Non-Financial Loss in Employment Claims- When, Which, How?!?

One recurring question that Lawyers face from clients in the course of taking Instructions for Employment related claims, is whether a claim can be made for non-financial loss, such as Injury to feelings, Mental stress, Loss of Family life to name a few..

Just a bit of background here: Financial Claims can be made for pure financial loss i.e. actual financial loss suffered, such as loss of earnings if you’re fired, wages deducted unlawfully or in breach of contract etc or for non-financial loss such as compensation for distress, which as you can imagine has no direct monetary value- and which necessarily needs proof, assessment and/or determination by the court or by agreement of the parties.

The fact is that non-financial Claims can only be made in very limited contexts in Employment Tribunal Claims, the said being mainly in the area of Discrimination Claims.

A brief word about Discrimination Claims:

These are Covered statutorily by the Race Relations Act 1976 and the Disability Discrimination Acts 1995 and 2005 as well as a number of Regulations covering Age, Sex and Transgender Discrimination and indeed the Human Rights Act 1998, covering discrimination claims against Public bodies. The main forms of Discrimination Claims are:

a. Racial (necessarily including Nationality and ehnicity); b. Religious; c. Gender; d. Age; e. Disability; and f. Sex/Sexual Orientation/Trans-gender Discrimination, which are specifically prohibited by law and damages are claimed on the basis compensation for Injury to feelings, since generally the damage caused by this is usually intrinsic and psychological and in addition to any financial loss which may be suffered e.g. loss of earnings upon dismissal based on discrimination (this would naturally be unfair and entitle a claimant to compensation for Unfair Dismissal, in addition to damages for Injury to feelings).

It is however extremely difficult for a Claimant to found a Claim for Non-financial Damages on a premise other than discrimination- especially in a Claim for Unfair Dismissal.

The only permissible- though extremely narrow route- being for damages occasioned by the manner in which the Dismissal was carried out, i.e. in such a manner as to severely hurt the reputation of the Claimant, this in itself is still tied to financial loss, since the measure of the effect of the damages caused by the manner of dismissal being in difficulties in obtaining new employment and the loss suffered as a result of this in earnings.

To state the obvious, the law on Non-Financial claims in Employment Law has been prescribed by a line of cases- all decided by the House of Lords which defined to a large but rather complex extent- when a non-financial claim can be made and granted.

Chronology of Cases:

Addis v Gramophone Co Ltd [1909] AC 488

This being the classical case on the subject wherein the House of Lords determined rather conclusively that the only claims that can be entertained as arising from an Employment Contract being a purely Financial Claim, simply put the Law could not entertain any namby-pamby claims for Mental stress or Hurt feelings, there was either remedy for financial loss or nothing. The reasoning behind this is not far-fetched; this Judgement was delivered in Edwardian era (in short in the immediate-post Victorian era) with the concept of Master and Servant being the central philosophy behind Employment contracts.

Norton Tool Co Ltd v Tewson ([1972] ICR 501

Addis was the clear and unequivocal statement of the Law for over 60 years until this decision – delivered by the National Industrial Relations Court (forebear of the Employment Tribunals) which- whilst adopting Addis substantially- however carved a minor distinction, the key points being:

A.

That the Court in the course of a claim was empowered to award an amount believed to be just and equitable and that the amount of the award need not be arithmetically tied to the amount of proven or provable loss ( i.e. financial loss), in short that the court could use its discretion where just and equitable – or in its words where “natural and possibly essential”

B.

The "loss" suffered by an employee who is unfairly dismissed without notice, and the compensatory award to which he is entitled in respect of that loss, must be calculated without taking into account any wages he earns during what should have been his period of notice (this is generally known as "the rule in Norton Tool");

C.

It however conclusively excluded damages for Injury to feelings from a Claim for Unfair Dismissal. The dictum of Sir John Donaldson the President of the National Industrial Relations Court is repeated below


“The court or tribunal is enjoined to assess compensation in an amount which is just and equitable in all the circumstances, and there is neither justice nor equity in a failure to act in accordance with principle. The principles to be adopted emerge from section 116 of the Act of 1971. First, the object is to compensate, and compensate fully, but not to award a bonus, save possibly in the special case of a refusal by an employer to make an offer of employment in accordance with the recommendation of the court or a tribunal. Secondly, the amount to be awarded is that which is just and equitable in all the circumstances, having regard to the loss sustained by the complainant. 'Loss' in the context of section 116 does not include injury to pride or feelings. In its natural meaning the word is not to be so construed, and that this meaning is intended seems to us to be clear from the elaboration contained in section 116(2). The discretionary element is introduced by the words 'having regard to the loss.' This does not mean that the court or tribunal can have regard to other matters, but rather that the amount of the compensation is not precisely and arithmetically related to the proved loss. Such a provision will be seen to be natural and possibly essential, when it is remembered that the claims with which the court and tribunals are concerned are more often than not presented by claimants in person and in conditions of informality. It is not, therefore, to be expected that precise and detailed proof of every item of loss will be presented, although, after making due allowance for the skills of the persons presenting the claims, the statutory requirement for informality of procedure and the undesirability of burdening the parties with the expense of adducing evidence of an elaboration which is disproportionate to the sums in issue, the burden of proof lies squarely upon the complainant.”

