Employees bring claim for damages at common law
Simon O’Dwyer discusses the recent employment law cases of Edwards v Chesterfield Royal Hospital NHS Foundation Trust and Botham v Ministry of Defence  UKSC 58.
On 14th December 2011 the Supreme Court consisting of Lord Walker, Lord Phillips, Lord Dyson, Lord Mance, Lord Kerr and Lady Hale handed down judgment in the conjoined appeals of Edwards v Chesterfield Royal Hospital NHS Foundation and Botham v Ministry of Defence.
Both appellants sought to challenge the finding that that the respondent employees could, in principle, bring a claim for damages at common law for unfair dismissal founded upon a breach of an express term of their contract of employment.
Both respondents had a provision in their contracts of employment which incorporated the applicable disciplinary procedures each employer should follow. They both claimed that their dismissals had resulted from a failure to follow the correct disciplinary procedures which was a clear breach of the express term. They claimed that as a result of the failure to follow the set procedures, damaging findings of fact were made against them which consequently prevented them from gaining future employment. Rather than bringing employment tribunal proceedings, which were subject to the statutory cap, the respondents sought to bring an action for breach of contract based on loss of reputation and future earnings.
Each case concerned allegations of inappropriate sexual conduct. Mr Edwards, a surgeon, with a female patient and Mr Botham, a youth worker, with teenage girls. By their very nature the allegations were highly damaging to the prospects of any future employment in either of the fields that the respondents worked in.
Initially both Mr Edwards and Mr Botham brought employment proceedings in line with the statutory framework for unfair dismissal at the Employment Tribunal. Mr Botham was successful but his award of £65,000 for future loss was subject to the statutory cap and significantly less than he claimed. There was also no provision for the payment of his legal costs. Mr Botham therefore brought a claim to the High Court for breach of contract. Mr Edwards’ claim was for approximately £4.2 million and he decided to withdraw his Employment Tribunal claim in order to bring a claim to the High Court which would not be subject to the statutory cap.
Following the decisions of the House of Lords in Johnson v Unisys Ltd  UKHL 13;  1 A.C. 518 and Eastwood v Magnox Electric Plc  UKHL 35;  1 A.C. 503 both claims faced significant difficulty. These cases had held that, on grounds of public policy, such claims were only to be brought in the Employment Tribunal within the framework specifically set down by Parliament via the Employment Rights Act 1996. The remedy for such claimants was for unfair dismissal not breach of contract and accordingly such claims were barred. This became widely known as the “Johnson” exclusion. Mr Edwards and Mr Botham attempted to argue that this principle applied only to implied terms but the breach in their respective cases related to an express term and therefore fell outside the “Johnson” exclusion.
The result was a close majority decision of the Supreme Court 4:3 in favour of the appellant employers. The Judges were also split in their reasoning for the decision.
Lord Dyson with whom Lord Mance and Lord Walker agreed held that the claims fell squarely within the “Johnson” exclusion because the failure to follow the stated procedures related only to the manner of the dismissal and as such the breach was not distinct or separate from it. The result may be different if the breach was wholly independent of the dismissal. Therefore the only claim was to the Employment Tribunal for unfair dismissal. Lord Dyson reaffirmed the dicta of Lord Nicholls in Eastwood and held that Parliament had “addressed the highly sensitive and controversial issue of what compensation should be paid to employees who are dismissed unfairly” and decided to give a “remedy that was strikingly less generous than that which the common law would give for a breach of contract in the ordinary way.” To allow such claims would “defeat the intention of Parliament that claims of this nature should be decided by specialist tribunals, not the ordinary courts of law”.
Lord Phillips agreed with the majority but described the claims as “stigma claims”. His view was that the decision of the House of Lords in Addis v Gramophone Company Ltd  A.C. 488 remained good law. In that case it was held that stigma damages could not be recovered in cases of wrongful dismissal so it would make no sense to allow such claims based on a failure to comply with a disciplinary procedure. It would also undermine the decisions of Johnson and Eastwood.
Lady Hale, Lord Kerr and Lord Wilson provided the dissenting Judgments.
Lady Hale perhaps brought a different perspective to the issues having been the only member of the court to have spent a substantial proportion of her working life as an employee. She expressed the view that the purpose of legislation such as the Employment Rights Act 1996 was to supplement an employee’s general rights at common law and should not be used as a basis of limiting them. Her opinion was this area is in need of principled and comprehensive law reform.
Lord Kerr and Lord Wilson drew a distinction between damages flowing from the dismissal itself and damages flowing from findings in the disciplinary proceedings. The latter, in their view, would be recoverable on application of traditional principles of contract law. In contrast to the view of the majority they held that the cause of action would be prior to and independent of the dismissal itself. Lord Kerr drew a further distinction holding that Mr Botham’s claim should fail as his loss of reputation flowed from the consequences of the actual dismissal rather than findings made prior to the dismissal.
This decision makes it clear that breach of any term, be it express or implied, of an employment contract will not give rise to a cause of action at common law unless it is independent to and separate from a dismissal. It is difficult to envisage the circumstances where this would arise. The correct forum for a claim relating to a dismissal is the Employment Tribunal and is accordingly subject to the statutory framework for such claims. The Supreme Court has essentially passed the issue to Parliament to consider reform. Given the nature of the current proposals the Coalition intends to implement, that will place further restrictions upon claims for unfair dismissal, it is unlikely that such reforms to increase the rights of employee’s will be forthcoming any time soon.