, however, perhaps be a critical one) is of course that the breach of contract which has resulted in her losing the chance of a future right statutory right to bring an unfair dismissal claim is by her employer rather than by a third party. If, however, damages for the lost right are recoverable against the solicitor in our second example, it is not immediately obvious to us why – apart from authority – like damages should not also be recoverable by Mrs Mitchell against Wise.
46. We consider, however, that the Court of Appeal's recent decision of the Court of Appeal in Harper shows that in fact such damages are not recoverable against Wise. Whether its effect is that such damages would similarly not be recoverable in our second example is a question upon which we express no view.
47. Ms Harper's employment with Virgin Net Ltd commenced on 4 April 2000 but she was summarily dismissed on 2 March 2001, 33 days short of the year after which, had she remained in employment, she would have been entitled to bring a statutory claim for unfair dismissal. The contractual notice to which she was entitled was three months. Had that notice been given to her when she was summarily dismissed, her employment would have continued for more than one year and she could have brought a statutory claim for unfair dismissal. The employment tribunal found that she had been wrongfully dismissed and awarded her compensation of £9,514.04, the equivalent of the net pay she would have received during her three months' notice had it been given. There was no challenge by Virgin to that part of the employment tribunal's decision. The disputed element of the decision was the further award to Ms Harper of the full amount of the compensation she would have recovered had she been able to bring a statutory unfair dismissal claim. This appeal tribunal (by a judgment delivered by HH Judge Peter Clark) reversed that part of the decision, holding that such an award was not available to Ms Harper as a matter of law. Ms Harper appealed against that decision to the Court of Appeal, which dismissed her appeal. The question was whether, if an employer dismisses an employee in breach of contract in circumstances in which, had there been no breach of contract, the employee's contract would have continued at least for long enough to entitle him to bring an unfair dismissal claim, the employee is entitled to recover from the employer, by way of common law damages for wrongful dismissal, compensation for the lost chance of bringing an unfair dismissal claim.
48. Brooke LJ delivered the first judgment. He referred to the origins of the unfair dismissal legislation, to relevant changes in the legislation introduced by the Trade Union and Labour Relations Act 1974 and by the Employment Protection Act 1975 and to the modern equivalent of the latter to be found in section 97 of the ERA. Ms Harper's contractual entitlement was, as we have said, to three months' notice, but her statutory period of notice for the purpose of section 86 of the ERA was only seven days, which meant that her EDT for the purposes of section 97 of the ERA was seven days after her summary dismissal. Brooke LJ referred to the dicta in Brindle, Charman and Stapp. He then referred to Raspin as being the first occasion in which this appeal tribunal had to consider the point discussed in those dicta. He then said this of Raspin:

"13. In that case Judge Hicks QC applied orthodox principles relating to the recovery of damages for breach of contract. He said (at paragraph 59) that what must be compared for the purposes of assessing damages was the position in which the employee found herself when dismissed, at a date when she had no right to complain of unfair dismissal, with the position in which she would have found herself had she been dismissed on or after the date at which the right to bring such a complaint arose. He added:

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

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

49. Those observations about Raspin can perhaps be read as tacitly approving the approach and conclusion of this appeal tribunal in that case: they are certainly not expressly critical of them. Brooke LJ made no further reference to Raspin, but went on to consider the correct disposition of the appeal before him. He referred first to Johnson, which he summarised as deciding that "the existence of a statutory remedy for unfair dismissal precluded the development of a common law obligation on an employer to exercise a power of dismissal in good faith." He referred to paragraphs 54 to 58 and 66 of Lord Hoffmann's speech and paragraph 80 of Lord Millett's speech. He then referred to Judge Clark's judgment in Harper, in which Judge Clark held that the decision in Johnson precluded the award of the damages under appeal. Judge Clark had held (i) that Ms Harper had no statutory right under the ERA to bring an unfair dismissal claim because her EDT pre-dated the expiration of a year's continuous service; (ii) that her attempt to bring such a claim was simply a bid to circumvent the statutory restrictions which barred her from bringing such a claim; (iii) that the decision in Johnson was to the effect that "an applicant cannot recover, by way of damages for breach of the contract of employment, loss flowing from the fact of and manner of dismissal itself", even though the dismissal in Ms Harper's case was undoubtedly unfair; and (iv):

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

50. It is the last point which was the key point in Harper and is of like importance for the purposes of the present case. Brooke LJ said that he could not fault Judge Clark's reasoning. He said:

