United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MS J STONE (of Counsel) Instructed by: Messrs Julian Taylor Solicitors Hazel Cottage Studio Bicester Oxon OX25 3QX
For the Respondent	MR G MANSFIELD (of Counsel) Instructed by: Messrs DLA Piper UK LLP 1 St Paul's Place Sheffield South Yorkshire S1 2JX


 


SUMMARY

UNFAIR DISMISSAL: Compensation

In accordance with Employment Rights Act 1996 Section 123(7) the excess of an enhanced redundancy payment over the amount of a basic award reduces the compensatory award arrived at in accordance with Section 123(1).

The Employment Tribunal erred in deducting an enhanced redundancy payment twice. Once from loss of entitlement or potential entitlement to an enhanced redundancy payment to be included by reason of Section 123(3) in the calculation of the compensatory award, and secondly by reducing the compensatory award by that amount under Section 123(7).


 


THE HONOURABLE MRS JUSTICE SLADE

Introduction

1. This appeal by Miss MacCulloch from the judgment of an Employment Judge entered in the register on 14 April 2009 raises the short point as to how an enhanced redundancy payment is to be taken into account in making a compensatory award for unfair dismissal.

The Facts

2. The relevant facts may be briefly summarised as follows. Miss MacCulloch was made redundant by ICI. On her redundancy, she received an enhanced redundancy payment in the sum of £19,456. Her employers conceded that her dismissal was unfair. The Employment Tribunal held that, if she had not been unfairly dismissed, it was likely that she would have been made redundant at a later date. The employers have a generous enhanced redundancy payment scheme under which Miss MacCulloch would have received an enhanced payment of some £9,201 over and above that which she received. Other issues arose in the proceedings between the parties. However those are not for consideration on this appeal.
3. The issue on this appeal is whether the Employment Tribunal erred in reducing the computation of loss for the purposes of the Employment Rights Act 1996 Section 123(1) by the amount of enhanced redundancy payment made on the dismissal of Miss MacCulloch and then, in addition, reducing the amount of the compensatory award made by deducting pursuant to Section 123(7) the amount by which the enhanced redundancy payment exceeded the basic award.

The Legislation

4. The relevant statutory provisions are as follows; The Employment Rights Act 1996:

"123 Compensatory award

(1) Subject to the provisions of this section and Sections 124 and 126, the amount of the compensatory award shall be such amount as the Tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.

(3) The loss referred to in subsection (1) shall be taken to include in respect of any loss of:

(a) any entitlement or potential entitlement to a payment on account of dismissal by reason of redundancy (whether in pursuance of Part XI or otherwise), or

(b) any expectation of such a payment,

only the loss referable to the amount (if any) by which the amount of that payment would have exceeded the amount of a basic award (apart from any reduction under Section 122) in respect of the same dismissal.

(7) If the amount of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy (whether in pursuance of Part XI or otherwise) exceeds the amount of the basic award which would be payable but for Section 122(4), that excess goes to reduce the amount of the compensatory award."

5. Ms Stone, for the Appellant, contends that loss is different from a compensatory award. In this regard, she draws attention to the judgment of the Court of Appeal in Digital Equipment Co Ltd v Clements (No. 2) [1998] ICR 258. At page 267B Beldam LJ said:

"A clear distinction is drawn in the subsections of [what was then] Section 74 between the said loss, that is "the loss sustained by the complainant in consequence of the dismissal which is to make up the amount of the compensatory award and, on the other hand, the compensatory award itself."

