United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR S MILLER (Solicitor) Messrs MacRoberts Solicitors 152 Bath Street Glasgow G2 4TB
For the Respondent	MR E LEGARD (of Counsel) Instructed by: Messrs Digby Brown Solicitors The Savoy Tower, 77 Renfrew Street Glasgow G2 3BZ


 


SUMMARY

Unfair dismissal: Compensation / Mitigation of loss

An Employment Tribunal found that the Claimant, who had been dismissed from local authority employment, had failed to mitigate his loss by seeking employment with four neighbouring local authorities. They limited compensation for loss of earnings to the period between the date of dismissal and the date of the remedies hearing, which was almost four years. The Employment Appeal Tribunal were satisfied that they had erred in doing so and remitted back to the same Tribunal to reconsider the question of compensation for loss of earnings. The Tribunal had also compensated the Claimant for pension loss on a basis which appeared to conflict with the hypothesis adopted by them in their finding of failure to mitigate loss. The Employment Appeal Tribunal accordingly remitted also for the purpose of reconsidering the question of pension loss.


 


THE HONOURABLE LADY SMITH

INTRODUCTION

1. The Appellants challenge the substantial award of compensation fixed by the Tribunal in this case where the Claimant claimed that he had been unfairly dismissed. The Respondent was found to have been unfairly dismissed in a judgment of the Employment Tribunal sitting at Glasgow, Chairman Mr M WJ MacMillan, registered on 24 May 2006. After a subsequent remedies hearing, the same Employment Tribunal, in a judgment registered on 4 December 2006, found him entitled to a total monetary award of £52,600, having applied the statutory cap. The compensatory award was assessed as being £61,076.24, comprising £48,695.24 in respect of net wage loss and £12,381 in respect of loss of pension.
2. We will refer to parties as Claimant and Respondents.
3. Both parties were represented by their solicitors before the Tribunal. Before us, the Respondents were represented by Mr Miller, solicitor and the Claimant was represented by Mr Legard, of counsel.

BACKGROUND

4. The Claimant had been employed by the Respondents since 1976. From 1999 he was employed as a community development officer – sport and recreation, in Drumchapel. In circumstances which are more fully set out in the Tribunal's judgment of 24 May 2006, the Claimant was dismissed on 4 October 2002. By that time, he was aged 50 years. As a member of the Strathclyde Pension Fund, he was entitled to take his pension from age 50. He decided to do so. He accordingly received a basic and enhanced pension of £9,802 per annum together with a lump sum payment of £31,300.
5. By the time of the remedies hearing, the Claimant was, in addition to drawing his pension, working full time as a youth worker within the voluntary sector. The Tribunal's findings as to the Claimant's efforts to find other work are at paragraphs 11 and 12 of their judgment:

"11. He had tried to find work elsewhere within Glasgow City Council at a level commensurate with his previous employment. He had not done so on a regular basis; he had tried on three occasions and had been unsuccessful. In the course of attending the interviews, he realised that if he had been successful for these jobs, his overall income would have been reduced because payment of his pension would have been affected.

12. His income, taking into account his pension and his new salary, was now slightly less than he was previously earning. He was happy in his new job; he enjoyed working with young people. As he put it, 'When I am helping them, they're not daubing walls.'"

6. The parties were agreed that had the Claimant not been dismissed, his net earnings between the date of dismissal and the date of the remedies hearing would have been £83,896.84 and that he had actually earned £20,801.66 during that period. After deduction of such part of his earnings as in fact represented car allowance, his net loss of earnings in that period was £48,695.24. Further, his earnings as a youth worker were £12,266.40 per annum less than what he would have been earning had he not been dismissed.
7. As regards the Claimant's pension, the cost to the Respondents of providing the enhancements referred to above was £47,719.