"16. … I agree with the judge that it would have been open to Parliament, when it reviewed the scheme following Lord Denning's observations in Brindle, to enable someone in Ms Harper's position to have a statutory right to claim compensation for unfair dismissal by crafting the new subpara. 5(6) in Schedule 1 of TULRA (see paragraph 7 above) and its subsequent re-enactments (see paragraph 9 above) so that the EDT in the case of an employee whose contract of employment was terminated by no or inadequate notice would be the date on which a contractual period of notice, if given, would have expired. But Parliament decided not to adapt its statutory scheme in this way, and I do not consider it is open to the courts, through the machinery of an award of damages for wrongful dismissal, to rewrite Parliament's scheme and to place a financial burden on employers which Parliament decided not to impose on them. In this context I accept Ms McCafferty's submission on behalf of the respondent to the effect that Ms Harper did not lose the right to claim compensation for unfair dismissal: she never had such a right because she fell short of the requirement of one year's continuous service which Parliament has prescribed as the gateway to such a right.

17. To take any other course would be to expose courts and tribunals to something akin to the chaos which Lord Millett feared. Everyone is now familiar with the statutory scheme for claiming compensation for unfair dismissal. The EDT can generally be identified without too much difficulty, and provided that it falls at a time when the employee has attained his/her statutory right not to be unfairly dismissed (see paragraph 3 above), then an application may be made to an employment tribunal, subject to the observation of the strict time limit for such applications.

18. If Mr Cramsie's submissions on behalf of Ms Harper are well-founded, a wrongfully dismissed employee whose EDT predates the end of his/her first year of employment (perhaps by a number of months) will have the benefit of a much longer limitation period in which to make a claim that the dismissal deprived him/her of the chance of continuing in employment for a longer period and then making a claim for compensation for unfair dismissal. In Ms Harper's case, this claim cannot be based on the actual facts of her actual dismissal because by statute she has no right to claim compensation for unfair dismissal in respect of that dismissal. Instead, the court would have to speculate about the chances of her being unfairly dismissed on some later hypothetical occasion after her statutory right had accrued. This, in my judgment, would be a very unsatisfactory way of proceeding and would attract the justified opprobrium that was of concern to Lord Millett."

51. Chadwick LJ gave a separate substantive judgment. His reasoning was essentially the same as that of Brooke LJ. He explained (in paragraph 22) that, given that Ms Harper's EDT fell short of the expiry of a full year's employment, she had no right under the ERA not to be unfairly dismissed; (in paragraph 23) that there was no express term in Ms Harper's contract that the employer would not act unfairly when dismissing her and that Johnson showed that no such term could be implied; and (in paragraph 24) that the employment tribunal had found that Ms Harper had been dismissed in breach of the contractual term as to notice, which entitled her not just to the basic wrongful dismissal compensation but also to compensation for what they called "loss of opportunity to claim unfair dismissal." Chadwick LJ went on to say:

"26. On a true analysis, as it seems to me, the approach adopted by the employment tribunal in the present case cannot properly be described as the assessment of the loss of a chance. It is an assessment of the compensation for unfair dismissal to which the appellant would have been entitled if she had been given the three months notice to which she was contractually entitled. But, if Parliament had intended employment tribunals to award compensation for unfair dismissal on the basis that the effective date of termination was the end of the contractual notice period, it would have said so when it enacted para. 10 in Schedule 16 to the Employment Protection Act 1975 – the origin of the provision now found in s.97(2)(b) and (3) of the [ERA]. It did not do so.

27. It is, I think, plain – as Lord Justice Brooke has pointed out – that para. 10 in Schedule 16 to the 1975 Act was Parliament's response to the observations of Lord Denning, Master of the Rolls, in Brindle v. H.W. Smith (Cabinets) Ltd [1972] IRLR 125, 126 (paragraph 9). There are two features in that provision which are of significance in the present context. First, Parliament did not leave the matter to be dealt with in an action for wrongful dismissal. It dealt with the problem directly; by postponing the effective date of termination. Second, Parliament did not think it appropriate to have regard to the contractual period of notice. It postponed the effective date of termination by reference to the period of statutory notice. In particular it did not – as it easily could have done – postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice. That must be seen as a deliberate policy choice.

