Eastwood and another (Appellants) v. Magnox Electric plc (Respondents). McCabe (Respondent) v. Cornwall County Council and others (Appellants)
32. The existence of this boundary line produces other strange results. An employer may be better off dismissing an employee than suspending him. A statutory claim for unfair dismissal would be subject to the statutory cap, a common law claim for unfair suspension would not. The decision of the Court of Appeal in Gogay v Hertfordshire County Council  IRLR 703 is an example of the latter. Likewise, the decision in Johnson's case means that an employee who is psychologically vulnerable is owed no duty of care in respect of his dismissal although, depending on the circumstances, he may be owed a duty of care in respect of his suspension.
33. It goes without saying that an inter-relation between the common law and statute having these awkward and unfortunate consequences is not satisfactory. The difficulties arise principally because of the cap on the amount of compensatory awards for unfair dismissal. Although the cap was raised substantially in 1998, at times tribunals are still precluded from awarding full compensation for a dismissed employee's financial loss. So, understandably, employees and their legal advisers are seeking to side-step the statutory limit by identifying elements in the events preceding dismissal, but leading up to dismissal, which can be used as pegs on which to hang a common law claim for breach of an employer's implied contractual obligation to act fairly. This situation merits urgent attention by the government and the legislature.
The present cases
34. It follows from what is set out above that I would dismiss the appeal in Mr McCabe's case and allow the appeals of Mr Eastwood and Mr Williams. In the case of all three men the assumed facts constitute causes of action which accrued before the dismissals. They disclose reasonable causes of action which should proceed to trial.
35. On the assumed facts Mr Eastwood, Mr Williams and Mr McCabe arguably have causes of action which accrued before and independently of their dismissals. In all three cases there are reasonable causes of action which should be allowed to proceed to trial. They are unaffected by the restrictive effect of the decision of the House of Lords in Johnson v Unisys Limited  1 AC 518. In my view the Court of Appeal in Eastwood v Magnox Electric plc  IRLR 447 erred in extending the principle in Johnson to wiping out accrued rights. The decision of the Court of Appeal in McCabe v Cornwall County Council  IRLR 87 avoided this pitfall. I therefore agree that the appeal in Mr McCabe's case should be dismissed and that the appeals of Mr Eastwood and Mr Williams should be allowed.
36. There is however a wider perspective to be mentioned. It may be necessary to reconsider the decision in Johnson in a future case. Having disagreed with the main thrust of the majority decision in Johnson, I make this suggestion with considerable diffidence. Moreover, although the printed cases lodged on behalf of the employees invited the House to depart from Johnson if necessary, the House did not in the event hear oral argument from counsel for the employees calling in question the correctness of Johnson. My observations must, therefore, be read subject to this caveat. On the other hand, the subject is of enormous importance: the personal contract of employment affects almost all individuals and families at some time. And, as I shall attempt to show, there are grounds for thinking that Johnson has left employment law in an unsatisfactory state. I will only be able to touch on a few aspects. But my remarks may provide some focus for a future re-examination of the position.
37. The ground upon which Johnson was decided is summarised in the headnote of the Appeal Cases report. It reads as follows (para 518H-519A):
In other words, the majority held that the statutory regime of unfair dismissal precludes a common law development in respect of wrongful dismissal despite the different meanings of those concepts.
38. This is the context in which Lord Hoffmann, who gave the leading opinion in Johnson, observed (para 55 (at p 544)) about section 116(1) of the Industrial Relations Act 1971 (the ultimate precursor of the current section 123(1) of the Employment Rights Act 1996):
This observation was relevant to Lord Hoffmann's reasoning that the development of a general common law remedy as contended for by the employee would have involved a complete or virtually complete overlap with the statutory remedy. Lord Hoffmann's assumption was shared by the other Law Lords hearing the case. In Dunnachie v Kingston upon Hull City Council  UKHL 36 the House has now unanimously held that section 123(1) of the 1996 Act does not permit the recovery of non-pecuniary loss. While Lord Hoffmann's observation was in terms of precedent only an obiter dictum it did lend support to his reasoning. That support of the reasoning in Johnson has now disappeared. It does not necessarily follow that, if the true position had been appreciated, Johnson would have been decided differently. But it raises some doubt about the reasoning in Johnson.
39. A second matter not considered in Johnson was the type of demarcation disputes which would be generated. Johnson laid down the proposition that cases of dismissal may only be brought in the employment tribunal. On the other hand if before dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action survives his subsequent unfair dismissal: see the lucid analysis of Lady Smith in King v University Court of the University of St Andrews  IRLR 252 (Ct Sess). This dichotomy will often give rise to questions whether earlier events do or do not form part of the dismissal process. After all, such problems in relationships between an employer and an employee will often arise because of a continuing course of conduct. In practice this will inevitably lead to curious distinctions and artificial results. It will involve case by case decision making rather than principled adjudication. The outcome of litigation will be very unpredictable. This policy aspect of the consequences of the reasoning of the majority in Johnson was not considered by the House in that case. But the present appeals illustrated the type of difficulties and uncertainties inherent in the legalism which prevailed in Johnson. This is relevant because the way in which a rule or principle operates in the real world is one of the surest tests of its soundness.
