Judgments - Johnson (A.P.) v. Unisys Limited

(back to preceding text)

    50. It follows, my Lords, that if there was no relevant legislation in this area, I would regard the question of whether judges should develop the law by implying a suitable term into the contract of employment as finely balanced. But now I must consider the statutory background against which your Lordships are invited to create such a cause of action.

    51. In 1968 the Royal Commission on Trade Unions and Employers' Associations under Lord Donovan recommended a statutory system of remedies for unfair dismissal. The recommendation was accepted by the government and given effect in the Industrial Relations Act 1971. Unfair dismissal was a wholly new statutory concept with new statutory remedies. Exclusive jurisdiction to hear complaints and give remedies was conferred upon the newly created National Industrial Relations Court. Although the 1971 Act was repealed by the Trade Union and Labour Relations Act 1974, the unfair dismissal provisions were re-enacted and, as subsequently amended, are consolidated in Part X of the Employment Rights Act 1996. The jurisdiction is now exercised by employment tribunals and forms part of the fabric of Enlish employment law.

    52. Section 94(1) of the 1996 Act provides that "an employee has the right not to be unfairly dismissed by his employer". The Act contains elaborate provisions dealing with what counts as dismissal and with the concept of unfairness, which may relate to the substantive reason for dismissal or (as in this case) the procedure adopted. Over the past 30 years, the appellate courts have developed a substantial body of case law on these matters. Certain classes of employees are altogether excluded from the protection of the Act. Section 108 excludes those who have not had one year's continuous service and section 109 excludes those over normal retiring age or 65. The tribunal may make an order for reinstatement, re-engagement or compensation. The latter consists of a basic award and a compensatory award. The basic award is related to the period of service but, by section 122(2), may be reduced by such amount as the tribunal considers just and equitable on account of the complainant's conduct before dismissal. A compensatory award under section 123(1) shall be, subject to qualifications:

    "such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."

    53. By subsection (6), the tribunal may reduce the compensatory award by such amount as it considers just and equitable to take into account a finding that the complainant himself caused or contributed to his dismissal. These were the provisions applied by the tribunal in the present case to reduce Mr Johnson's award by 25%. Finally, section 124(1) limits a compensatory award to £50,000. This figure was substituted by section 34(4) of the Employment Relations Act 1999 with effect from 25 October 1999. Previously the maximum had been £12,000 and the applicable figure at the time of the award to Mr Johnson was £11,000.

    54. My Lords, this statutory system for dealing with unfair dismissals was set up by Parliament to deal with the recognised deficiencies of the law as it stood at the time of Malloch v Aberdeen Corporation [1971] 1 WLR 1581. The remedy adopted by Parliament was not to build upon the common law by creating a statutory implied term that the power of dismissal should be exercised fairly or in good faith, leaving the courts to give a remedy on general principles of contractual damages. Instead, it set up an entirely new system outside the ordinary courts, with tribunals staffed by a majority of lay members, applying new statutory concepts and offering statutory remedies. Many of the new rules, such as the exclusion of certain classes of employees and the limit on the amount of the compensatory award, were not based upon any principle which it would have been open to the courts to apply. They were based upon policy and represented an attempt to balance fairness to employees against the general economic interests of the community. And I should imagine that Parliament also had in mind the practical difficulties I have mentioned about causation and proportionality which would arise if the remedy was unlimited. So Parliament adopted the practical solution of giving the tribunals a very broad jurisdiction to award what they considered just and equitable but subject to a limit on the amount.

    55. In my opinion, all the matters of which Mr Johnson complains in these proceedings were within the jurisdiction of the industrial tribunal. His most substantial complaint is of financial loss flowing from his psychiatric injury which he says was a consequence of the unfair manner of his dismissal. Such loss is a consequence of the dismissal which may form the subject-matter of a compensatory award. The only doubtful question is whether it would have been open to the tribunal to include a sum by way of compensation for his distress, damage to family life and similar matters. As the award, even reduced by 25%, exceeded the statutory maximum and had to be reduced to £11,000, the point would have been academic. But perhaps I may be allowed a comment all the same. I know that in the early days of the National Industrial Relations Court it was laid down that only financial loss could be compensated: see Norton Tool Co Ltd v Tewson [1973] ICR 45; Wellman Alloys Ltd v Russell [1973] ICR 616. It was said that the word "loss" can only mean financial loss. But I think that is too narrow a construction. The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.