28. The decision not to postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice is of significance because it must have been obvious to the legislature that there would be cases in which the period of statutory notice required by s.86(1) of the [ERA] would exceed a period of contractual notice – and vice versa. It would be bizarre to attribute to Parliament an intention that, if the period of statutory notice were the longer, compensation for unfair dismissal (in a case to which s. 97(2) applied) should be dealt with under the Act; but that, if the contractual period of notice were the longer, the same result would be achieved by a claim for wrongful dismissal at common law.

29. The point may be illustrated by an example. Suppose a case in which the employee is dismissed, wrongfully without notice, 11 weeks before the end of the first year of continuous employment. If the contract provides for 12 weeks' notice, but the notice period required under s.86(1) of the Act is only 10 weeks, compensation in respect of unfair dismissal can only be awarded (if at all) by treating the claim as one for damages for wrongful dismissal. If the contract provides for 10 weeks' notice, but the statutory notice required is 12 weeks, compensation for unfair dismissal can be awarded under the Act. If the appellant is correct, the amount awarded will be the same in each case. But, if so, why should Parliament be taken to have intended that the same result be reached by two different routes? The answer, as it seems to me, is that Parliament must be taken to have intended that the result would not be the same in the two cases. It is only in the latter case that the employee is to be compensated for unfair dismissal."

52. Scott Baker LJ agreed with both judgments.
53. We derive from Harper an affirmation of the (perhaps self-evident) principle that a former employee will only be entitled to bring a claim for unfair dismissal against his former employer if he has first acquired a statutory right not to be unfairly dismissed under the ERA. If he is dismissed wrongfully, in breach of contract, before he has acquired such a right he will have no statutory claim for unfair dismissal; and nor – even if under the terms of his contract he could only lawfully have been dismissed after he had completed one year's continuous service – will he be entitled to recover common law damages from his former employer for the loss of the chance of bringing an unfair dismissal claim. Although the Court of Appeal did not say so in terms in their judgments, it appears to us that their decision in Harper cannot be reconciled with Raspin. It is of course the case that in Raspin the breach of contract relied upon for including the unfair dismissal damages claim was not the giving of short contractual notice, but the failure to operate the disciplinary code. The point of the decision was that, had the code been duly operated, Mrs Raspin could not and would not have been dismissed before she had qualified to bring a statutory unfair dismissal claim. But we cannot see that that factual distinction between Harper and Raspin is material, and Mrs Thoburn did not submit to us that it was. In each case the employee's complaint was that the employer's breach of contract had prevented her from remaining in service for a sufficient time to acquire a right to bring a statutory unfair dismissal claim. The facts of the present case are akin to those of Raspin. If, as we consider, the reasoning in Harper fatally undermines the decision in Raspin, it follows, and we hold, that it also undermines the award in the present case of the Head 3 damages to Mrs Mitchell.
54. We conclude, therefore, that the employment tribunal were in error in awarding such damages to Mrs Mitchell. We set aside their award of the Head 3 damages. We add that we do not arrive at this conclusion with any satisfaction. One of its consequences is that there will be circumstances in which an employer who summarily (and unfairly) dismisses his employee in breach of contract in (for example) the eleventh month of service will be likely to suffer a more modest claim for compensation than he would if he were to give the same employee a proper contractual notice of dismissal taking effect in the thirteenth month of service. An employer who so arranges his affairs (and who does so in full awareness of their likely consequences) can, in our view, properly be regarded as benefiting from his own breach of contract at the expense of the employee. We are not sure that, but for the decision in Harper, we would ourselves have concluded that he should be allowed to. But we understand Harper to have decided that such a conclusion reflects the intention to be found in the legislation and we of course accept that our duty is to apply Harper.