40. A third perspective is raised by the decision of the Court of Appeal in Gogay v Hertfordshire County Council  IRLR 703. This case was decided after the Court of Appeal decision in Johnson ( ICR 809) and before the House of Lords' decision in Johnson. Gogay was referred to in the argument of counsel in the House but not mentioned in any of the opinions of the majority. It concerned a claim brought in respect of psychiatric injury caused by the manner in which an employer operated a disciplinary procedure. Giving the leading judgment Hale LJ observed (para 68-69)
Unfortunately, as Hale LJ implicitly pointed out, Johnson will tend to encourage precipitate and unfair decisions by employers to dismiss employees. The decision of the Court of Appeal in Gogay sits uneasily with Johnson. How in policy terms the disharmony should be reconciled is not clear. The majority's reasoning in Johnson also means that, although the exercise of the power to suspend must be exercised with due regard to trust and confidence (or fairness), the more drastic power of dismissal may be exercised free of any equivalent constraint. An employee confronted with a repudiatory breach of contract by an employer who elects to treat the contract as continuing may still have a claim for breach of contract. But in practice an employee may often not have much choice but to accept the repudiation. If the employee accepts the repudiation, the claim becomes one of unfair dismissal and the Johnson exclusion zone comes into play. In constructive dismissal cases the employee's response to the employer's breach will dictate whether there can be common law liability. The more outrageous the breach the less likely it is that the employee can affirm the contract: Lizzie Barmes, The Continuing Conceptual Crisis in the Common Law of the Contract of Employment, (2004) 67 (3) MLR 435, at 451. Contractual analysis arguably suggests a more even-handed solution as between employer and employee. These negative policy factors were not explicitly considered in Johnson.
41. A fourth troublesome feature of the reasoning of the majority in Johnson is that it was assumed that an employer's conduct causing psychiatric illness to an employee resulting in financial loss may be compensated under section 123(1). But for this assumption Lord Nicholls of Birkenhead could not have described the common law remedy in question as "covering the same ground as the statutory right". Lord Hoffmann observed (para 55):
These observations were critical to the decision in Johnson.
42. Was the assumption that in an unfair dismissal case an employment tribunal may award compensation for financial loss flowing from psychiatric injury correct? The jurisdiction of an employment tribunal does not extend to the awarding of compensation "in respect of personal injuries": see The Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994, SI No. 1623, 12 July 1994, para 3, as amended by the Employment Rights (Dispute Resolution) Act 1998, section 1(2)(a); and section 3(3) of the Employment Tribunals Act 1996. A claim in contract or tort for damages for psychiatric injury is a claim in respect of personal injuries: Page v Smith  1 AC 155, at 188E-F, 190C-E, per Lord Lloyd of Berwick; compare Limitation Act 1980, section 38(1), s.v. "personal injuries". There is no reason to give to the words "in respect of personal injuries" in the statutory regime governing employment tribunals any different meaning. On the plain meaning of those words claims for financial loss caused by psychiatric injury are excluded from the jurisdiction of employment tribunals. Subject to a novel judicial interpretation to bring such claims under the statutory regime, there are cogent grounds for thinking that in Johnson the majority proceeded on a fundamentally wrong assumption. The unfair dismissal scheme is less comprehensive than it was thought to be. The symmetry between the statutory regime and the proposed common law development visualised by the majority probably did not exist. If this is the case, the core reasoning of the majority in Johnson is flawed.
43. A fifth matter is the reception of Johnson. Since Johnson was decided more than two years ago, there has been a great deal of comment on this decision by academic and practising labour lawyers: see Professors Deakin and Morris, Labour Law, 3rd ed, 2001, 410-411, 418-419; Professor Freedland, The Personal Employment Contract, 2003, 162-167, 303-305, 342-345, 362-364; Professor Freedland, 2001, 30 ILJ 309; Professor Collins, Claim for Unfair Dismissal, 2001, 30 ILJ 305; Professor Bob Hepple QC and Gillian Morris, The Employment Act 2002 and the Crisis of Individual Employment Rights, 2002, 31 ILJ 245, 253; Douglas Brodie, Legal Coherence and the Employment Revolution, 2001, 117 LQR 604, 624-625; Lizzie Barmes, The Continuing Conceptual Crisis in the Common Law of the Contract of Employment, (2004) 67(3) MLR 435. Making due allowance for differences in emphasis between the writers on the subject, there is apparently no support for the analysis adopted in Johnson.