    56. Part X of the Employment Rights Act 1996 therefore gives a remedy for exactly the conduct of which Mr Johnson complains. But Parliament had restricted that remedy to a maximum of £11,000, whereas Mr Johnson wants to claim a good deal more. The question is whether the courts should develop the common law to give a parallel remedy which is not subject to any such limit.

    57. My Lords, I do not think that it is a proper exercise of the judicial function of the House to take such a step. Judge Ansell, to whose unreserved judgment I would pay respectful tribute, went in my opinion to the heart of the matter when he said:

    "there is not one hint in the authorities that the...tens of thousands of people that appear before the tribunals can have, as it were, a possible second bite in common law and I ask myself, if this is the situation, why on earth do we have this special statutory framework? What is the point of it if it can be circumvented in this way? .... it would mean that effectively the statutory limit on compensation for unfair dismissal would disappear."

    58. I can see no answer to these questions. For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.

    59. The same reason is in my opinion fatal to the claim based upon a duty of care. It is of course true that a duty of care can exist independently of the contractual relationship. But the grounds upon which I think it would be wrong to impose an implied contractual duty would make it equally wrong to achieve the same result by the imposition of a duty of care.

    60. There is one further point. During the argument there was some discussion of whether the provisions for disciplinary hearings were express terms of Mr Johnson's contract and what the consequences would be if they were. No such express terms were pleaded and Mr Faulks QC, who appeared for Mr Johnson, was not enthusiastic about doing so. Nevertheless, it may be useful to examine the matter in a little more detail.

    61. Section 1(1) of the 1996 Act provides that upon commencing employment, an employee shall be provided with "a written statement of particulars of employment". This includes, but is not limited to, the "terms and conditions" of employment concerning various matters, including "the length of notice which the employee is obliged to give and entitled to receive to terminate his contract of employment" (section 1(4)(e)). Section 3(1) then provides that a statement under section 1 shall include a "note...specifying any disciplinary rules applicable to the employee or referring the employee to the provisions of a document specifying such rules which is reasonably accessible to the employee"

    62. Consistently with these provisions, Mr Johnson was written a letter of engagement which stated his salary and summarised the terms and conditions of his employment, including the notice period. Apart from the statement that in the event of gross misconduct, the company could terminate his employment without notice, it made no reference to disciplinary matters. It was however accompanied by the Employee Handbook, which the letter of engagement said "outlines all the terms and conditions of employment". This was divided into various sections, the first being headed "Employment terms and conditions". These made no reference to the disciplinary procedure, which appeared in a subsequent section under the heading "Other procedures". There one could find the various stages of the disciplinary procedure: formal verbal warning, written warning, final written warning, culminating in dismissal, as well as the separate procedure for summary dismissal in cases of serious misconduct.

    63. So did the disciplinary procedures constitute express terms of the contract of employment? Perhaps for some purposes they did. But the Employee Handbook has to be construed against the relevant background and the background which fairly looms over the disciplinary procedure is Part X of the 1996 Act. The whole disciplinary procedure is designed to ensure that an employee is not unfairly dismissed. So the question is whether the provisions about disciplinary procedure which (to use a neutral phrase) applied to Mr Johnson's employment were intended to operate within the scope of the law of unfair dismissal or whether they were intended also to be actionable at common law, giving rise to claims for damages in the ordinary courts.

    64. Section 199(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 gives ACAS power to issue "Codes of Practice containing such practical guidance as it thinks fit for the purpose of promoting the improvement of industrial relations". By section 207, a failure to comply with any provision of a Code is not in itself actionable but in any proceedings before an industrial tribunal "any provision of the Code which appears…relevant to any question arising in the proceedings shall be taken into account in determining that question." In 1977 ACAS issued a Code of Practice entitled "Disciplinary Practice and Procedures in Employment". It explained why it was important to have disciplinary rules and procedures which were in writing and readily available to management and employees. It said in paragraph 4:

    "The importance of disciplinary rules and procedures has also been recognised by the law relating to dismissals, since the grounds for dismissal and the way in which the dismissal has been handled can be challenged before an industrial tribunal."