Head 2

55. We come now to the award of the Head 2 damages. This was described by the employment tribunal as compensation for Mrs Mitchell's lost opportunity to remain in Wise's employment. Their point was that, but for Wise's breach of contract in failing to follow the disciplinary procedures, Mrs Mitchell would have had the opportunity of demonstrating that, if any sanction for her alleged misconduct was appropriate at all, it was one falling short of dismissal. With respect to the tribunal, we consider that they were in error in awarding damages on this basis. We have not been referred to any authority which supports such an award, and we regard it as out of line with the principles to be derived from all the reported authorities to which we have been referred.
56. We comment first that it is not apparent that any such claim was made in Gunton, although if such a claim is in principle well founded, it could have been made in that case. We attach no weight to that consideration, however, since the soundness or otherwise of such a claim was not discussed in Gunton.
57. The decision in Focsa is closer to home. Mr Birkett's employment contract incorporated a right for him to be dealt with under the employer's disciplinary procedure (see paragraph 16 of the judgment of HH Judge Clark) and the employment tribunal had found that Mr Birkett had been dismissed in breach of contract on a management whim and would not have been dismissed had the disciplinary procedure been followed (see paragraph 17). The question for the employment tribunal was what loss flowed from that breach. The tribunal assessed damages on the same basis as it would have done if the claim was a statutory claim for compensation for unfair dismissal. This appeal tribunal reversed the award. Judge Clark said (in paragraph 20) that there was no basis for implying into the employment contract a term to the effect that Mr Birkett would enjoy the equivalent of the statutory right not to be unfairly dismissed. He said:

"21. The fallacy, in our judgment, in the chairman's reasoning is to disregard the normal common law rules as to loss in cases of wrongful dismissal. That loss is limited to the sums payable to the employee had the employment been lawfully terminated under the contract. Once a dismissal has taken place, as was accepted and found in this case, it is irrelevant to consider what might have happened had a contractual disciplinary procedure been followed. An employer is entitled to dismiss on contractual notice at common law for whatever reason."

58. That is a statement of principle with which we respectfully agree and which foreshadows the same points that Lord Hoffmann was later to make in paragraphs 60 to 66 in his speech in Johnson. The award of the Head 2 damages cannot be reconciled with that principle.
59. A similar point arose in Janciuk v. Winerite Ltd [1998] IRLR 63. Mr Janciuk was summarily dismissed. His case before the employment tribunal was that he was contractually entitled to the benefit of a disciplinary procedure and that, if it had been followed, there was a chance he would not have been dismissed at all. He claimed compensation for the loss of that chance. The employment tribunal rejected that claim and Mr Janciuk appealed to this appeal tribunal. By its judgment, delivered by Morison J (the President), this tribunal dismissed the appeal. Morison J set out the applicable principles. We can do no better than to quote them in full:

"6. (1) Where a contract of employment is terminable upon notice, the measure of damages to which the employee is entitled on summary dismissal is the amount which the employer would have been bound to pay had his contract been terminated lawfully, less any receipts by the employee during that period earned by way of mitigation of his loss. The employee is entitled to be put into the position he would have been in had the contract been performed. It is assumed for this purpose that the employer would have dismissed the employee by notice given at the very moment that the summary dismissal was effected.

7. (2) When, for the purposes of calculating compensation, the court considers what would have been the loss had the contract been performed, the court assumes that the contract breaker would have performed the contract in a way most favourable to himself. This principle prevents the employee from recovering a windfall payment. If there were two lawful ways of performing the contract, the employee will be compensated on the basis that the employer will have chosen to perform the contract in the way which was least burdensome to him: Lavarack v. Woods of Colchester [1967] 1 QB 278. Therefore, in a simple wrongful dismissal case, the court does not ask what might have happened had the employer known that he had no right to determine the contract summarily, and then calculate compensation on a loss of chance basis. The assumption is that the employer would have chosen to have terminated the contract lawfully at the very moment that he had brought [or sought to bring] the contract to an end unlawfully in breach of contract.

8. (3) Some contracts of employment require the employer to follow a disciplinary procedure before notice of dismissal can be given. In other words, the disciplinary procedure acts as a brake on the giving of notice. In such a case, the employer would be acting in breach of contract if he gave notice terminating the contract without first having followed the correct procedure. The measure of loss for that breach is based upon an assessment of the time which, had the procedure been followed, the employee's employment would have continued. Again, that does not require an analysis of the chances that had the procedure been followed the employee might never have been dismissed. At this stage the court is engaged on a process of quantifying damage suffered by a dismissed employee. The court is concerned to know what would have happened, contractually, if instead of unlawfully dismissing the employee the employer had not broken the contract, bearing in mind the Lavarack v. Woods principle. For this purpose, the assumption that must be made is that the employer would have dismissed the employee at the first available moment open to him; namely, after the procedure had been exhausted. The court is not concerned to inquire whether the employee would have been dismissed had the contract been performed, but rather for how long would the employee have been employed before the employer was contractually entitled to give notice. This is on the assumption that the employer has not been accused of acting in bad faith where other principles might apply. Authority for this proposition comes from Gunton v. London Borough of Richmond-upon-Thames [1980] IRLR 321; Boyo v. London Borough of Lambeth [1995] IRLR 50; and Focsa Services (UK) Ltd v. Birkett [1996] 325. …

10. We regard the attempt to introduce the loss of a chance into the calculation of the damages as a heresy and it represents a misunderstanding of the process involved in quantifying a dismissed employee's damages for breach of contract. Mr Kibling is seeking to overlay contractual questions with concepts of fairness which, in our view, do not apply."

