United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR R KOHANZAND (Representative) Peninsula Business Services Ltd Riverside New Bailey Street Manchester M3 5DB
For the Respondent	MR A ELESINNLA (of Counsel)


 


SUMMARY

UNFAIR DISMISSAL: Compensation/Mitigation of loss

The employee was unfairly constructively dismissed. She was entitled to a 6 month notice period that was not paid by the employees in that period, during some of which she received payments for temporary work from a different employer. The ET, applying Norton Tool and Burlo, did not give credit for those payments against compensation for loss of earnings in this notice period.

The employers argued on appeal that the principle in Norton Tool had never been held to apply and should not now be held to apply a case of constructive dismissal.

Held

(i) that the principle in Norton Tool, however controversial and despite Dunnachie, had been approved in Burlo

(ii) there was no reason why that principle should not apply to constructive dismissal. The assessment of compensation, irrespective of the type of dismissal, is to be made under section 123 of ERA: and that principle goes to how compensation under 123 is assessed.

HIS HONOUR JUDGE BURKE QC

The Issue

1. This appeal raises one short but possibly important point of law. The Employment Tribunal at London Central, chaired by Employment Judge Sigsworth, in a judgment sent to the parties on 26 February 2008, found that the Claimant before them, Ms Bell, had, on 10 April 2007, been unfairly constructively dismissed by the Respondents, Stuart Peters Limited (whom we shall, for brevity's sake call "SP"). They found that Ms Bell was entitled to a six-month contractual notice period and that she had been dismissed without notice. They awarded her what they described as six-month notice pay, less credit for money actually paid for the first week of that period. They found that, had Ms Bell acted reasonably to mitigate her loss, she would, by the end of that six-month period, have found suitable employment and, therefore, awarded her no compensation in respect of any period after that six months had expired, save in respect of any loss of pension which they left the parties to calculate. They awarded her uncontroversial sums by way of basic award and for loss of statutory rights.
2. During the six-month notice period Ms Bell had found temporary work for a different employer. It lasted for three months, from 1 June 2007 to 31 August 2007. However, the Tribunal declined to offset the earnings she received from that employment against the award in respect of earnings unpaid by SP in the six-month notice period, regarding themselves as bound to take that approach by the decisions of the National Industrial Relations Court in Norton Tool Company Ltd v Tewson [1972] ICR 501, and of the Court of Appeal in Langley v Burlo [2007] ICR 290. The simple issue which arises in this appeal is whether, in this constructive dismissal case, the Tribunal were correct in law to decline to offset or credit the earnings actually received by Ms Bell from alternative employment in the course of the six-month notice period to which we have referred, against the compensation awarded in relation to that period.

