Entering an exclusion zone

The Supreme Court has handed down an important judgment on the compensation payable for breach of contractual disciplinary procedures. Christopher Knight analyses the ruling.

The House of Lords in Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518 and Eastwood v Magnox Electric plc [2004] UKHL 35; [2005] 1 AC 503 made clear that an employee is not entitled to attempt to circumvent the statutory unfair dismissal regime and bring a claim at common law for damages where it is alleged that his dismissal breached the implied term of trust and confidence. Such a claim falls within what has become known as the Johnson exclusion area: to be adjudicated in the Employment Tribunals and not the ordinary courts.

The decision in Edwards v Chesterfield Royal Hospital NHS Foundation Trust & Botham v Ministry of Defence [2011] UKSC 58 extends the Johnson exclusion area to cases in which the breach relied upon is of the contractual disciplinary procedure. Only Lady Hale was unwilling to accept that Johnson extended beyond the implied term of trust and confidence to express contractual terms too.

Lord Dyson’s judgment for the majority, with which Lord Walker agreed and with which Lord Mance concurred, places Edwards squarely within the rationale of Johnson and Eastwood, relying heavily on the reasoning of Lord Hoffmann in the former at [60]-[66]. To allow an employee who has been dismissed to bring proceedings for breach of contract based upon a failure to follow contractual disciplinary procedures would be to undermine the carefully constructed statutory unfair dismissal regime. Neither Parliament nor the parties can be taken to have intended that such a failure, where it leads to dismissal, will give rise to a common law claim for damages. This does not mean that a breach of such an express term can never sound in contract – such as a claim for an injunction during the disciplinary process (a distinction which the dissenters ridiculed, but which Lord Dyson defended as being different because it did not cut across the statutory dismissal scheme) – but where it becomes inextricably linked with dismissal, the Tribunal’s jurisdiction takes over.

A dissenting judgment from Lord Kerr, with whom Lord Wilson agreed, challenged the refusal of the majority to separate out the fact of the dismissal and the loss which flows from the reasons for the dismissal. As a result, they would have permitted Mr Edwards’ claim (although not Mr Botham’s) because the reasons given for his dismissal were reached following a procedure which breached the contractually provided process. Lord Mance attacked this distinction in his concurring judgment, noting that not only were the reasons part and parcel of the dismissal itself, but if the minority were correct damages would have to be assessed on an entirely hypothetical basis which ignored the fact of dismissal, posing difficult problems of causation and quantum.

Lord Phillips agreed with the majority, and his judgment contains a number of references and oblique statements that appear to accept the reasoning of Lord Dyson. However, he based his agreement on a slightly different basis: namely that the damages sought were too remote from the contemplation of the parties and were precluded by Addis v Gramophone Co Ltd [1909] AC 488. Lady Hale’s response to that was that it seemed unlikely that where the breach was of an express contractual term the parties had not intended such a breach to mean anything.

What can one take from Edwards? Three things perhaps.

First, orthodoxy rules. The Johnson exclusion area is both upheld and widened to include express terms which encompass the fact of a dismissal. Only Lady Hale seemed to expressly wish to re-open Johnson and Eastwood and neither the Court nor the parties showed much appetite for that prospect. Lords Dyson, Mance and Phillips all took a fairly black-letter approach, with the latter focussing on characterising the issue in ordinary contractual language (Mance as causation, Phillips as remoteness).

Second, a slim majority of the Court wished to retain the clear distinction between the statutory unfair dismissal scheme and common law breach of contract, in favour of employers. The dissenting pair of Lords Kerr and Wilson, by finessing a difficult distinction between dismissal and the reasons for dismissal, were clearly in a much more pro-employee camp (as was Lady Hale, on a wider basis).

Third, the recovery of damages for the reasonable period in which the disciplinary process could properly have been carried out – stemming from the decision in Gunton v Richmond-upon-Thames LBC [1981] Ch 448 – remains very much open to question at the highest level. All of the majority judgments declined to approve that aspect of the Court of Appeal’s approach and reserved their view. The battleground will have to be returned to in due course.

Finally, a brief mention should be given to Lady Hale’s comment, at [110], that she was the only member of the Court to have been an employee. The relevance of this – even if it is true – is unclear. Presumably it was not meant to imply that only ex-employees can sit on employment cases? Let us hope not.

Christopher Knight is a barrister at 11KBW. This article first appeared on the site’s employment law blog.