    65. In paragraph 10 it listed what disciplinary procedures should include. The Unisys procedures have clearly been framed with regard to the Code of Practice.

    66. My Lords, given this background to the disciplinary procedures, I find it impossible to believe that Parliament, when it provided in section 3(1) of the 1996 Act that the statement of particulars of employment was to contain a note of any applicable disciplinary rules, or the parties themselves, intended that the inclusion of those rules should give rise to a common law action in damages which would create the means of circumventing the restrictions and limits which Parliament had imposed on compensation for unfair dismissal. The whole of the reasoning which led me to the conclusion that the courts should not imply a term which has this result also in my opinion supports the view that the disciplinary procedures do not do so either. It is I suppose possible that they may have contractual effect in determining whether the employer can dismiss summarily in the sense of not having to give four weeks' notice or payment in lieu. But I do not think that they can have been intended to qualify the employer's common law power to dismiss without cause on giving such notice, or to create contractual duties which are independently actionable.

    67. I would dismiss the appeal.


My Lords,

    68. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann, with which I am in full agreement. I add some words of my own in order to explain why I consider that the present is not an appropriate occasion in which to revisit the decision of your Lordships' House in Addis v Gramophone Co Ltd [1909] AC 488.

    69. That case established the principle that damages are awarded for breach of contract and not for the manner of the breach; accordingly nothing can be recovered for mental distress, anxiety, injury to feelings or (so it is said) damage to reputation. The case was concerned with a contract of employment and the actual decision was that damages for wrongful dismissal are limited to compensation for the financial loss arising from the premature determination of the contract where proper notice of dismissal has not been given: they cannot include compensation for the employee's injured feelings because he has been dismissed in an offensive and humiliating manner. The principle, however, is not limited to contracts of employment but is of general application in the law of contract.

    70. The supposed rule that damages are not recoverable for financial loss arising from injury to reputation (or in a case of wrongful dismissal for making it more difficult for the plaintiff to find employment) is not easy to defend and may no longer be the law after Mahmud v Bank of Credit and Commerce International SA [1998] AC 20. My noble and learned friend Lord Steyn has argued powerfully that it never was the law, being derived from a faulty headnote which misrepresented the true ratio decidendi of the case. Subject to this caveat, however, the general rule would seem to be a sound one, at least in relation to ordinary commercial contracts entered into by both parties with a view of profit. In such cases non-pecuniary loss such as mental suffering consequent on breach is not within the contemplation of the parties and is accordingly too remote. (The ordinary feelings of anxiety, frustration and disappointment caused by any breach of contract are also excluded, but seemingly for the opposite reason: they are so commonly a consequence of a breach of contract that the parties must be regarded not only as having foreseen it but as having agreed to take the risk of its occurrence: see Treitel, The Law of Contract 10th ed, p 923. Contracts which are not purely commercial but which have as their object the provision of enjoyment, comfort, peace of mind or other non-pecuniary personal or family benefits (as in Jarvis v Swans Tours Ltd [1973] QB 233 and similar cases) are usually treated as exceptions to the general rule, though in truth they would seem to fall outside its rationale. Such injury is not only within the contemplation of the parties but is the direct result of the breach itself and not the manner of the breach. Indeed the avoidance of just such non-pecuniary injury can be said to be a principal object of the contract.

    71. In Addis's case the House of Lords treated a contract of employment as an ordinary commercial contract terminable at will by either party provided only that sufficient notice was given in accordance with the terms of the contract. This was the classical approach to such contracts which the House of Lords was content to confirm more than half a century later. In Ridge v Baldwin [1964] AC 40, 65 Lord Reid observed that an employer can terminate the contract of employment at any time and for any reason or for none. It follows that the question whether damages are recoverable does not depend on whether the employer had a good reason for dismissing the employee, or had heard him in his own defence, or had acted fairly towards him: it depends on whether the dismissal was in breach of contract. In Malloch v Aberdeen Corporation [1971] 1 WLR 1578, 1581 Lord Reid restated the position:

    "At common law a master is not bound to hear his servant before he dismisses him. He can act unreasonably or capriciously if he so chooses but the dismissal is valid. The servant has no remedy unless the dismissal is in breach of contract and then the servant's only remedy is damages for breach of contract."