The Submissions

3. We have had the advantage of cogent and concise submissions from Mr Kohanzad of Peninsula Business Services Limited on behalf of SP, and from Mr Elesinnla of Counsel, on behalf of Ms Bell, both of which appeared before the Tribunal. We are grateful to them. The starting point for the submissions on both sides is what was described by the Court of Appeal in Burlo as "the narrow principle" established by the National Industrial Relations Court in Norton Tool, namely, that if an employee is dismissed without notice and without pay in lieu of notice, he is entitled to compensation equal to his net pay for that period of notice, without deduction in respect of earnings which he has received from alternative employment during that notice period. That principle, which is set out in a brief passage in the judgment of the Industrial Relations Court, which deals also with other matters - a passage to which we will return - has been frequently discussed in both the National Industrial Relations Court and the Employment Appeal Tribunal. It was considered by the Court of Appeal, for the first time in Addis v Babcock FATA Ltd [1982] ICR 805 and more recently in Burlo; it has resisted and survived numerous challenges over the years.
4. Mr Kohanzad accepts that, in the light of the accumulated case law, including, in particular, Burlo, he cannot challenge the applicability of that principle to cases of unfair dismissal where the employer has terminated the contract of employment, in other words, where the dismissal is one falling within section 95(1)(a) of the Employment Rights Act 1996 or what is called, in employment law jargon, "a direct dismissal". He accepted that that principle had been confirmed as good law by the Court of Appeal in Burlo in his Skeleton Argument and has not sought in any sense to retreat from that position. However, he submits that that principle does not apply to cases where the employee terminates the contract of employment by accepting a repudiatory breach of the contract of employment on the part of the employer, such a dismissal being a dismissal not within section 95(1)(a) but within section 95(1)(c) of the 1996 Act, normally described as a constructive dismissal.
5. He bases that submission on two premises. The first is that what we too, following the lead given by the Court of Appeal in Burlo, will call the narrow principle in Norton Tool is based on there being a precept of good industrial practice that money representing what an employee would have earned in a period of notice which he has not been given should be paid to the employee without reduction for earnings received from alternative employment. But, he submits, that precept of good industrial practice does not apply to a case of constructive dismissal, in which the employer has not himself terminated the contract of employment and does not wish or may not have wished that it should be terminated and the employee has resigned in response to the employer's repudiatory breach of contract as an elective act on his part, when he could have chosen to affirm the breach and continue in employment or to reserve his rights in respect of such a breach but has instead by his own act brought the contract to an end.
6. In that class of case, submits Mr Kohanzad, the same precept of good industrial practice does not or should not apply. An employer would not be advised, in such a case, that good industrial practice requires him to make a payment in respect of a notice period when the employee has, of his own choice, brought an employment to an end. He submits that in Burlo, despite the views, perhaps widely held, that the effect of the decision of the House of Lords in Dunnachie v Kingston Upon Hull City Council [2004] ICR 1052 was that the narrow principle could not survive, the Court of Appeal made it clear that the narrow principle derived from Newton Tool was held to be good law; but although that narrow principle survived, it should not be widened in any way, as the decision on the facts of Burlo itself demonstrated; and he submitted that the decision of the Employment Tribunal in the present case represented a widening of that narrow principle to a case of constructive dismissal which had not been considered in Norton Tool or in Burlo, or, indeed, any of the other authorities which had considered the narrow principle. No such widening, he submitted, should be permitted; for the narrow principle had the effect of enabling the employee to whom it applied to achieve a windfall; and any windfall or double recovery is inconsistent with the principle of the assessment of compensation for unfair dismissal by reference to economic loss actually sustained.
7. Secondly, Mr Kohanzad submitted that an inference could be drawn and should be drawn from the fact that none of the many decisions as to the narrow principle in Norton Tool was a case in which the dismissal was a constructive as opposed to a direct dismissal that it had always been assumed that that principle did not apply to a case of constructive dismissal. In what amounts to a green-field situation (not an expression which he used) he submits that we should resist the temptation simply to apply the Norton Tool principle and to extend the ambit of double recovery. He supported these arguments by reference to the third set of circumstances in which a dismissal may occur, pursuant to section 95(1), i.e. by the expiry of a fixed-term contract without renewal (see section 95(1)(b)). If the narrow principle in Norton Tool applied to all dismissals, it should follow that it applied to such a case, but it plainly could not.
8. Mr Elesinnla submits, firstly, that section 95 of the 1996 Act and its predecessors, which have always been to the same, or similar effect, have defined or established the three different types of dismissal to which we have referred but have said nothing about compensation for unfair dismissal. Compensation for unfair dismissal is to be assessed on the basis statutorily prescribed by section 123 of the 1996 Act, starting with the provision in section 123(1) of general provision, that;

"The amount of the compensatory award shall be such amount as the Tribunal considers just and equitable in all the circumstances".

Section 123, he submits, makes no distinction in relation to the assessment of compensation between the different types of dismissal. The principle of compensation must be assessed on the basis of what the Tribunal considers to be just and equitable, as illuminated by authority on various aspects of the assessment of compensation, including Norton Tool; it applies to all dismissals without distinction.

9. Secondly, he submits that the Court of Appeal in Burlo has held that the narrow principle in Norton Tool, based on good industrial practice, was good law, without seeking to restrict that principle to any particular type or nature of dismissal.
10. Thirdly, he submits that the paragraph in Smith LJ's judgment in Burlo, on which Mr Kohanzad relied in his skeleton argument, namely paragraph 33, did not express any restrictions on the application of the narrow principle to dismissals in general but addressed the issue which he was, as it happens in that case, seeking to persuade the Court of Appeal to accept, that a wider principle of non-deduction or of assessment of compensation during the notice period was acceptable and should prevail.
11. Lastly, he submits that the reference to section 95(1)(b) did not advance Mr Kohanzad's argument; a dismissal by non-renewal of a fixed-term contract did not give rise to any notice period; and a Tribunal would never, in such a case, have to consider applying the narrow principle in Norton Tool.