The Tribunal's Judgment

8. As we have noted, the judgment was registered on 4 December 2006. Its instance states: "Held in Glasgow on 23 November 2006"; however, we were informed that the remedies hearing actually took place on 17 August 2007. It was suggested that 23 November might have been the date of a members' meeting. We mention the matter as it may be of some significance when the Tribunal's reasoning is analysed.
9. The Tribunal determined firstly, that the Claimant had failed to mitigate his loss. They then awarded compensation in respect of loss of earnings for the period from the date of dismissal to the date of the remedies hearing, a period in excess of four years. They explain their approach in paragraphs 21 and 22:

"We considered that the claimant had not done enough to mitigate his wage loss. At the age of 53, he still had at least 12 years earning capacity ahead of him. He seems to only have applied himself to making application to similar posts within Glasgow City Council. Living where he does, he is in easy commuting reach of East Dunbartonshire, East Renfrewshire, North Lanarkshire, and parts of Argyll. To exclude himself from considering appointments in these areas, did not appear to us to be indicative of a desire to find suitable employment elsewhere. The facts to us indicate that he had settled down to comfortable (in the sense of less stressful) existence working as a youth worker at a much reduced salary, but making up the balance almost entirely with the pension. Whilst this is understandable, it will inevitably result in a difficult situation for him at the age 65, when the existing pension will continue without the increment that other pension entitlement arising from local authority employment might have been able to provide.

22. In the circumstances, we determined that the compensatory award in respect of wage loss should be restricted to the period from the date of the dismissal until the remedy hearing which was stated to be - £55,895.24. …..".

10. They then made the deduction for car allowance and reached the net wage loss figure to which we have referred.
11. The Tribunal also awarded a sum in respect of pension loss. There is no mention of their finding that the Claimant failed to mitigate his loss in their discussion of that part of the claim. Despite their comments at the end of paragraph 21 which might be thought to be indicative of their being of the view that had he mitigated his loss then he would probably have secured pensionable employment with another local authority, that is not something that is followed through into the part of the judgment that deals with pension loss.
12. The Tribunal confess to having had difficulty with this part of the claim and having read the actuarial report relied on by the Claimant, we have some sympathy with them. They comment, rightly in our view, that it is difficult to follow and that some of the assumptions made are questionable. They cite the assumption that inflation will continue over the period until the date of the Claimant's 65th birthday at the rate of 5 per cent. We would also question the assumptions regarding the Claimant's actual employment, the report having been written on the assumption that he was in part time employment and not likely to enter future pensionable employment. We also agree that it is not clear that the author has in fact made appropriate allowance for the fact that the Claimant received an enhanced pension and lump sum when he decided to start drawing on his pension at age 50. At paragraph 29, the Tribunal explain their reasoning with regard to the pension loss claim. The reference to £47,419 is to the sum which the Respondents had to pay into the pension fund to produce the enhanced payments to which the Claimant would not otherwise have been entitled:

"We believe that the claimant would not have received an enhanced pension but for his dismissal. Miss Gribben argued that this £47,419 was not the sum received by him, and that is true, but it was a capital payment made on his behalf by his former employers. The benefits have accrued to him and will continue to accrue. Our belief is that the sum should be deducted from the calculated capital value. On this basis the value of the pension loss can be fairly stated at £60,100 - £47,719 = £12,381."

The Relevant Law

13. As parties agreed, the starting point is section 123 of the Employment Rights Act 1996 ("the 1996 Act") subsection (1) of which provides that the compensatory award in an unfair dismissal case "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." and subsection (4) of which provides:

to damages recoverable under the common law of ………Scotland." "In ascertaining the loss referred to in subsection (1) the tribunal shall apply the same rule concerning the duty of a person to mitigate his loss as applies

14. As we have observed, in this case, the Tribunal found that the Claimant had failed to mitigate his loss. The application of the mitigation of loss rules was discussed in the Employment Tribunal context in the cases of Gardiner-Hill v Roland Berger Technics Ltd [1982] IRLR 498 and Savage v Saxena [1998] IRLR 182. At paragraph 23 in the later case, the approach that a tribunal requires to take is summarised in the following way:

"(1) Identify what steps should have been taken by the appellant to mitigate his loss;

(2) Find the date upon which such steps would have produced an alternative income;

(3) Thereafter reduce the amount of compensation by the amount of income which would have been earned."

