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Employment Law

Legal guidance - compliance - software

28 NOV 2011

Long-Term Compensation in Dismissal Cases

Paul Nicholls

One question of great practical difficulty which arises in employment cases is over what period of time should a tribunal award compensation for dismissal. This is relevant to unfair dismissal claims but in particular to discrimination claims because of the absence of a cap. In theory tribunals can - and sometimes do - award career long loss. Until recently, however, there has been little guidance as to the correct approach to take.

The judgment of the Court of Appeal in Wardle v Calyon [2011] IRLR 604, provides valuable guidance and in doing so makes significant changes to the law relating to compensation.

The case concerned an allegedly discriminatory failure to promote and dismissal. The claimant claimed that he had not been promoted by a French bank because he was English and that a French employee had been preferred on racial grounds. He was dismissed on 31st July 2008 and alleged that his dismissal was an act of victimisation.

These claims succeeded and the tribunal had to award compensation.

In doing so, it adopted several stages. First, it assessed the length of time for which the claimant would have continued to be employed by the respondent. It used this as a means of identifying the end point of his loss on the basis that the date by which he would have left represented the full extent of his loss. The tribunal did not make an absolute assessment of this. It determined that there was an 80% chance that he would be gone by April 2010, a little under 2 years after his employment in fact ended. They then applied an 80% deduction to his compensation after the date when they found he would have left.

Second, the claimant had in fact found alternative, albeit less well-paid, employment. The tribunal awarded the Claimant his loss in full up to the point when he found his new job and his loss based on the difference in pay between his new and old jobs up to the date when it held there was an 80% chance he would have left the respondent's employment. From that date, April 2010, it awarded 80% of the difference between the two rates of pay to reflect the likelihood that he would have left the respondent anyway.

Third, however, the tribunal also found that there as a high chance that, after spending time in the new job, he would have left and gone back to a job comparable to that which he previously enjoyed and in this way brought his loss to an end. They found that there was a 70% chance that he would have returned to equally well-paid employment, by January 2012, 3½ years after his dismissal.

Fourth, the tribunal then awarded career long loss to the date when the claimant would have retired, but reducing his compensation by (a) 80% to reflect the likelihood that he would have left the employment of the respondent in any event by April 2010 and (b) by a further 70% to reflect the likelihood that he would have left to find a new job, so eradicating his loss, by January 2012.

The end result was therefore:

(a)  an award of career long loss to the date the tribunal found the claimant would have retired, but

(b)  where the loss was reduced by 80% after the date when the tribunal found he would have left the respondent's employment in any event; and

(c)  where the loss was reduced by a further 70% after the time when the tribunal held there was a 70% chance he would go back into equally well-paid employment as that from which he had been dismissed.

The end result was an award of £375,000 for career long loss.

Both sides appealed to the EAT and then the Court of Appeal. There were issues about the whether deductions were legitimate at all, the rate at which the deductions were made, but also, and more fundamentally, whether career long loss was justified.

The Court of Appeal came to a number of conclusions which are of great significance to the determination of compensation claims and which do seem to change the law. It held:

(i) The tribunal was wrong to make any deduction to reflect the likelihood that the claimant would have left the respondent's employment in any event.

(ii) The tribunal had been wrong to award career long loss at all in this case.

(iii) In cases where long-term loss is awarded it will not be appropriate to apply the same percentage deduction regardless of the length of time under consideration.

Analysis

Each of these conclusions warrants analysis (a) to see the extent to which they change the law and (b) to consider the impact on future cases

(i) No reduction to reflect likelihood that employee would have left

The Court of Appeal held that it was wrong in principle to determine loss by reference to the time by which the employee would have left of his own volition if he had not been dismissed. (This is to be contrasted with the legitimacy of reducing compensation to take account of a later dismissal.)  The reason for this is that, if there had been no discriminatory dismissal, the employee would only have left the employer for equally well-paid employment. Therefore he would not have suffered any of the loss he in fact suffered had the discriminatory dismissal not occurred with the consequence that the employee was on the job market at a time he would not have chosen.

This view reflects the approach taken by the Court of Appeal in Chagger v Abbey National [2010] IRLR 47. However, that was a case where the employer had, according to the tribunal, destroyed the employee's career in that industry. What is interesting about Wardle is that it applies the same principle to any dismissal case.

Three points emerge from this. First, this analysis applies only to the case where the issue is whether the employee would have left of his or her own volition. The Court of Appeal holds that that is irrelevant. However, in any case where the employer can show that it would have dismissed even if it had not acted unfairly / in a discriminatory way, loss would still come to an end at the point when the employer would have ended the contract: Chagger.

Also, if the employer can show that the employee would have voluntarily left in any event, whether or not with a job to go to, that can serve as an end to the loss because the employee would have terminated the employment otherwise than in the anticipation of getting another job and maintaining the same rate of pay. However, these will be rare cases.

Second, this is a change to the law. Previous cases - Chief Constable of W Yorks. v Vento [2003] ICR 318  and Cannock v Min. of Defence [1999] IRLR 509 - had held, admittedly without great analysis, that loss was to be assessed to the time when the employment from which the employee would have been dismissed would have come to an end. That date was regarded as the end date. The Wardle analysis means that, in any case, it is irrelevant to consider whether the employee would have left in due course to get another job.

Third, the consequence of this is that, on one view, the employee may be able to recover loss over a longer period since loss will no longer be circumscribed by the time when employment would have ended - subject to the points below - unless the employer can show that it would have terminated the employment at some future date. In particular if the employee can show that there is doubt about getting another job, that may lead to long-term awards of compensation.

(ii) Career long loss

The decision that career long loss was inappropriate is of potentially great significance because it may limit employees' ability to recover long term loss.

The Court held that loss should come to an end when it was more likely than not that the employee would gain another job at a comparable level of pay.

This is a change to the law. In previous cases it had been held that compensation should not be assessed on a balance of probabilities basis but that the tribunal should reflect chances by way of percentages - as this tribunal had by applying its 70% prospect of finding another job.  This in cases like Cannock it was emphasised that in assessing future imponderables it was wrong to apply a balance of probabilities approach.

However, the Court of Appeal took a different view in relation to this question with the consequence that at as soon as it was more likely than not that the claimant would get a job which paid as well as the old job, the loss came to an end. The Court of Appeal estimated that point as being 6 months earlier than the point at which there was, according to the tribunal, a 70% likelihood of finding equivalent employment.

This still leaves open the possibility, of course, that the employee might not be able to secure a job with comparable pay. On this basis, the employee's loss may be awarded on an open-ended basis up to the point when it is held to be more likely than not that the employee will secure a job at comparable pay.

(iii) Approach to percentage deductions

In the event, this issue was of limited significance. However, since it may arise in other contexts, it is relevant to consider the Court's approach.

In Wardle, once the tribunal had found that there was a percentage chance of something happening, it preserved that percentage in aspic. So, for example, when it held there was a 70% chance of the claimant leaving by December 2011, it applied that same percentage up to retirement.

The Court accepted the view that if something was so likely by a given date it had, by definition, to become more likely as time went by.

Conclusion

The combined effect of the Court's decision is unclear. On the one hand, it may mean that long-term loss claims are less likely in the event that it can be shown that the employee will be able to secure other employment at a comparable level of pay. However, those who are not likely to be able to do so may recover longer term damages without the loss ceasing at the date when they would have left but for the dismissal.

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