Discussion

12. We have not been invited to and do not need to consider in detail the history of the case law since Norton Tool was decided, 36 years ago, when the law of unfair dismissal was in its infancy; but that history was fully surveyed in the judgment of Smith LJ in Burlo at paragraphs 20 to 32. We have been referred to some but not all of the EAT decisions which applied the narrow principle in Norton Tool; but, save in one respect, it is not necessary for us to refer to them. In the last of those to which we have been referred, TBA Industrial Products Ltd v Locke [1984] IRLR 48, the EAT, Browne-Wilkinson J presiding, affirmed the correctness of the narrow principle in Norton Tool and said that that principle should be followed, unless and until overruled by the Court of Appeal.
13. In Burlo, the Court of Appeal decided that (1) the narrow principle in Norton Tool was not undermined by the decision of the House of Lords in Dunnachie (see Smith LJ at paragraphs 58 and 63 to 65 and per Mummery LJ, at paragraphs 74 and 87), (2) that principle remained good law (see Smith LJ at paragraph 58 to 66 and per Mummery LJ at paragraph 88), but (3) it should not be extended in any way, in particular so as to permit the Claimant in Burlo, who was ill during her notice period and was contractually entitled only to Statutory Sick Pay, to receive compensation at the full level of pay during the notice period. Leveson LJ agreed with both judgments.
14. Neither in Norton Tool nor in Burlo was any suggestion made that the narrow principle in Norton Tool applied to cases of direct dismissal only or did not apply or might not apply to cases of constructive dismissal. The basis for that principle is the assessment of compensation under section 123 on the basis of what is just and equitable in the light of good industrial practice.
15. In Norton Tool itself the National Industrial Relations Court said at page 505(G) to 506(B);

"(a) Immediate loss of wages

The Contracts of Employment Act 1963, as amended by the Act of 1971, entitles a worker with more than ten years' continuous employment to not less than six weeks' notice to terminate his employment. Good industrial practice requires the employer either to give this notice or pay six weeks' wages in lieu. The employee was given neither. In an action for damages for wrongful, as opposed to unfair, dismissal he could have claimed that six weeks' wages, but would have had to give credit for anything which he earned or could have earned during the notice period. In the event he would have had to give credit for what he earned in the last two weeks, thus reducing his claim to about four weeks' wages. But if he had been paid the wages in lieu of notice at the time of his dismissal, he would not have had to make any repayment upon obtaining further employment during the notice period. In the context of compensation for unfair dismissal we think that it is appropriate and in accordance with the intentions of Parliament that we should treat an employee as having suffered a loss in so far as he receives less than he would have received in accordance with good industrial practice. Accordingly, no deduction has been made for his earnings during the notice period."

16. In TBA Industrial Products, the Employment Appeal Tribunal expressed the view to which we have already referred. In Burlo in paragraph 33 Smith LJ said this;

"33. What was the ratio decidendi of Norton Tool ? I shall leave aside for the moment what the Court of Appeal had to say about it in the Babcock case, to which I will come. I would accept Mr Elesinnla's submission that Sir John Donaldson enunciated a wide principle which might apply to any number of as yet unformulated precepts of good industrial practice. However, only one precept of good industrial practice was formulated at that time and that was all that was necessary for the decision itself. For many years after the decision, it was understood to lay down only the narrow principle based upon its particular facts. Leaving aside the Babcock case, I would therefore accept Miss Wilkinson's first submission that the ratio of Norton Tool was the narrow principle and that, in so far as Sir John Donaldson enunciated a wider principle, it was obiter."

At paragraph 87 Mummery LJ said,

"87. I do not think that Dunnachie is express or implied authority for the proposition that the tribunal, in calculating compensation under section 123 for unfair dismissal, must, contrary to a long-standing good employment practice, require the employee to give credit for wages that were, or could have been, earned by the employee during the notice period. This point was not up for argument, consideration or decision by the House of Lords."

