Employment Law Update April 2004
Employment law is a fast changing area due to the large number of cases that go to Employment Tribunal and further on appeal and because of the continuing legislation passed by Parliament. This article reviews two recent cases concerning Unfair Dismissal claims and it also highlights new grievance and disciplinary procedures which will have to be followed by both employers and employees from October 2004.
UNFAIR DISMISSAL
Under section 94 of the Employment Rights Act 1996, every eligible employee has the right not to be unfairly dismissed by their employer. To be eligible to bring a claim, the employee must have 1 year's continuous service (there are some exceptions to this requirement - such as if the dismissal is for reasons relating to pregnancy). To defeat an Unfair Dismissal claim the employer must show that there was a good reason to dismiss and that they have acted fairly in the way that they handled the dismissal.
Injury to Feelings
In cases where it is found that a dismissal was unfair, the employee's entitlement to compensation is limited to a basic award which is calculated using a formula, based on the number of years service (the maximum basic award currently being £8100), and a compensatory award designed to compensate the employee for the loss that has been suffered. It had been thought that such compensation was limited to financial loss such as loss of immediate and future earnings and the costs of looking for work, and that in contrast to discrimination cases there was no compensation available for injury to feelings.
The Court of Appeal in the recent decision of Dunnachie v Kingston upon Hull [2004] EWCA (iv) 84 has, however, affirmed the comments of Lord Hoffman in Johnson v Unisys [2001] 1 RLR 279, and held that in appropriate Unfair Dismissal cases compensation can be awarded for distress, humiliation and damage to the reputation of the employee.
In the Dunnachie case it was proven that Mr Dunnachie had been subject to a prolonged campaign of harassment by his line manager and that the senior management had failed to tackle the problem. It was found that the actions of the employer had resulted in Mr Dunnachie's health suffering which had caused him to go off work for 3 weeks, he now had to travel 64 miles to his new place of work and his self confidence and self esteem had been undermined. Mr Dunnachie was awarded £10,000 compensation for damage to health and self-esteem.
If this decision is not overruled by the House of Lords it will mean that prolonged and distressing dismissals which are subsequently found to be unfair are likely to attract a claim for non economic loss e.g. where an employee is subject to a campaign of bullying; where an employee's legitimate grievance has not been promptly actioned; or where the employee has been driven from their job.
For employers, all may not be as bad as it first appears. Most unfair dismissal cases will still not give rise to an award from non-economic loss. Lord Justice Sedley, in the Dunnachie case has set a relatively high hurdle in stating that such awards should only be given where there has been 'real injury to self respect'.
In addition awards for injury to feelings only relate to the manner in which the employee has been dismissed, not the fact that he has been dismissed, however distressing that might be. For the ordinary case of Unfair Dismissal, the employee will be limited to the basic and the compensatory award. Both of these are subject to a maximum payout currently capped at £8,100 and £55,000 respectively and any injury to feelings caused by the dismissal will be included in these figures.
Employers should recognise, however, that whilst the floodgates may not have been opened to huge awards many employees will now add it as a matter of course to their unfair dismissal claims.
Loss of Chance
The Court of Appeal in Virgin Net Ltd v Harper [2004] EWCA Civ 271 has affirmed the position that an employee is not able to recover damages for losing the chance to claim compensation for Unfair Dismissal in a situation where had the employer given the notice required under the employment contract the employee would have been qualified to claim for Unfair Dismissal.
Mrs Harper was employed by Virgin Net Limited on 4 April 2000 and was entitled to 3 month's notice of termination. In March 2001 her employment was terminated 33 days short of the date when she would have completed the 1 year qualifying period for an Unfair Dismissal claim.
It was held that she had been wrongfully dismissed in that she had not been given the notice to which she was entitled under her contract and she was awarded 3 month's net pay as damages. Mrs Harper had also claimed an award for a loss of chance, on the basis that she had been denied the right to receive compensation for Unfair Dismissal as a result of her employer not giving her the notice to which she was entitled.
The Court of Appeal held that Mrs Harper had not lost the right to claim Unfair Dismissal because she had never acquired the right to claim it, as she was unable to satisfy the 1 year's continuous service requirement. They stated that if they allowed Mrs Harper's loss of chance claim to succeed without her satisfying the 1 year threshold this would circumvent the restrictions Parliament had imposed on compensation for Unfair Dismissal and that this would be a "recipe for chaos".
This decision is good news for employers in that their exposure to claims for unfair dismissal compensation from employees with under 1 year's service is reduced (although they may still be liable for other claims such as sex or race discrimination). Employees cannot add on their contractual notice to get over the 1 year hurdle. Employers should, however, be aware that under the Employment Rights Act 1996, where an employee is dismissed without receiving their statutory notice entitlement of 1 week, the date of dismissal will be artificially extended to the date when the notice would have expired had it been given. Employers should take this into account when deciding whether or not to dismiss an employee who is approaching 1 year's service.
FORTHCOMING DEVELOPMENTS - STATUTORY DISCIPLINARY PROCEDURES
In an attempt to reduce the number of disputes going to Tribunal and the associated costs of these, the government is introducing new measures for the internal resolution of workplace disputes.
The Employment Act 2002 (EA 2002), includes a statutory disciplinary and dismissal procedure and a statutory grievance procedure which will apply to both employers and employees from October 2004.
If the employer fails to follow the statutory disciplinary and dismissal procedure (this is a 3 step procedure which involves informing the employee in writing, holding a meeting with the employee and allowing an appeal), they will be exposed to an automatically unfair dismissal claim. On the other hand it should be noted that adoption of the statutory procedure will not be sufficient to ensure that the dismissal is fair - employers should continue to follow the ACAS Code of Practice on Disciplinary and Grievance procedures.
It was initially thought that these statutory procedures would be automatically implied into the employment contract, but draft regulations issued by the Government state that, for the time being at least, they will not be contract terms. This is good news for employers who wish their employees to be bound by post termination restrictive covenants as any breach of procedures, whilst opening them up to an Unfair Dismissal Claim, will not render post termination restrictions in favour of the employer unenforceable by virtue of any such breach alone.
The new regulations will also impose a burden on the employee. Where the employee fails to follow the mandatory grievance procedure and does not initiate a written grievance they may be prevented from bringing a claim arising from the subject matter of the grievance. It appears that even once they have put it into writing they will have to wait 28 days before they can initiate an Employment Tribunal claim.
To conclude, both the cases and the new procedures highlight the importance of employers taking a proactive approach to tackling problems within the workplace and in ensuring that appropriate procedures are put into place to comply with the new legislation and to prevent costly claims against them.
For more information or advice on Employment Law matters please contact Karen Wallace.
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