44. The thrust of much of the comment on the central question is summarised by Deakin and Morris (Labour Law, para 5.3, at p 419):
A footnote to the first quoted sentence observes:
Hepple QC and Morris (31 ILJ 245, at 253) put the point as follows:
Freedland (The Personal Employment Contract, at 304 and 342) described the principal reasoning in Johnson, founded as it was on an account of the intention of Parliament, as "more than slightly artificial" and "rather contrived". He stated (at 342-343):
These are quotations from the writings of distinguished and experienced specialists in the field.
45. The decision of the majority in Johnson could be justified if, and only if, it could be shown that the co-existence of the statutory scheme and the development of a common law remedy would be unworkable. The majority in Johnson did not put their decision on the basis that this test is satisfied. Nothing in the opinions in the present case, arrived at admittedly without the benefit of oral argument, persuades me that this test has indeed been satisfied. What is plain is that if the common law is allowed to develop as argued for by the employee in Johnson no claimant would be allowed to make a double recovery. In practice this will pose no more serious problems than in other areas where possible double recovery problems occur and are dealt with by judges on the facts of each case.
46. In McCabe in the Court of Appeal, decided after Johnson in the House of Lords, Auld LJ described the law on this matter as "clearly still in a state of development"; para 22, at p 512. Brooke LJ stated (para 33 at 515):
The concerns expressed in McCabe are understandable.
47. If the central ground on which Johnson was decided proves, upon re-examination, vulnerable, one may pose the question whether the result of Johnson could be justified on different grounds.
48. It would be wrong now to assume that Addis v Gramophone Company Limited  AC 488 reflected settled law which made impossible the development contended for in Johnson. In Mahmud v Bank of Credit and Commerce International SA  AC 20 Lord Nicholls of Birkenhead observed about Addis (at pp 38H-39D):
My analysis was to the same effect: 50A-51E. The other Law Lords in the case agreed with this analysis. On a careful analysis of Addis it will be seen that there was no majority for ruling out the recovery of financial loss flowing from the manner of a wrongful dismissal. The headnote of Mahmud rightly states "Addis v Gramophone Company Limited  AC 488 not followed". In Johnson the view prevailed that because of the statutory regime the common law development contended for could not be permitted. But in terms of stare decisis the status of Addis remained exactly the same as it was when Mahmud was decided. The reasoning of the majority in Johnson did not re-invigorate the corpse of Addis. In any event, in the present case the House heard no oral argument on the status of Addis.
49. In Johnson Lord Hoffmann was prepared to accept the existence within the contract of "a separate term that the power of dismissal will be exercised fairly and in good faith": para 46. Lord Nicholls did not deal with the point. Lord Millett was prepared to countenance a common law term imposing upon the employer "a more general obligation to treat his employee fairly even in the matter of dismissal": para 79. This explains the ratio decidendi of Johnson as I have set it out in para 37 above. In my dissenting judgment in Johnson I further pointed out that the implied obligation of mutual trust and confidence was developed in the context of a series of constructive dismissal cases. I cited Hepple and O'Higgins, Employment Law, 4th ed (1981) pp 134-135, paras 291-292. I added that it cannot, therefore, be confined to breaches during the subsistence of the contract: para 21. After a detailed discussion I concluded (para 24):
This was, of course, said in the context of a claim for financial loss.
50. At the hearing of the present appeals the House did not have the benefit of oral argument on potential scope of the implied obligation of mutual trust and confidence, or what Sir Nicolas Browne-Wilkinson V-C in Imperial Group Pension Trust Limited v Imperial Tobacco Limited  1 WLR 589, at 597, more simply called "the implied obligation of good faith". Perhaps it would be conducive to clarity if the latter description is generally used.
51. As a result of Johnson the law in the vitally important area of personal contracts of employment is in an unsatisfactory state. The cap (now standing at £55,000) under the statutory scheme on compensatory awards for true financial loss is one aspect of the problem. No doubt it is intended to protect the competitiveness of business but if it is allowed to constrain the development of the common law it may come at too high a price in the failure of corrective justice. The inhibitory effect of Johnson on the development of the common law poses a great structural problem. It prevents, and will continue to prevent, the natural and sensible evolution of our employment law in a critical area. I do not believe that Parliament ever intended such a result. A re-examination by Parliament is needed.LORD HOFFMANN My Lords,
52. I have had the privilege of reading the speech of my noble and learned friend, Lord Nicholls of Birkenhead, in draft. I agree with it and, for the reasons he gives, I too would make the orders which he proposes in each of the appeals.
LORD RODGER OF EARLSFERRY
53. I have had the privilege of considering the speech of my noble and learned friend, Lord Nicholls of Birkenhead, in draft. I agree with it and, for the reasons he gives, I too would make the orders which he proposes in each of the appeals.
LORD BROWN OF EATON-UNDER-HEYWOOD