United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Mr E McFarlane (Representative) Natwest Mentor Services Litigation Department 2nd Floor Sapphire West 550 Streetbrook Road West Midlands B91 1QY
For the Respondent	Mr D Magnus (The Respondent in Person)


 


Summary

Contract of Employment – Notice and pay in lieu

The Employment Tribunal erred in failing to require the Claimant in a wrongful dismissal claim to give credit for money earned in mitigation during the notice period. Cerberus Software Ltd v Rowley [2001] ICR 376 CA applied; Abrahams v Performing Rights Society [1995] ICR 1028 CA distinguished.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case is about calculation of damages for wrongful dismissal where pay in lieu of notice, known as PILON, is not made. I have pre-read the papers and the additional documents supplied to me this morning. I will refer to the parties as the Claimant and the Respondent.
2. It is an appeal by the Respondent in those proceedings against a judgment of Mr P J Willans, Chairman, sitting alone at an Employment Tribunal at Watford sent to the parties on 17 February 2006. The Claimant represents himself and Mr E McFarlane a consultant represents the Respondent, as below. The Claimant was dismissed by the Respondent after a short period following his probation and a dispute arose as to whether the correct entitlement was two weeks' or three months' pay. The Respondent paid the former. The Tribunal held that the correct entitlement was three months from 22 September to 21 December 2005. A number of other disputes, resolved by the Chairman, are not relevant on appeal.
3. The sole point relates to the treatment of the Claimant's earnings when he obtained work, as I understand it, from 5 December until 21 December when the notice period notionally ran out. The Chairman decided that the Respondent was not entitled to credit for the money the Claimant received from those new employers, for that claim was for a liquidated sum, namely the balance of the three months' notice. This is because the contract of employment stipulated that "on successful completion of your probation period you are required to give and are entitled to receive three months notice to terminate your employment." But it also said "The Company reserves the right to make payment in lieu of notice". The papers were put in front of, first, HHJ Peter Clark who directed a referral back to the Chairman to better understand the Chairman's reasons for the award which he made. Those reasons have now been forthcoming and the Chairman says, in a letter dated 13 June 2006:-

"It was not intended to give the Respondent credit for any net wages earned by the Claimant in new employment; the claim was for breach of contract. Contractually he was entitled to 3 months notice, money in lieu of notice but was paid 2 weeks."

4. The Respondent submitted that there was a duty on the Claimant to mitigate his loss. The Chairman treated the claim as a claim for liquidated damages, but in any event considered the submission on the facts and concluded that he had properly mitigates his loss even though he did not accept that the Claimant was under a duty to do so. Papers then came back in front of Burton J the immediate past President who decided this case at the very least was reasonably arguable for he sent it to a full hearing. I can share with the parties what he said:-

"The Employment Tribunal Chairman was in my judgment plainly wrong in law not to give credit for the moneys earned in mitigation of loss during the notice period by the Claimant. The Claim was for damages as the Chairman belatedly concedes in his Burns/Barke response and there was plainly a duty to mitigate and even if for some reason there was no duty to mitigate he did mitigate and must give credit. As this is not even an unfair dismissal claim there is no need to consider the Morgans case which would so dictate even if it were."

5. Now with respect, I disagree with Burton J on the application of Morgans v Alpha Plus Security Ltd [2005] ICR 525 EAT and this matter will be ventilated in the Court of Appeal (now reported: Burlo v Langley [2006] EWCA Civ 1778 21 December 2006); the question being whether the rule set down by the National Industrial Relations Court in Norton Tool Co Ltd v Tewson [1972] ICR 501 remains good law in respect of the period of notice and mitigation during the minimum period of notice. That, as Burton J rightly says, relates to unfair dismissal and is not relevant to this case which is purely about wrongful dismissal ie breach of contract. In my judgment the dividing line between a straightforward common law approach and that determined in Abrahams v Performing Rights Society [1995] ICR 1028 CA is one which is easy to discern. It is plain that the award here was one of damages. I apply the reasoning given by Ward LJ in his majority judgment in Cerberus Software Ltd v Rowley [2001] ICR 376 (with which Jonathan Parker LJ agreed) where he said this:-

"14. The contract before us is in very different terms. It gives either party the right to terminate the contract on not less than six months' notice of termination but the all important words are "it is agreed that the employer may make a payment in lieu of notice to the employee". In my judgment that means that the employer is given the right to elect whether or not to make a payment in lieu of notice. Where the company is given the choice whether to pay or not to pay. the language is totally inconsistent with a contractual right given to the employee to insist that he be paid six months' salary in lieu of notice. In my judgment the industrial Tribunal and the appeal tribunal erred in so construing this contract. This contract expressly provided that the employment would continue unless and until determined by either party giving the other not less than six months' notice of termination. The employers ignored that and chose to terminate summarily. In doing so they were in breach of the obligation to give six months' notice. In his particulars of complaint to the industrial tribunal Mr Rowley relied upon that breach. He pleaded:-

"4. I was summarily dismissed on 26th June 1996 which dismissal was substantially and procedurally unfair and in breach of contract. My contract of employment provides for six months' notice."

I add the emphasis.

15. That, in my judgment, is the correct analysis. The claim was for damages for breach of contract, i.e. damages for wrongful dismissal. The measure of damages is the amount that the employee would have earned had the employment continued according to contract but then the ordinary rule applies that the employee must minimise his loss by using due diligence to find other employment."

This case is not one which is akin to Abrahams where there was a duty to make a payment in full and it was properly depicted as a payment of a liquidated sum due. This contract, as is clear from the clause which I have cited (para 3 above), gives the Respondent a power to pay a liquidated sum but does not give the Claimant the right to it. The Respondent elected to make a payment in lieu of notice of two weeks rather than the three months properly due. It is squarely within the territory of Cerberus and it is not regulated by Abrahams.

6. Thus I hold that the Chairman fell into error and the correct order which I can now make by agreement of the parties and without remission to the Chairman is based upon the following principles. The Claimant will give credit for all his earnings during the notice period, which occurred between 5 and 21 December 2005. As a matter of concession by the Respondent the figures include rolled up holiday pay and in the Claimant's favour the Respondent will not exact the whole amount for reasons which I need not mention.
7. I will substitute the figure agreed by the parties. The appeal is allowed.