United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR COLIN HUTCHINSON (of Counsel) Instructed by: Association of Teachers & Lecturers Legal Services Department 7 Northumberland Street London WC2N 5RD
For the Respondent	MR JONATHAN HOLDEN (Solicitor) Messrs Forbes Solicitors Rutherford House 4 Wellington Street (St John's) Blackburn BB1 8DD


 


SUMMARY

UNFAIR DISMISSAL - Compensation

The Employment Tribunal used the simplified approach to pension loss in the Employment Judges' Guide. This was an error of principle where the Claimant had long service, was in stable employment, was not in future employment liable to economic risk and could quantify the difference as between the simplified and the substantial approach. The latter should have been applied as provided by Guide para 4.13 and 4.14.

HIS HONOUR JUDGE McMULLEN QC

1. This case is about the assessment of pension loss following a finding of unfair dismissal. It is the judgment of the court to which all members, appointed by statute for their diverse specialist experience, have contributed. We will refer to the parties as the Claimant and the Respondent.

Introduction

2. It is an appeal by the Claimant in those proceedings against the judgment of an Employment Tribunal chaired by Employment Judge Cook sitting at Manchester over three days holding the Claimant was unfairly dismissed and a further day on when compensation was awarded for reasons registered on 27 June 2009.
3. The sole issue on appeal is compensation for loss of pension rights. The Tribunal awarded £37,392.39 plus £3,739.24 uplift of 10% to take account of the failure by the Respondent to follow statutory procedures making a compensatory award of £41,131.63 and a basic award of £10,560.00.
4. The Claimant contributed to her dismissal by her conduct and a 40% deduction was made. The Tribunal included in its assessment an element to take account of the Claimant's loss of pension. There has been a good deal of arithmetic put in to this case and, for the purposes of explaining the legal issue we will keep the numbers simple.
5. The Tribunal addressed itself to the pension rights guidelines published by Employment Judges, now in its fourth edition. Two approaches to pension loss are exigible: the simplified and the substantial. The Tribunal adopted the former. The Claimant contended for the latter and so appeals.
6. On the sift, HHJ Peter Clark said the choice by the Tribunal of the simplified approach was open to it. However, on an application under rule 3(10) before Langstaff J, where the Claimant had the advantage to be represented as she was at the Employment Tribunal by Mr Colin Hutchinson of counsel, a refined approach was taken so that there is this single issue before us. Langstaff J sent the matter to a full hearing and invited the parties, the Respondent being represented by Mr Jonathan Holden, solicitor, to reach agreement on the actual figures to be used.
7. This morning, following considerable spade work by the advocates, an agreed position has been reached on the numbers. The Tribunal for this part of the compensatory loss awarded £3,897.00 applying what it said was the simplified approach. It is agreed that this is an error and would yield £5,427.00. So, if much of the appeal is dismissed at least that part is allowed by consent. We pointed out that that being the case the matter would be for us to decide and it was enthusiastically grasped since they do not want this case to be sent back.
8. On the other hand, if the substantial loss approach is taken, the award yields £9,797.00, a difference of £4,370.00 which is what is at stake.

The facts

9. The Claimant was employed as a teacher at the school in Wigan from 1 April 1985 until she was dismissed on 9 June 2008. She was intending to retire in any event on 31 August 2009, shortly after her 60^th birthday. So, a question arose as to how to assess the loss of the pension to which she was entitled by virtue of being a member of the Teachers' Pension Scheme.
10. That scheme provides that a fraction of one-eightieth will be applied to a figure representing salary for each year of pensionable service. At the date of dismissal, the Claimant had 23 years and at the date of putative retirement 24 years. So, in the calculation of her pension until death there is an annual pension difference of one-eightieth of the final salary. The salary itself is the product of a complicated formula. This is a final salary scheme and broadly speaking it pays what would have been paid at the end of the employment subject to sympathetic refinements to deal with changes in working hours in the last few years. In fact, it is the average of the best three consecutive years in the last ten. In any event the parties have agreed that the figure to be used for calculation is £37,416.00 a year.
11. The Tribunal accepted that the Claimant would not have worked for more than a year and would have been retired. In its choice between the substantial and simplified approaches, the Tribunal paid attention to the language of the guidelines. It also paid attention to Orthet Ltd v Vince-Cain [2004] IRLR 857 a judgment of the EAT which included myself and Mrs Switzer who sits today. Neither party says this case is relevant and Mr Holden accepts that if it has paid attention to an irrelevant authority there is an error of law.
12. The Employment Tribunal opted for the simplified approach.