6. Referring to Section 123(3)(a), Ms Stone said that, had Parliament intended that payment of enhanced redundancy pay should be deducted in calculating loss under Section 123(1), it could have so provided. She contends that Digital supports her contention. The question in that case was whether an enhanced redundancy payment should be deducted under what is now Section 123(7) from a compensatory award for unfair dismissal before or after a 50 per cent Polkey (Polkey v A.E. Dayton Services [1988] 1CR 142) reduction had been made. The Employment Tribunal had concluded that if a fair procedure had been followed there was a 50 per cent chance that Mr Clements would not have been dismissed for redundancy. It held that the award of compensation should reflect that finding. The conclusion of the Court of Appeal was that the deduction should be made not in the calculation of loss (see page 263G) in which they ask the question:

"In other words, did Parliament intend that redundancy payments which exceeded the statutory redundancy payment should go to reduce the compensatory award or merely that they should be taken into account in deciding the loss on which the compensatory award should be based?"

The conclusion of the Court of Appeal was that the payment of the enhanced redundancy payment should be deducted from the award and not, as they put it, merely in deciding the loss."

7. Ms Stone also refers to the case of Rushton v Harcros Timber & Building Supplies Ltd [1993] ICR 230. In that case, the issue was whether an ex gratia payment made on redundancy should be deducted from the compensatory award. The Employment Tribunal did not deduct an ex gratia payment. The issue on appeal was whether the payment should have been deducted. In that case, the Employment Appeal Tribunal concluded that there was no evidence that the ex gratia payment would have been received at a later date when there could have been a fair dismissal for redundancy. The Employment Appeal Tribunal, at page 236A, referred to the policy of the legislature in regard to what is now Section 123(7). The Employment Appeal Tribunal observed:

"We consider that the meaning and intent of the subsection is reasonably plain, i.e. that in the calculation of a compensatory award an employer should receive credit for any redundancy payment he makes. The manifest purpose of the subsection was to encourage employers who find it necessary to dismiss for redundancy to be generous in making ex gratia payments. It would be unfortunate if an employer, in deciding whether to make an ex gratia payment, and if so deciding the amount, has to take into account the possibility of an Industrial Tribunal award over and above the ex gratia payment, however generous that may have been."

8. Apart from statute and authority, Ms Stone refers to commonsense. She contends that if the result contended for by the company and that adopted by the Employment Tribunal remains in place, there will have been double deduction of the amount of enhanced redundancy payment. First it will have been deducted in calculating the loss sustained by Miss MacCulloch as a result of the unfair dismissal in that the sum included in the calculation of loss in that regard would have been only the additional amount of enhanced redundancy payment which Miss MacCulloch would have received had she remained in employment until she would have been likely to have been made redundant in the future. Secondly, the enhanced redundancy payment received would also be deducted from the amount of any compensatory award. Ms Stone contends that this result does not accord with commonsense in giving compensation for unfair dismissal.
9. Mr Mansfield, for the employers, contends that, far from supporting the Appellant's contentions, the authorities referred to by Ms Stone are against her. He refers to the passage in Digital at page 263F-G which we have already referred to and, in particular, he relies on the use of the word 'merely' by Beldam LJ in posing the question at page 263G set out in paragraph 6 above.
10. Mr Mansfield also refers to Rushton as an example of a case in which an ex gratia payment was taken into account in reducing an award of compensation. He contends that the policy of the legislature is to give credit for additional redundancy payments and not to hand those payments back by building them into the assessment of loss. He points out that the Appellant has received an enhanced redundancy payment and that she is only entitled to receive by way of computation of loss and included in an award of compensation for unfair dismissal the difference between that which she had received and that which she would have received had she remained. He contends that the enhanced payment has not been lost.
11. However, Mr Mansfield recognises that the effect of the required statutory deduction under Section 123(7) does have the effect of removing from the award of compensation a sum equivalent to the amount of the enhanced redundancy payment already received. However, he says that accords with statute and policy.

Discussion

12. The Employment Rights Act 1996 specifies how an award of compensation for unfair dismissal is to be computed. It is to be observed that Section 123(1) provides that the compensatory award shall be of such an amount as the tribunal considers just and equitable:

"... having regard to the loss sustained by the complainant in consequence of the dismissed insofar as that loss us attributable to action taken by the employer."