17. We have not been able to discern anything in the judgments in Burlo or anything in the judgment of the National Industrial Relations Court in Norton Tool which suggests that the principle which was being enunciated in the latter and approved in the former was intended to apply only to a case of direct dismissal. Nor have we been able to discern any basis on which we could properly decide that the good industrial practice which underpinned the establishment of the narrow principle in Norton Tool does not apply to a case of constructive dismissal. It is, of course, a truism that, in a constructive dismissal case, the dismissal has come about by a different process than that in a case of direct dismissal; but compensation under section 123 of the 1996 Act is awarded not for dismissal but for unfair dismissal, however caused. A dismissal without notice, in breach of contract, may attract a claim for what is called "wrongful dismissal", i.e. for damages in lieu of notice; but whether the dismissal was direct or constructive, because of the principles of common law the narrow principle in Norton Tool does not apply to the assessment of damages for wrongful dismissal. In the case of both wrongful and unfair dismissal there may be a deprivation of earnings during the period of notice; but wrongful dismissal and unfair dismissal each have their own rules as to compensation. In the case of unfair dismissal, section 123 applies without distinction between the different types of dismissal. It requires the Tribunal to consider in each case what is just and equitable to award by way of compensation.
18. We see no reason why the relevant precept of good industrial practice and the consequent principle on which compensation should, consistently with what is just and equitable, be assessed, should produce a different result in a case of constructive dismissal from that which applies in a case of direct dismissal (assuming, as the essential gateway to compensation under section 123, that the dismissal has been found, whatever be the nature of the dismissal, to have been unfair). We do not, therefore, regard the application of the narrow principle of Norton Tool to a constructive dismissal case as in any sense an enlargement of the narrow principle. It is merely an application to a different type of dismissal of the task which is set the Tribunal by section 123, namely, that of assessing what compensation is just and equitable.
19. The passage in the National Industrial Relations Court's judgment in Norton Tool on which Mr Kohanzad relies does not, in our judgment, support his argument any more than does section 33 of Smith LJ's judgment in Burlo.
20. For these reasons we reject Mr Kohanzad's first premise.
21. As to his argument based on the lack of authority, we accept that there are no decisions, at least at an appellate level, which apply the narrow principle in Norton Tool to a constructive dismissal case; but the absence of any such decision does not, in our judgment, support Mr Kohanzad's argument. It is not permissible, to draw an inference, as Mr Kohanzad would seek to persuade us to draw, from the absence of any such decision that it has always been assumed in a constructive dismissal case that the Norton Tool principle does not apply. The opposite inference could equally well be drawn, if it was appropriate to draw any inference at all. We can draw no inference save that the point which Mr Kohanzad now seeks to argue appears not to have featured earlier in the history of unfair dismissal compensation, at least, at an appellate level.
22. Nor do we consider that Mr Kohanzad's argument based on the termination by way of non-renewal of a fixed term contract supports his case, for the reasons advanced by Mr Elesinnla. Such a termination does not give rise to any question of compensation during a notice period. A fixed-term contract, if it is not renewed, expires at the end of its term. There may, of course, in a contract for a fixed term be a provision that it should only expire, when that term is ended, if defined notice is given; but if no notice is given there is no breach of contract or failure to pay during the notice period; the contract simply does not end at the end of the fixed term; and section 95(1)(b) would not apply.

Conclusion

23. For these reasons we have come to the conclusion that the Tribunal were right to apply the narrow principle from Norton Tool in this case and not to deduct the earnings which Ms Bell received from alternative sources during the course of her notice period from the award of compensation. We appreciate that that result means that, as some would see it, she has achieved an element of double recovery or windfall; but if that position is to be the subject of criticism, it cannot be before us, or, indeed, before the Court of Appeal, which has decided that the narrow principle in Norton Tool is good law. In Burlo, Mummery LJ expressed the hope that the controversy over the narrow principle in Norton Tool would be resolved, sooner or later, by the House of Lords. However, the amounts involved in Burlo were such that an appeal to the House of Lords was unlikely and, as far as we know, was never sought. The amounts at stake in this case would also render such an appeal unlikely, even if it were possible, but it is not possible because Mr Kohanzad has not sought to reserve his position as to the narrow principle being good law. We would, however, join with Mummery LJ in the hope that what we recognise as a continuing controversy about the narrow principle in Norton Tool might be settled by the House of Lords in the near future, when the opportunity arises.
24. The appeal is, therefore, dismissed .