The legal principles

13. The legal principles are not in dispute. They have been most recently summarised by Elias LJ with whom Dyson and Keene LJJ agreed in Aegon UK Corporate Services Ltd v Roberts [2010] ICR 596 CA:

"20. I recognise that an appellate court should only interfere with the decision on compensation if the Employment Tribunal has either erred in principle or reached a perverse conclusion (see the decision of the Court of Appeal in Bentwood Bros (Manchester) Ltd v Shepherd [2003] ICR 1000 paragraph 10 per Peter Gibson LJ). In my judgment it was an error of principle …"

14. Both advocates said the task is to identify either an error of principle or a perverse decision by the Tribunal when opting for the simplified approach.

Discussion and conclusions

15. We prefer the argument simply put of the Claimant. It is this: the starting point has to be section 123(1) of the Employment Rights Act 1996 which is as follows:

"Subject to the provisions of this section … 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."

16. The assessment of what is just and equitable is a matter, of course, for judgment and discretion by an Employment Tribunal (see Bruce v Dignity Funerals Ltd [2005] AII ER (D) 427). The Tribunal must find the facts and then decide what is just to award by a way of compensation given the loss. It is a staged approach; the loss must be assessed and then the Tribunal stands back and says what is just and equitable in the light of that loss.
17. There are matters of judgment which involve some element of speculation. It is, we suppose, a form of informed prediction (see Scope v Thornett [2007] IRLR 155). The way in which tribunals approach pension loss is regulated by that statutory approach. In this case a several options were available. It could apply the guidelines given by the Employment Judges. Alternatively it could apply the Ogden tables which are similar but not the same as the guidelines. Alternatively it could have worked out its own conclusions.
18. The advocates directed the Tribunal to the guidelines, the Tribunal regarded it as appropriate to use the guidelines and there is no issue about that; the two approaches were the substantial and the simplified. The question on appeal is whether the decision as between those two permissible options was one which can be interfered with on the principles we have set out above.
19. Our approach to the guidelines should yield the same result as that of the Tribunal. No other factors were put than the simple findings of fact by the Tribunal as to the Claimant's employment status, her likely prospects and the arithmetic which has now been clarified above.
20. The Tribunal looked to the guidelines to provide assistance for its decision as between the two competing options. Although these are guidelines, since it is plain that the Tribunal's decision was based upon the guidelines it is appropriate to look at what these guidelines say about a case such as the present. In our judgment they point only to a conclusion that the substantial approach should be adopted. The relevant passages provide:

"4.7. The key choice to be made by the Tribunal is whether to look at the whole career loss to retirement which can then be discounted to allow for the eventuality that the applicant would not have remained in the employment throughout, or to look only to the next few years and assume that by that time he will have obtained comparable employment either with a similar pension scheme or a higher salary to compensate. Tribunals have tended to find in many cases that the applicant would obtain comparable employment within a fairly short period, ranging from 3 months to 2 years. Where the likely period of unemployment was longer the Tribunal would quickly find that compensation had reached the previous statutory limit of £12,000, so that assessing future loss over a period of years was largely an academic exercise. However, the increase in the limit in respect of compensatory award for unfair dismissal to £50,000 (now £53,500) and the removal of any limit in discrimination cases and some unfair dismissal cases require, where appropriate, an approach akin to that adopted in personal injury cases.

4.10. We consider that, in assessing future pension loss, the Tribunal has to select one of two approaches, which we will call the simplified approach and the substantial loss approach. As we have indicated, the decision by the Tribunal as to which approach to use will be a crucial one. It has led to considerable debate in the consultation process and the final conclusion will be a matter for the Tribunal. It can, however, make a substantial difference to the amount of compensation under this heading.

