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EVERYDAY LAW: Dismissal damages


Cecil McCarthy

EVERYDAY LAW: Dismissal damages

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An issue that has been raised with me is whether the courts can award damages for the manner of dismissal and the loss of reputation that can be a consequence thereof:
In the English case of Addis vs Gramophone Co. Ltd (1909), a decision of the House of Lords held that where an employee is wrongfully dismissed from his employment the damages for dismissal cannot include compensation for the manner of the dismissal, for his injured feelings, or for the loss he may sustain from the fact that the dismissal itself makes it more difficult to obtain employment.
This explanation of the decision is essentially based on a speech delivered by Lord Loreburn with which the majority of the judges agreed.
In the case of Johnson vs Unysis Ltd (2001), referred to in last week’s article, the above issue was discussed.
In the course of his speech, Lord Millett described the effect of the case of Addis vs Gramophone in the terms mentioned above and went on to consider the introduction of unfair dismissals legislation in the United Kingdom. 
I consider the discussion so helpful in understanding the scope of the claim for wrongful dismissal, the background to the introduction of unfair dismissals legislation, and the nature of the right not to be unfairly dismissed, that I will reproduce paragraphs 71 to 75 of his judgment:
“71. In Addis’s case the House of Lords treated a contract of employment as an ordinary commercial contract terminable at will by either party provided only that sufficient notice was given in accordance with the terms of the contract.  This was the classical approach to such contracts which the House of Lords was content to confirm more than a half century later. In Ridge vs Baldwin [1964] AC 40, 65, Lord Reid observed that an employer can terminate the contract of employment at any time and for any reason or for none. It follows that the question whether damages are recoverable does not depend on whether the employer had good reason for dismissing the employee, or had heard him in his own defence, or had acted fairly towards him: it depends on whether the dismissal was in breach of contract. In Malloch vs Aberdeen Corporation [1971] 1WLR 1578, 1581, Lord Reid restated the position:
‘At common law a master is not bound to hear his servant before he dismisses him. He can act unreasonably or capriciously if he so chooses but the dismissal is valid. The servant has no remedy unless the dismissal is in breach of contract and then the servant’s only remedy is damages for breach of contract’.
72. The common law, which is premised on party autonomy, treated the employer and the employee as free and equal parties to the contract of employment. Each had the right, granted by the contract itself, to bring the contract to an end in accordance with its terms. But by 1971 there was a widespread feeling, shared by both sides of industry, that the legal position was unsatisfactory. In reality there was no comparison between the consequences for an employer if the employee terminated his employment and the consequences for an employee if he was dismissed. Many people build their lives round their jobs and plan their future in the expectation that they will continue. For many workers dismissal is disaster.
In 1964 the government announced that it would discuss with representatives of employers and trade unions the provision of procedures to give employees effective safeguards against arbitrary dismissal. In 1968 the Royal Commission on Trade Unions and the Employers’ Associations under the chairmanship of Lord Donovan reported that it was urgently necessary for employees to be given better protection against the unfair dismissal and recommended the establishment of statutory machinery to achieve this.
73. The recommendations of the Royal Commission were given effect by the Industrial Relations Act 1971.
This left the common law and the contract of employment itself unaffected. It did not import implied terms into the contract. Instead, it created a new statutory right not to be unfairly dismissed, enforceable in the newly established National Industrial Relations Court. The 1971 act was replaced by the Employment Protection Act 1975 and its provisions as amended are now contained in the Employment Rights Act 1996. The National Industrial Relations Court was short-lived and the jurisdiction in respect of unfair dismissal has for many years been exercised by industrial tribunals (now known as employment tribunals). These consist of a legally qualified chairman sitting with two lay members, one being a representative of the trade unions and the other of employers.
74. For the first time the 1971 act enabled an employee to challenge his employer’s conduct in exercising his legal rights on the ground that it was unreasonable. The act contained elaborate provisions which defined the concept and scope of unfair dismissal and provided for compensation to be awarded or reinstatement or re-engagement to be ordered. It set an upper limit to the amount of compensation which could be awarded, which has since been increased from time to time, and allowed the tribunal to reduce the amount of an award if it considered that the employee had caused or contributed to his own dismissal. It provided for an upper age limit and a qualifying period of employment (which has since been reduced but not abrogated) thereby excluding certain categories of employees from its scope altogether.
75. During the past 30 years an extensive jurisprudence has been developed in relation to unfair dismissal. Employers have responded to the existence of the statutory right, as the Royal Commission intended that they should, by introducing elaborate procedures of complaint and warning before eventual dismissal which, whether or not contractually binding, are designed to ensure that employees are not unfairly dismissed. Since the right not to be unfairly dismissed is a statutory right which is not derived from contract, however, it is still open to an employee to claim that he has been unfairly dismissed even if his employer has faithfully complied with the contractual procedures.”
• Cecil McCarthy is a Queen’s Counsel.

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