15. Savage was a case where the Claimant had not found any alternative employment at all. There is a practical difference where an employee who is found to have failed to mitigate his loss has found some, though less well paid, employment. Then, the tribunal have to look, at the second stage, for the date on which he would have secured better paid employment. The basic principles are, however, clearly the same. It is not enough for the tribunal to identify what steps should have been taken. They require to go on and make a finding as to when those steps would have made a positive difference to the Claimant's position.
16. As regards pension loss, it should be remembered that it is but another aspect of the overall compensation that may properly be able to be awarded. The calculation of pension loss is, however, notoriously difficult and it is important to ascertain that the assumptions on which any such calculation is based are appropriate ones to make on the facts of the particular case.
17. We should record that Mr Legard also referred to three other authorities. He referred to Fyfe v Scientific Furnishings Ltd [1989] IRLR 331, for the summary in the headnote to the effect that a plaintiff has to take all reasonable steps to mitigate his loss but the duty is only to act reasonably and the standard of reasonableness is not high since the defendant is a wrongdoer. This is, however, a case where the Tribunal found that the claimant failed to mitigate his loss and there is no cross appeal so the matter was not at issue before us. Mr Legard also referred to Yeboah v Crofton [2002] 634 for the oft quoted passage regarding what is required before an appeal can be upheld on a perversity ground, starting at paragraph 92. Further, he referred to the case of Knapton and others v ECC Card Clothing Ltd [2006] ICR 1084 for a submission that claimants who opt to take their pensions early should not be penalised. We observe that the point in Knapton was that the Tribunal should not have deducted pension payments received by the claimant from compensation for loss of earnings but this Tribunal did not do that. Insofar as Mr Legard seemed also to be suggesting that the case was authority for the Tribunal having erred in deducting the payment of £47,719, firstly, there is no cross appeal on that matter either and secondly, we do not see that, on the face of it, the case (to which the Tribunal were, apparently, referred) is authority for that proposition.

The Appeal

18. Mr Miller had two grounds of appeal. The first related to the Tribunal having, despite having found that the Claimant had failed to mitigate his loss in the manner referred to in their judgment, allowing compensation for loss of earnings over a period of almost four years. Something had, he submitted, gone wrong as between paragraphs 21 and 22. There were three possibilities. The first was that the Tribunal had failed to ask themselves when it was that, if the Claimant had taken the proper steps to mitigate his loss, he would have secured a higher income. Secondly, they did address the question and produced a patently perverse answer. There was no justification for allowing compensation for such a long period. Thirdly, they may have been taking account of the recognition expressed in paragraph 21 that although the Claimant was, at that time, not far off being in the same financial position as he was in prior to dismissal, he would notice a difference when he retired. In any of these events the result produced by the Tribunal was based on error. Whilst his first submission as to remedy in that event was that the award of compensation should simply be quashed, he recognised that it might be more appropriate to remit.
19. Secondly, Mr Miller submitted that the Tribunal had erred in its approach to pension loss. They had awarded continuing loss by reference to the assumption that the Claimant was and would remain out of pensioned employment until the age of 65. However, the hypothesis in their finding of failure to mitigate loss appeared to be that he would in fact have found other local authority employment and they referred to the possibility of such employment being pensioned at the end of paragraph 21.
20. For the Claimant, Mr Legard submitted that the Tribunal had not erred. It had a broad discretion on the matter of adjustment of compensation to allow for failure to mitigate loss. It did not require to "tick the boxes" as set out in Savage. The decision was essentially fact sensitive and they had reached a decision which was not open to interference. The test for perversity was high and not met. Matters would have been worse for the Respondents if there had been no statutory cap. The penalty they imposed on the Claimant was sufficient.
21. As regards pension loss, Mr Legard stated that it would be very unusual for a local authority employee dismissed from a post that had the benefit of a final salary pension scheme to find other employment with the same pension benefits. All that the Tribunal had said was that the Claimant should have cast his net more widely and there was no apparent error of law.

The parties were agreed that if there were to be a remit, it should be to the same Tribunal.

