Restriction on Compensation for Dismissal Outside Statutory Unfair Dismissal Law
In a land mark ruling the Supreme Court has reined back compensation for breach of contractual disciplinary procedures leading to dismissal. The case is about a claim in contract law not a claim for unfair dismissal. So it is mainly significant for high earners whose losses are much more than the capped unfair dismissal compensation and to workers who do not have the necessary continuous service to claim unfair dismissal (at the moment, usually one year).
The employees in this case were dismissed for misconduct. Both claimed that their employers had failed to adhere to their contractually binding dismissal procedures when they were dismissed. They argued that had the procedures been followed they would not have been dismissed. Following their dismissals neither was able to secure comparable employment and as a consequence their losses were substantial.
The question the Supreme Court had to decide was whether the normal principles relating to the calculation of damages for breach of contract should apply (under these the employees would be placed in the financial position they would have been in had the procedures been followed) or whether the compensation should be capped at notice pay, plus an amount to reflect the time it would have taken had the disciplinary procedure been followed properly.
In an earlier ruling the Court of Appeal said that the normal principles apply, which meant that one of the employees could expect to receive in the region of £4 million representing the loss of earnings for his entire career.
The Supreme Court disagreed with that approach and on appeal, ruled that contractual disciplinary procedures are not ordinary contractual terms giving rise to a claim for breach of contract in their own right. The Supreme Court also said that where a breach of contract relates to the manner of a dismissal, compensation for losses suffered as a result of the breach are not recoverable unless they relate to an issue preceding, and independent of, the dismissal. The Court ruled that the claims in this case related to the dismissal. Accordingly, any compensation awarded to the employees was limited to notice monies and the time a proper disciplinary procedure would have taken.
The case is about dismissal so a suspension in breach of contract could still give rise to an unlimited claim in damages. If disciplinary procedures are started in breach of contract an employee could still seek an injunction to stop them.
If you would like further information or advice regarding the matters raised within this article please contact John Turnbull by e mail to johnturnbull @stones-solicitors.co.uk or telephone 01392 666894