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The question at the heart of this appeal relates to ongoing attempts by claimant employees to widen the remedies available to them on dismissal and, in particular, to avoid the application of the statutory cap on compensation.

In the previous decision of Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518 the House of Lords held that a claimant employee seeking damages for loss arising out of breach of an implied term of their contract in relation to their unfair dismissal would only be able to recover those damages in the employment tribunal under the remedies stipulated in the Employment Rights Act 1996 and not under the standard remedy for breach of contract in the civil courts. The remedy for the claimant in such a case would therefore be subject to the statutory cap for unfair dismissal claims (currently at £72,300) and other factors such as contributory fault could also reduce the total award that the claimant receives. Where the claimant was arguing that their loss as a result of the breach of the implied term was much greater (for example, a career long loss, as a result of destruction of their career) this was a considerable narrowing of the remedies available to them.

However, claimants continue to be creative in their approach in terms of challenging the scope of the Johnson decision. As the judgment in Johnson was in relation to breach of an implied term of the employee’s contract, the main question in the Edwards and Botham case was whether the reasoning in Johnson precluded recovery of damages for loss in the civil court arising from the unfair manner of a dismissal in breach of an express term of an employment contract.

Background

Mr Edwards had been a consultant trauma and orthopaedic surgeon and Mr Botham had been a community youth worker. Both had been summarily dismissed following various allegations of misconduct against them, and had suffered  loss through their dismissal and the stigma that resulted from it.  The claimants’ cause of action was based on their respective employer’s failure – in the lead up to their dismissal – to follow disciplinary procedures that had been expressly detailed in their contracts.  They alleged that as this constituted a breach of their employment contracts, they should be entitled to damages pursuant to ordinary contractual principles over and above those set out in the ERA.  Both men separately brought their claims to the High Court.

In Edwards the employer successfully applied to strike out Mr Edwards’ claim for damages of £3.8 million in so far as they exceeded the amount he would have received in his three month notice period.  However, Mr Edwards’ appeal was partially allowed to permit him to prove that he would have been exonerated by properly conducted disciplinary proceedings and therefore would have had the chance to earn such an amount of money in the long term.

In Botham Mr Botham had already claimed wrongful and unfair dismissal in the employment tribunal, and had been awarded damages under both heads of claim, however the tribunal reduced his basic and compensatory award by 55% due to a finding of contributory fault.  He therefore sought to bring his claim in the court for breach of contract to escape such a reduction in value, as in breach of contract claims – as Lady Hale lamented in her judgment of this case – there is no such room for a reduction. The High Court determined that his claim fell squarely within the decision in Johnson (the Johnson exclusion area) and that Mr Botham would only be able to recover the amount permitted to him under the ERA, and for the same reason would not be able to claim back his legal costs.

As both claims concerned the amount and limit of damages a breach of contract constituting unfair and wrongful dismissal may give rise to, the two claims were heard together in the Court of Appeal (with the facts of Edwards assumed in his favour for the purposes of the appeal).

Court of Appeal

The Court of Appeal noted that the Johnson exclusion area was formed specifically in relation to implied terms of an employment contract, and the decision was not formed in relation to breach of an express term of that contract. Moore-Bick LJ inferred that to assert so was to extend the Johnson exclusion zone “beyond its proper sphere”. He stated that the judgments in Johnson and Eastwood v Magnox Electric plc; Cornwall County Court v McCabe [2004] UKHL 35  both recognised that provisions in the ERA did not supersede an employee’s common law and contractual rights and he allowed the appeal. The employers in both claims appealed this decision.

Judgment of the Supreme Court

The appeals by the employers of the claimants were considered by seven members of the Supreme Court, a majority of four allowed the appeals, although on differing grounds, with three judges dissenting.

Lord Dyson gave the leading judgment and stipulated that there was no reason why the Johnson exclusion area should not also apply to express terms in an employee’s contract. He supported his findings by noting that Parliament had imposed strict constraints on dismissal related claims (such as the 3 month time limit to bringing a claim and the statutory cap on damages) and this showed the active decision that the remedy for it would be “’strikingly less generous than that which the common law would give for a breach of contract in the ordinary way . . . (therefore) if provisions about disciplinary procedure are incorporated as express terms into an employment contract, they are not ordinary contractual terms agreed by parties to a contract in the usual way.” He averred that in Johnson Lord Nicholls was unwilling to create a common law right covering the same ground as the statutory rights not to be unfairly dismissed as it would “fly in the face of the limits Parliament has already prescribed on (such) matters.”‘

Lord Dyson noted that Johnson does not rule out an employee bringing a claim for breach of his employment contract to the courts if this claim is discrete and independent from his dismissal, and the loss he has suffered from this is also independent. However, he noted that when an employer fails to abide by a contract in the steps leading to dismissal of the employee, then that employee’s loss will result from their dismissal rather than the employer’s breach, and will therefore fall within the Johnson exclusion area. He opined that “the question in each case is, therefore, whether or not the loss founding the cause of action flows directly from the employer’s failure to act fairly when taking steps leading to dismissal and precedes and is independent of the dismissal process.”

Applying this reading of the law to the case, he noted that whilst Mr Edwards’ counsel accepted that his claim for unfair dismissal fell within the Johnson exclusion area, she submitted that his claim for damages for loss of reputation consequent on the findings of misconduct made by the disciplinary panel did not. Lord Dyson did not agree with this assertion. Similarly he concluded that as Botham’s entire case stated that his loss of reputation was caused by the dismissal itself, this also fell into the exclusion area.

Comment

Lord Dyson’s judgment seems to follow the policy concerns of Lord Millett in Johnson that the recognition of parallel and inconsistent rights to seek compensation for unfair dismissal in the tribunal and damages in the court would be a recipe for chaos.

The fact that there was open dissent against Lord Dyson’s view, coupled with support of the appeal but for different reasoning, makes the decision a potentially contentious one. Further, notwithstanding his decision, there is still the opportunity for an employee to bring a claim for breach of contract to the court rather than the employment tribunal, but only if this claim arose from a breach completely distinct from any that may have led to that employee’s dismissal so that it falls outside the Johnson exclusion area.

Accordingly, whist the Johnson exclusion area is still a real barrier for claimants, it is still the case that an employer may, in certain circumstances, be better off  dismissing an employee without going through a disciplinary procedure whose claim for unfair dismissal would then be capped, than risk imposing a disciplinary process upon him that could create a separate breach of contract claim pursuable in the courts. The difficulty in distinguishing as a factual matter whether a breach of contract truly was distinct from an employee’s dismissal could mean that contractual claims will continue to be brought through the courts anyway, as employees continue to try their luck with escaping the capped compensation of the ERA.