Discussion and Decision

22. We are persuaded that the Tribunal does appear to have fallen into error in both respects raised in this appeal.
23. As regards the matter of mitigation of loss, the Tribunal heard the evidence and found that the Claimant had failed to mitigate his loss (paragraph 21). We take from their discussion there that they were of the view that the Claimant should have sought similar employment from four of the neighbouring local authorities. Such employment could have afforded him not only a job that was similar to that from which he had been dismissed but could have included pension provision (paragraph 21). Having so found what they then required to do, as discussed in the authorities to which we have referred, was to ask themselves when, had the Claimant followed that course of action, it would have put him in a better financial position than he put himself in through the choices that he did exercise.
24. They do not appear to have done that. Whilst Mr Legard was right to say that the Tribunal had found that the Claimant was not entitled to be compensated for loss of earnings beyond the remedy hearing, we do not accept that that amounts to the same thing as carrying out the exercise of identifying when the proper mitigatory course of action would have made a difference. Further, there is an internal inconsistency in the decision to restrict loss to the date of the remedy hearing since the Tribunal's judgment in terms regards that date as being 23 November whereas the figure used was one which was calculated as at 17 August. It does seem that what the Tribunal have done is rather than follow the step by step approach required they have taken a broad brush view. Mr Legard suggested that their approach was justified because they had a general discretion to award "just and equitable" compensation. That, however, comes very close to suggesting that an award can be reduced on percentage basis where there has been a failure to mitigate loss, which would be wrong (Gardiner-Hill v Roland Berger Technics) and whilst there is no specific statutory guidance as to how the deduction for failure to mitigate should be calculated, the deduction does require to have a logical and reasoned basis. We do not see that the deduction in this case has such a basis and the reason for that appears to be that the Tribunal has failed to carry out the complete exercise required.
25. Separately, even if it had not been the case that we were satisfied that the Tribunal had erred in the foregoing respect, we are persuaded that the decision to award loss of earnings for a period of the order of four years in the light of the view expressed in paragraph 21 does appear perverse. This is a case where the Claimant had some six months notice of his pending dismissal and the Tribunal was, apparently, satisfied that he should have looked not only to the Respondents for alternative employment but to four identified other local authority employers. Four years seems to be plainly an excessive time to allow for such alternative employment to be secured, to the extent that it falls within the small category of cases of perversity discussed in Yeboah v Crofton (see also: Stewart v Cleveland Guest Engineering Ltd [1994] IRLR 440 at 443).
26. As regards the submission that what may have happened is that the Tribunal decided to allow, within their deduction calculation, for loss that the Claimant would not fully experience until he was 65 years, we doubt whether that is to be inferred. We do, however, agree that if that was in the Tribunal's mind, it was wrong to take it into account when making the calculation as it would have been irrelevant to the issue of mitigation of loss.
27. Turning to the matter of pension loss, we are satisfied that the Tribunal has fallen into error also. The problem can be shortly put. On a reading of paragraphs 21 and 22 of their judgment, the hypothesis underlying their finding of failure to mitigate loss, as we have noted above, reads as being that the Claimant ought to have sought similar employment from one of four neighbouring local authorities which could have been on a pensioned basis. When, however, it comes to the matter of pension loss, the Tribunal proceeded on a hypothesis that the Claimant should be compensated on the basis that he will continue in non-pensioned employment until age 65. There is, accordingly, a conflict. If their view was, as seems to be the case, that alternative pensioned employment would have been open to the Claimant, then any pension loss calculation required to take that into account. That would not be a matter of illegitimately deducting actual pension receipts contrary to the rule in Parry v Cleaver [1970] AC 1 as seemed to be apprehended by Mr Legard.

Disposal

28. In these circumstances, we will pronounce an order upholding the appeal, setting aside the awards for loss of earnings and pension loss, and remitting the case to the same Employment Tribunal to determine when the Claimant would have obtained alternative local authority employment which, to mitigate his loss, he had a duty to seek, to calculate compensation for loss of earnings up to that point, and to calculate what pension loss, if any, has been sustained by him taking account of the pension entitlements, if any, to which the Claimant would have been entitled in such alternative employment.