    72. The common law, which is premised on party autonomy, treated the employer and the employee as free and equal parties to the contract of employment. Each had the right, granted by the contract itself, to bring the contract to an end in accordance with its terms. But by 1971 there was a widespread feeling, shared by both sides of industry, that the legal position was unsatisfactory. In reality there was no comparison between the consequences for an employer if the employee terminated his employment and the consequences for an employee if he was dismissed. Many people build their lives round their jobs and plan their future in the expectation that they will continue. For many workers dismissal is a disaster. In 1964 the Government announced that it would discuss with representatives of employers and trade unions the provision of procedures to give employees effective safeguards against arbitrary dismissal. In 1968 the Royal Commission on Trade Unions and Employers' Associations under the Chairmanship of Lord Donovan reported that it was urgently necessary for employees to be given better protection against unfair dismissal and recommended the establishment of statutory machinery to achieve this.

    73. The recommendations of the Royal Commission were given effect by the Industrial Relations Act 1971. This left the common law and the contract of employment itself unaffected. It did not import implied terms into the contract. Instead it created a new statutory right not to be unfairly dismissed, enforceable in the newly established National Industrial Relations Court. The 1971 Act was replaced by the Employment Protection Act 1975 and its provisions as amended are now contained in the Employment Rights Act 1996. The National Industrial Relations Court was short lived and the jurisdiction in respect of unfair dismissal has for many years been exercised by industrial tribunals (now known as employment tribunals). These consist of a legally qualified chairman sitting with two lay members, one being a representative of the trade unions and the other of employers.

    74. For the first time the 1971 Act enabled an employee to challenge his employer's conduct in exercising his legal rights on the ground that it was unreasonable. The Act contained elaborate provisions which defined the concept and scope of unfair dismissal and provided for compensation to be awarded or reinstatement or re-engagement to be ordered. It set an upper limit to the amount of compensation which could be awarded, which has since been increased from time to time, and allowed the tribunal to reduce the amount of an award if it considered that the employee had caused or contributed to his own dismissal. It provided for an upper age limit and a qualifying period of employment (which has since been reduced but not abrogated) thereby excluding certain categories of employees from its scope altogether.

    75. During the past 30 years an extensive jurisprudence has been developed in relation to unfair dismissal. Employers have responded to the existence of the statutory right, as the Royal Commission intended that they should, by introducing elaborate procedures of complaint and warning before eventual dismissal which, whether or not contractually binding, are designed to ensure that employees are not unfairly dismissed. Since the right not to be unfairly dismissed is a statutory right which is not derived from contract, however, it is still open to an employee to claim that he has been unfairly dismissed even if his employer has faithfully complied with the contractual procedures.

    76. Section 205 of the 1996 Act provides that some claims under the Act (including a claim in respect of unfair dismissal) must be brought by way of complaint to an industrial tribunal and not otherwise. This is a new provision made necessary because the 1996 Act (unlike its predecessor) gives industrial tribunals a limited jurisdiction in respect of some common law claims. The 1971 Act did not expressly provide that the jurisdiction of the industrial tribunals was exclusive, but it did not need to. It was clearly predicated on the existing state of the law as established in Addis's case and confirmed in Malloch's case. There would have been no point (for example) in excluding certain categories of employee from obtaining compensation for unfair dismissal if they could obtain a remedy by way of damages at common law; or for enabling the industrial tribunal to reduce the amount of compensation by reference to the employee's own conduct if the employee could obtain damages at common law without any such reduction. Prior to 1996, therefore, the jurisdiction of the industrial tribunals to award compensation for unfair dismissal was exclusive in practice, not because it was made so by statute, but because it was premised on the absence of a corresponding remedy at common law.