4.13 Experience suggests that the simplified approach will be appropriate in most cases. Tribunals have been reluctant to embark on assessment of whole career loss because of the uncertainties of employment in modern economic conditions. In general terms the substantial loss approach may be chosen in cases where the person dismissed has been in the Respondent's employment for a considerable time, where the employment was of a stable nature and unlikely to be affected by the economic cycle and where the person dismissed had reached an age where he is less likely to be looking for new pastures. The decision will, however, always depend on the particular facts of the case.

4.14 More particularly, we suggest that the substantial loss approach is appropriate in the following circumstances:

(a) when the applicant has found permanent new employment by the time of the hearing and assuming no specific uncertainties about the continuation of the lost job such as a supervening redundancy a few months after dismissal; further, the Tribunal has found that the applicant is not likely to move on to better paid employment in due course;

(b) when the applicant has not found permanent new employment and the Tribunal is satisfied on the balance of probabilities that he or she will not find new employment before State Pension age (usually confined to cases of significant disability where the applicant will find considerable difficulty in the job market):

(c) when the applicant has not found new employment but the Tribunal is satisfied that the applicant will find alternative employment (which it values, for example, with the help of employment consultants) and is required then to value all losses to retirement and beyond before reducing the total loss by the percentage chance that the applicant would not have continued to retirement in the lost career. See Ministry of Defence v Cannock and Others [1994] ICR 918 et al subject to our comment below.

The simplified approach becomes inappropriate in these cases because there is a quantifiable continuing loss which can be assessed using the pension data and Tables 1 to 4 of Appendices 5 and 6. These tables use factors similar to those in the Ogden Tables for personal inquiry and fatal accident cases. Although tables for pension loss are included in those tables, the tables in this booklet use some different assumptions to those underlying the Ogden Tables (see Appendix 2)."

21. It is at once clear that the Claimant did not fall within the simplified case envisaged by paragraph 4.13. It is understandable that tribunals have been reluctant to embark on assessment of whole career loss. In this case the two matters which would discourage assessment of whole career loss are absent. There was no uncertainty as to the Claimant's employment - she was to work for a further year and then retire - nor was there any uncertainty about the economic conditions; they are simply not relevant in the circumstances of this public sector teacher.
22. Thus, the other part of paragraph 4.13 would come into play indicating a substantial loss. The employment was of a stable nature; the Claimant had been employed for a considerable time, 23 years; she was unlikely to be affected by the economic cycle and she was less likely to be looking for new pastures. That would point to the choice firmly coming down in favour of the substantial approach. Further, examination of paragraph 4.14 comes to the same result. In 4.14(b) the Claimant has not achieved employment and she will not find new employment before age 60. So, again, those factors which point specifically towards the selection of the substantial method are there.
23. In the rubric at the end of paragraph 4.14 it is said that the simplified approach is not appropriate where there is a quantifiable continuing loss. In our judgment there was. As we have described it above, the Claimant instead of receiving 24-eightieths of her final salary will forever receive 23-eightieths. That is quantifiable. That was the loss. The Tribunal would have to say why, having identified that loss and recognising that the way in which it could be compensated was by using the substantial approach, it yet adopted the simplified approach.
24. In our judgment the Employment Tribunal erred in principle. To that extent, therefore, the judgment of Langstaff J at the preliminary hearing has been vindicated. With all his experience in this field, he indicated that if a clear loss were identified it would be wrong for an Employment Tribunal not to take that approach in order to satisfy the search for just and equitable compensation under section 123. Langstaff J said this:

"Where it is not clear which method may more accurately estimate future loss of pension, the guidance is of particular help to a Tribunal and a Tribunal may very well have a free choice as between one or the other approach. But where it is plain on any objective view what the loss is going to be, then the Tribunal should adopt that method and the guidelines, after all, are just guidelines."

25. We agree. This is a case where it is plain on the objective material what the loss was and the Tribunal chose a method which would not remedy that loss. So, we set aside the judgment in so far as it relates to the simplified approach. It is our decision now that the figure should be substituted of £9,797.75 for the pension loss.