It is important to give some background to this decision. Addis was decided on the basis of Common Law; however this case was decided by the National Industrial Relations Court, which was created by Section 99 of the Industrial Relations Act 1971. The history of this law being that in 1968, the Royal Commission on Trade Unions and Employers' Associations recommended a statutory system of remedies for unfair dismissal, the said recommendations subsequently giving rise to the Industrial Relations Act 1971. Unfair dismissal was a completely new principle with a unique set of remedies and the National Industrial Relations Court was conferred with exclusive jurisdiction to hear complaints and award remedies. There are side arguments of the realpolitik behind this court being that this court was created by the Conservative Government of Ted Heath to counter the Union’s and thus reflected the same establishment oriented viewpoint of Addis, however that is not the focus of this write-up. The Industrial Relations Act 1971 Act was later repealed by the Trade Union and Labour Relations Act 1974; however the unfair dismissal provisions were retained and, subsequently transformed into Part X of the Employment Rights Act 1996. The new adjudicating authority being the Employment Tribunals, as we have them today.

Johnson v Unisys [2001] IRLR 279

This case represented the first real deviation from the reasoning in Addis. The House of Lords, in Johnson v Unisys, essentially gave organic effect to the statutory provision first referred to in Norton Tools the power of tribunals to award amounts, it "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" This being the provision of Section 123 Employment Rights Act 1996.

The facts of the case being that Mr Johnson was employed by Unisys and worked for them for 16 years till 1987, was made redundant and then re-employed in 1990 and then dismissed in 1994 based on allegation, he filed a claim at the Tribunal for Unfair dismissal and was awarded damages of £11,691.88. He subsequently filed a Claim at the Milton Keynes County Court for Breach of the Implied Contractual Term of Mutual Trust and Confidence – (which cause of action had been firmly established by the House of Lords in Mahmud v Bank of Credit and Commerce International SA [1998] AC 20) and an alternative claim for Negligence. The main plank of his claim being that the manner of his dismissal caused him severe mental distress in that: a. His fragile mental state was known to Unisys prior to his being made redundant in 1987; b. His dismissal in 1994, caused him to fall into a spiral of depression, alcoholism, attempted suicide, culminating in him being admitted to a Mental Hospital; c. He made over 100 applications for alternative work, but was unsuccessful and at the age of 52, was unlikely to ever find work.

The House of Lords whilst refusing Mr Johnson’s appeal- nonetheless decided conclusively that there was "no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life". A very radical decision in that it broke the yolk of an 80+ year old judicial mindset. This case however did not overrule Norton Tools and in fact made no reference at all to it, hence the question at this stage remained- to a large extent unresolved. It however opened the door for the award of damages for non-financial loss.


Dunnachie v Kingston upon Hull City Council [2004] ICR 1052 HL

This case provided the final or indeed, the present statement of the law on this subject. On an aside I shall add that this judgement was described by myself and some colleagues in Chambers as the Ping-Pong Judgement, in that I was leading a case M v. London Probation Office, in which part of our clients claim was for Injury to feelings and of which the decision in Dunnachie clearly had an impact. The Claim was filed when the Employment Tribunal, awarded damages for Injury to feelings based on Johnson v Unisys; set down for preliminary directions when the EAT overruled the Employment Tribunal, in the middle of hearing when the Court of Appeal upheld the Employment Tribunal’s decision and Judgement delivered just after the decision of the House of Lords determining conclusively that a Claim for Non-Financial Loss can not be made as part of a Claim under Section 123(1) of the Employment Rights Act 1996. Just for the avoidance of doubt this section relates to Compensatory Award for Unfair Dismissal and states thus “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.” In effect closing the door on the “Just and Equitable” open door for Claimant’s seeking to get damages for Breach of the Implied Term of Mutual Trust and Confidence

The facts of this case were thus: Mr Dunnachie worked for the Kingston upon Hull City Council between 1986 and 2000. In January 1995 he was appointed senior environmental health officer and then acting principal health officer In March 2000. On 8 March 2001 he resigned on notice with effect from 9 April 2001 alleging constructive dismissal and then commenced proceedings in an employment tribunal on 29 June 2001.The tribunal held that he had been unfairly dismissed and also awarded him the sum of £438.46 in respect of an unlawful deduction of wages. The actual conduct complained of being a series of acts of harassment and bullying by Mr Dunnachie’s Line Manager, which resulted in his being compelled to leave the employment of the Council. The comment of the Tribunal repeated “The respondent's treatment of the applicant by those officers caused his ill-health. We are satisfied that there was the clearest evidence of a breach of the implied term of mutual trust and confidence.”

