On 14 December 2011 the UK Supreme Court issued its decision in the consolidated appeals in Edwards v Chesterfield Royal Hospital NHS Foundation Trust and Botham (FC) v Ministry of Defence [2011] UKSC 58. The issue was whether damages for future losses could be awarded arising from the unfair manner of dismissal in breach of an express term of an employment contract. If successful, this would expose employers to damages claims far in excess of the usual measure of loss, losses suffered in respect of their notice periods. Further, such a decision would enable employees to bring high-value claims for future losses outside the legislative framework designed to provide the exclusive jurisdiction for such employment claims (i.e. in particular, unfair dismissal).
The UK Supreme Court held that employees may not recover damages in civil courts for loss suffered as a result of a breach of their contract of employment in relation to the manner of their dismissal, unless the loss can be said to precede and be independent of the dismissal. The position therefore remains as it was; a qualifying employee has unfair dismissal rights through which to pursue future losses in the Employment Tribunal, limited to the cap imposed on awards by legislation. Under the common law a claimant may claim for damages, limited to damages had the contract of employment been performed lawfully (i.e. the employee’s earnings during the notice period the employer should have given in order lawfully to terminate the employment and, in some cases, also during the period it would have taken an employer to follow a contractual dismissal procedure, known as the Gunton extension). See Gunton v Richmond-upon-Thames London Borough Council [1981] Ch448, [1980] All ER 577, 79 LGR 241.
Background
Mr Edwards was subjected to disciplinary proceedings following an allegation he undertook an inappropriate examination of a female patient. A disciplinary hearing was convened and Mr Edwards was summarily dismissed for gross misconduct. Mr Edwards claimed a contractual disciplinary procedure applied to his employment with the Trust, which was breached by reason of the panel not being properly constituted. As a result of this breach, the panel made incorrect findings, which he claimed it would not have done if correctly constituted and which damaged his reputation. Mr Edwards argued that as a result of the breach, he was now highly unlikely to secure future employment within the healthcare sector. Mr Edwards issued proceedings for breach of contract in the amount of £3.8 million for his future losses.
The Courts’ Decisions
At first instance, Mr Edwards’ claim was limited to damages for his contractual notice period only. Mr Edwards sought permission to appeal, which was granted but only insofar that, subject to liability for breach of contract being established, in addition to compensation for the additional period of his contractual notice, Mr Edwards was also entitled to compensation for the additional period that it would have taken to conduct the disciplinary procedure if it were conducted and completed in a reasonable time. This is known as the Gunton extension.
In a controversial decision, the Court of Appeal determined that Mr Edwards should not be precluded from recovering damages for loss of future employment prospects. This is contrary to the case of Johnson, which determined that an employee cannot bring a claim for damages for the manner in which they are actually or constructively dismissed beyond the rights afforded by Parliament and enshrined in the legislation for unfair dismissal unless the cause of the claim for damages precedes and is unconnected with the dismissal. The Trust appealed to the UK Supreme Court.
The Supreme Court considered that the alleged breaches of the contractual disciplinary procedure, which led to the findings against Mr Edwards, did not occur independently of the dismissal, that the damages claimed were consequential on the dismissal and therefore the claim fell within what is known as the Johnson “exclusion area”. See Johnson v Unisys Limited [2011] UKHL 13.
The Supreme Court hearing Edwards together with Botham decided that employees may not recover damages in civil courts for loss suffered as a result of a breach of their contract of employment in relation to the manner of their dismissal, unless the loss can be said to precede and be independent of the dismissal and accords with the reasoning given in the decision of Johnson.
The Supreme Court also decided that as Parliament has determined that the statutory unfair dismissal regime should be the means by which an employee may pursue future losses arising from their dismissal, subject to certain statutory limitations (e.g. short limitation periods, qualifying periods of employment and a cap on compensation), it was wrong for the courts to extend common law principles and enable employees to circumvent statutory requirements when pursuing claims for future losses. Therefore, the appeals in Edwards and Botham were dismissed and employees’ rights to claim damages for breach of contract in connection with their dismissal were limited to rights in respect of their notice periods and the G unton extension. The decision in the Supreme Court was by a majority of four to three.
Commentary
The decision in Edwards is arguably a relief for employers, as it re-establishes the status quo by determining that any award is limited in unfair dismissal to the statutory caps and under common law to the employee’s notice period and any reasonable time that should have been spent carrying out a proper disciplinary/dismissal procedure.
The Court of Appeal decision in Edwards posed a real and substantial financial risk to employers as it permitted the courts to make awards of damages for future losses flowing from the manner of an employee’s dismissal. Had this decision stood, employers may have faced exposure to very substantial claims for future losses where they dismissed an employee in circumstances in which a contractual disciplinary/dismissal process was not properly followed, together with satellite litigation concerning the question of whether it was a contractual procedure. Thankfully, the Supreme Court has shut those floodgates, for now.