60. Coming now to Johnson, we have already referred to Lord Hoffmann's observations about the impact of the incorporation into an employment contract of a disciplinary procedure. The essence of his view, shared by Lord Bingham of Cornhill and Lord Millett, was that such a procedure, and the extent to which it is operated, is relevant only to the question of whether any dismissal is fair or unfair, but does not subject the employer to any duties which are independently actionable at common law.
61. Finally, we were referred also to the post-Harper decision of the House of Lords in Eastwood v. Magnox Electric plc [2004] IRLR 733. The leading speech, with which Lords Hoffmann, Rodger of Earlsferry and Brown of Eaton-Under-Heywood agreed, is by Lord Nicholls of Birkenhead. Lord Nicholls's speech incorporates a typically lucid exposition of the state of the common law post-Johnson. He explained the development in the 1970s of the recognition of the existence of the implied term of trust and confidence as between employer and employee. He explained that in Johnson Mr Johnson had sought to rely on an alleged breach of this term as the foundation for a claim at common law for unfair dismissal, his complaint being as to the manner in which he had been dismissed. He said, in paragraph 11, much as he had also said in Johnson, that the claim was not without attraction. But he then explained that any such development of the common law could not co-exist satisfactorily with the statutory code regarding unfair dismissal. He said, in paragraphs 12 and 13, that:

"12. … A common law obligation having the effect that an employer will not dismiss an employee in an unfair way would be much more than a major development of the common law of this country. Crucially, it would cover the same ground as the statutory right not to be dismissed unfairly, and it would do so in a manner inconsistent with the statutory provisions. …

13. … A common law action for breach of an implied term not to be dismissed unfairly would be inconsistent with the purpose Parliament sought to achieve by imposing limits on the amount of compensatory awards payable in respect of unfair dismissal. It would also be inconsistent with the statutory exclusion of the statutory right where an employee had not been employed for a qualifying period or had reached normal retiring age or the age of 65 and further, with the parliamentary intention that questions of unfair dismissal should be dealt with by specialised tribunals and not the ordinary courts of law."

62. Later in his speech (in paragraph 31), Lord Nicholls recognised that the existence of what he called the "Johnson exclusion area" could in practice mean that in some cases there would have to be an artificial chopping up of an impugned course of conduct into separate pieces. Loss flowing from a breach of the implied term taking place before actual dismissal would be outside the exclusion area (and a remedy at common law would be available) whereas loss flowing from the dismissal itself would be within it. With regard to an unfair course of conduct leading up to dismissal, he said, at paragraph 28:

"In the ordinary course, suspension apart, an employer's failure to act fairly in the steps leading to dismissal does not of itself cause the employee financial loss. The loss arises when the employee is dismissed and it arises by reason of the dismissal. Then the resultant claim for loss falls squarely within the Johnson exclusion area."

63. We regard Lord Nicholls's observations in Magnox as further underlining the error of the award of Head 2 damages in the present case. To the extent that Wise acted unfairly in the steps leading up to Mrs Mitchell's dismissal, that unfairness did not itself cause her any loss and there can therefore be no common law claim for compensation in respect of it. The dismissal itself did cause her loss, but even accepting that the dismissal can be regarded as an unfair one, the loss flowing from such unfairness is within the Johnson exclusion area.
64. In our view, the tribunal in the present case misapplied the learning to be found in the various authorities to which we have referred and to which, apart from Magnox in the House of Lords, they too were referred. They sought to compensate Miss Mitchell for the unfair manner of her dismissal and so fell into the heresy identified by Morison J in paragraph 10 of his judgment in Janciuk. We will also reverse their decision to award the Head 2 damages.

Result

65. We will allow Wise's appeal and set aside paragraph 2(b) of the employment tribunal's decision. We do not consider that any further variation of the decision is required but we will hear any representations that Mr O'Carroll and Mrs Thoburn may wish to advance as to the form of the order we should make.