    77. But the common law does not stand still. It is in a state of continuous judicial development in order to reflect the changing perceptions of the community. Contracts of employment are no longer regarded as purely commercial contracts entered into between free and equal agents. It is generally recognised today that "work is one of the defining features of people's lives"; that "loss of one's job is always a traumatic event"; and that it can be "especially devastating" when dismissal is accompanied by bad faith: see Wallace v United Grain Growers Ltd (1997) 152 DLR (4th) 1, 33 per Iacobucci J. This change of perception is, of course, partly due to the creation by Parliament of the statutory right not to be unfairly dismissed. If this right had not existed, however, it is possible that the courts would have fashioned a similar remedy at common law, though they would have proceeded by implying appropriate terms into the contract of employment. It would have been a major step to subject the employer's right to terminate the relationship on proper notice to an obligation not to exercise the right in bad faith, and a still greater step to subject it to an obligation not to exercise it without reasonable cause: (a difficult distinction, but one drawn by McLachlin J in Wallace's case, at p 44). Even so, these are steps which, in the absence of the statutory right, the courts might have been prepared to take, though there would have been a powerful argument for leaving the reform to Parliament. If the courts had taken the step themselves, they could have awarded common law damages for unfair dismissal consistently with Addis's case [1909] AC 488, because such damages would be awarded for the breach of an implied but independently actionable term (as in Mahmud's case [1998] AC 20) and not for wrongful dismissal. But the courts would have been faced with the difficult task of distinguishing between the mental distress and other non-pecuniary injury consequent upon the unfairness of the dismissal (for which the employer would be liable) and the similar injury consequent upon the dismissal itself (for which he would not). In practice, they would probably have been reduced to awarding conventional sums by way of general damages much as the industrial tribunals do.

    78. I agree with Lord Hoffmann that it would not have been appropriate to found the right on the implied term of trust and confidence which is now generally imported into the contract of employment. This is usually expressed as an obligation binding on both parties not to do anything which would damage or destroy the relationship of trust and confidence which should exist between them. But this is an inherent feature of the relationship of employer and employee which does not survive the ending of the relationship. The implied obligation cannot sensibly be used to extend the relationship beyond its agreed duration. Moreover, manipulating it for such a purpose would be unrealistic. An employer who summarily dismisses an employee usually does so because, rightly or wrongly, he no longer has any trust or confidence in him, and the real issue is: whose fault is that? That is why reinstatement or re-engagement is effected in only a tiny proportion of the cases that come before the industrial tribunals.

    79. But the courts might well have developed the law in a different way by imposing a more general obligation upon an employer to treat his employee fairly even in the manner of his dismissal. They could not, of course, have overridden any express terms of the contract or have held the dismissal itself to be invalid. As in the case of the statutory right, employers would probably have responded by introducing their own procedures of complaint and warning before eventual dismissal. But there would have been this difference; they would surely have taken care to incorporate such procedures into the contract of employment so that an employee who was dismissed in accordance with the procedure laid down in his contract could not claim damages for breach of an implied term.

    80. But the creation of the statutory right has made any such development of the common law both unnecessary and undesirable. In the great majority of cases the new common law right would merely replicate the statutory right; and it is obviously unnecessary to imply a term into a contract to give one of the contracting parties a remedy which he already has without it. In other cases, where the common law would be giving a remedy in excess of the statutory limits or to excluded categories of employees, it would be inconsistent with the declared policy of Parliament. In all cases it would allow claims to be entertained by the ordinary courts when it was the policy of Parliament that they should be heard by specialist tribunals with members drawn from both sides of industry. And, even more importantly, the co-existence of two systems, overlapping but varying in matters of detail and heard by different tribunals, would be a recipe for chaos. All coherence in our employment laws would be lost.

    81. For these reasons it is a step which, for one, I am not prepared to take. For the same reasons I am satisfied that it would not be appropriate to attempt to achieve the same result by taking the novel course of subjecting the employer's contractual rights to a tortious duty of care.

    82. I would dismiss the appeal.


Lords Parliament Commons Search Contact Us Index

© Parliamentary copyright 2001
Prepared 21 March 2001