The employer appealed to the Employment Appeal Tribunal. The main ground being as to whether compensation for injury to feelings may be recovered under section 123(1). The EAT allowed the appeal, upholding Norton Tools, with the President, Burton J, concluding that Lord Hoffmann’s dictum in Johnson v Unisys was obiter (i.e. not part of the main decision, otherwise referred to as the Ratio) and that on a correct construction of section 123 of the 1996 Act, it did not allow recovery for non-financial loss.

Mr Dunnachie further appealed to the Court of Appeal, purely on the question of whether the Claim for Injury to feelings. The Court of Appeal decided that: a. The comments of Lord Hoffman in Johnson v Unisys were indeed Obiter (or merely peripheral to the main case), but that nonetheless; b. Section 123(1) indeed allowed claims for non-financial loss in this case Injury to feelings.

The Employer then appealed to the House of Lords, for a final determination on this point. The decision of the House of Lords was to the effect that: a. To re-inforce the decision of the Court of Appeal, that the comments of Lord Hoffmann at paragraph 55 of Johnson and Unisys were indeed obiter and; b. That Section 123(1) could not and did not give rise to a right to claim for Non-Financial loss, because to do so would be to stretch the principle or indeed blur the lines between separate claims for financial and non-financial loss. Lord Steyn’s dictum is instructive as to the rationale of restricting claims under S.123 (1) to financial loss " Sir John Donaldson in Norton Tool observed that the natural meaning of "loss" in section 116(1) does not include injury to feelings. He added that this view is reinforced by the elaboration in section 116(2) of the 1971 Act, now section 123(2) of the 1996 Act. It is significant that in sections 116(2) and 123(2), and indeed in the remainder of sections 116 and 123, there is no reference to non-economic loss. “It may be of some assistance to imagine a parliamentary draftsman, faced in 1971 with a departmental brief to prepare a bill which would make provision for compensation for financial loss as well as for a solatium for injury to feelings. Such instructions could have been given pursuant to the recommendation in 1968 of the Royal Commission that the remedy for unfair dismissal should include compensation for "injured feelings and reputation": Cmnd 3623, para 553. Is it conceivable that a parliamentary draftsman would have provided for the two radically different remedies by the rolled-up wording of section 116(1)? Intuitively, I regard it as implausible that if such a policy decision had been made the technique of providing simply for compensation for "loss" would have been adopted.”

Lord Steyn also addressed the comments of Lord Justice Sedley at the Court of Appeal “In my view section 123(1) must be construed as a composite formula. The interpretation preferred by Sedley LJ splits up the formula in a way which, with great respect, is more than a little contrived. It unjustifiably relegates the criterion of loss to a subordinate role. Given the hypothesis that the legislature expressly provided for the recovery of economic loss, it fails to explain why the legislature did not also expressly provide for compensation for injury to feelings. It also fails to take full account of the context. For example, on this expansive interpretation there would as already mentioned be nothing on the face of the statute to exclude the award (subject to the cap which is now standing at £55,000) of aggravated or exemplary damages. This could not have been intended. The better view is that the provision was not intended, in the words of Brooke LJ, to provide for "palm tree" justice.”

The judgement left very few ambiguities and sealed the fate of potential Claims for Injury to Feelings brought under an Unfair Dismissal Claim, the simple answer is that it is not possible. Injury to feelings may be couched under a claim for Discrimination which is a specific legal provision, allowing for the same; however there is no carte blanche under Compensation Claims for Unfair dismissal allowing for non-financial claims.

Conclusion.

When drafting an application before the Employment Tribunal it’s important to be clear as to what you can or cannot claim for. If an employer has been guilty of improper conduct giving rise to an employee feeling that the Contract of Employment has broken down fundamentally, Constructive Dismissal is the route to take, however an employee choosing to leave on the basis that the said conduct is a Breach of the Implied Contractual Term of Mutual Trust and Confidence, should be aware that the particular conduct on its own does not give rise to damages on its own, but must still be subject to Section 123 of the Employment Rights Act, which lays ground rules for determining the amount of compensation and which is indexed as we have seen here based on pure financial loss. Which if you have worked for over a year, would consist of a Basic Award, computed against your years of service x weekly salary and a Compensatory award based on actual loss, which could include actual loss of earnings e.g. earnings lost whilst you’re out of work or the difference between new earnings and old earnings if the new earnings are less.

Where there has been simple Unfair Dismissal, the nature of the dismissal i.e. the conduct of the employer is irrelevant as to the nature of the quantum of the damages to be awarded and Section 123 still remains the award benchmark.

Two negative parameters on an award for damages, which must still be borne in mind, are i. Polkey Deductions: A deduction which is made, where the Tribunal is of the view that the dismissal would have taken place in any event, this deduction could be as much as a 100% and varies from case-to-case; and ii. Where there has been a failure to mitigate loss. This means effectively that whilst a Claimant might have suffered financial loss, he has a responsibility to mitigate his loss, by actively looking for work, as opposed to sitting back accumulating lost earnings; the Tribunal will require this as an act of good faith. This principle is common to the general Law of Contract in any event.

© Edward Keazor