13. Section 123 makes specific provision as to how enhanced redundancy payments are to be dealt with. Subsection (7) provides for a situation where a former employee has received a payment made by the employer on the grounds that the dismissal was by reason of redundancy, the award of compensation for unfair dismissal is to be reduced by the amount of such payment insofar as it exceeds the basic award.
14. In the light of the express provision in Section 123(7) for reduction of the compensatory award where an enhanced redundancy payment has been made, it is to be noted that subsection (3) of the same section makes no reference to deduction of payments received on redundancy from loss which is to be assessed as specified in that subsection. Construing Section 123(3) in the light of those observations, in my judgment the loss which is referred to in Section 123(1) is to be taken to include in respect of any loss of entitlement or potential entitlement to a payment on account of dismissal by reason of redundancy, the loss referable to the excess of such payment over and above the basic award.
15. Pursuant to Section 123(1), the compensatory award is to be made subject to the provisions of the remaining subsections of Section 123. These include subsection (3) and (7). In my judgment if it had been the intention of Parliament that, in making the compensatory award, loss in respect of entitlement or potential entitlement to an enhanced redundancy payment should not only have deducted from it the basic award but also any payment received on redundancy insofar as it exceeds the basic award it would have so provided. The way in which the receipt of an enhanced redundancy payment is to be taken into account in making a compensatory award is expressly provided for in subsection (7).
16. In my judgment, on the proper construction of Section 123(3), it is not permissible, to deduct from loss of entitlement or potential entitlement to a future enhanced redundancy payment, any enhanced redundancy payment actually made. Thus the steps by which a compensatory award is to be made in respect of loss of enhanced redundancy payment is to assess the loss in accordance with Section 123(3) along with other heads of loss and under Section 123(7) to reduce from the award to be made under Section 123(1) the amount of any payment made in respect of enhanced redundancy pay over and above the basic award.
17. As for the authorities relied upon by the parties, it is to be noted that there is no reference in Rushton to the effect of the equivalent of Section 123(3) which is central to the resolution of the issue in this appeal. Rushton is to be distinguished from the current appeal as, unlike this case, there was no finding that the Claimant would have received an enhanced redundancy payment at a later date. Accordingly the equivalent of Section 123(3) was not relevant to the issue on that appeal.
18. The use of the word "merely" by Beldam LJ in Digital must be viewed in the context of the issue before the Court of Appeal in that case. The issue before the court in that case was whether the enhanced redundancy payment is to be deducted in computing loss before applying the 50 per cent reduction or from the award after such reduction. The Court of Appeal held that a sum paid on redundancy is not merely to be deducted in the computation of loss but is to be deducted from the resulting sum once the compensatory award has otherwise been calculated. In other words, the compensatory award after the 50 per cent reduction is to be reduced by the enhanced redundancy payment by applying what is now Section 123(7).
19. Finally, considering the statutory purpose of the compensatory award provisions, in my judgment, it cannot have been the intention of the legislature to leave a successful claimant for unfair dismissal worse off in regard to an enhanced redundancy payment received by him than someone fairly dismissed who was in receipt of such a payment. If it is found that such a claimant would have received an enhanced redundancy payment in the future so that such a payment is to be included in calculating such loss in accordance with Section 123(3) such loss would not be properly compensated if an enhanced redundancy payment actually received were to be deducted under that subsection. Because Section 123(7) expressly requires a reduction in the amount of a compensatory award by a payment actually received on redundancy he would be deprived of some if not all of the benefit of the enhanced redundancy payment he has received.

Conclusion

20. This appeal is allowed. The amount of the compensatory award should now be calculated by including under Section 123(3) a sum for the loss of enhanced redundancy payment (less the amount of a basic award) which would have been received in the future and reducing the award under Section 123(7) by the amount by which the enhanced redundancy payment made to the Appellant exceeds the basic award. The parties are to make the appropriate calculation.