Discrimination compensation guide 2005: The law
The EOR Guide to Compensation in Discrimination Cases for 2005 provides a comprehensive explanation of the legal principles that apply to the assessment of compensation.
The legal rules for awarding compensation in discrimination cases are found in the various statutory provisions applying to each strand of discrimination.
The application of these rules has been clarified in a number of appeal court decisions, which have established some important legally binding principles that employment tribunals must apply when assessing compensation.
In this section, Hilary Slater, a consultant with Cobbetts solicitors and a regular contributor to Equal Opportunities Review, explains how those principles are to be applied.
The statutory provisions
The remedies for unlawful discrimination, including the power for tribunals to make an order requiring the respondent to pay compensation to the complainant, are set out in the following statutory provisions:
s.65 Sex Discrimination Act 1975;
s.56 Race Relations Act 1976;
s.17A Disability Discrimination Act 1995;
Reg. 30 Employment Equality (Religion or Belief) Regulations 2003; and
Reg. 30 Employment Equality (Sexual Orientation) Regulations 2003.
Section 2 of the Equal Pay Act 1970 allows tribunals to make a declaration as to the operation of an equality clause and award arrears of pay.
Financial Loss
The tribunal should award financial loss which the claimant proves, on a balance of probabilities, has been caused by the act of discrimination. This loss may include:
loss of earnings;
loss of pension benefits;
loss of other benefits (contractual and non-contractual), eg private health insurance and use of a company car;
job-hunting expenses;
counselling fees; and
other expenses caused by the act of discrimination.
Loss should be calculated on a net basis - that is, what the claimant would have received after deductions for tax and national insurance (British Transport Commission v Gourley [1956] AC 185 HL). The value of benefits should be assessed as the cost to the claimant of replacing the benefit.
Change of career
A decision to retrain in a different field may not necessarily break the chain of causation and the respondent may be liable for loss of earnings and expenses during the period of retraining. A decision to become self-employed may not break the chain of causation either. The question will be whether the decision to change careers or become self-employed is a reasonable step in the circumstances.
In ICTS (UK) Ltd v Tchoula [2000] IRLR 643, the EAT held that the tribunal was entitled to find that it was reasonable for a security officer, who had been dismissed in an act of victimisation, to retrain in a different field, although this resulted in his being compensated for being out of employment for more than two years.
The tribunal was entitled to accept the claimant's evidence that he did not pursue work in the security field because his dismissal meant he no longer had the clean record required to do so.
In Orthet Ltd v Vince-Cain [2004] IRLR 857 (EOR 135), the EAT held that the tribunal was entitled to award compensation for loss of earnings for a four-year period of retraining at university.
The employers were unable to prove that there was suitable work that the claimant could and should have taken, and the tribunal found that, if such work had have become available, the claimant would have abandoned her course.
Causation
A subsequent act of unfair dismissal by an employer does not break the chain of causation where an earlier act of unlawful discrimination has an impact on the claimant's ability to work beyond the date of dismissal: HM Prison Service v Beart (No.2) [2005] IRLR 568 CA (EOR 145).
Mitigation
A claimant is under a duty to take reasonable steps to mitigate his or her loss. The burden is on the respondent to prove that there has been a breach of this duty. If a tribunal finds that a claimant has failed to mitigate his or her loss, the tribunal will only award compensation for the loss the claimant would have suffered if he/she had taken reasonable steps to mitigate this loss. If a claimant has suffered psychiatric illness or severe loss of confidence as a result of the act of discrimination, it may be reasonable for the claimant not to seek work during a period of recovery.
Deductions
A claimant's new earnings will be taken into account in calculating financial loss. Whether state benefits should be taken into account in calculating loss may depend on the type of benefit and whether the amount of benefit would be recalculated to take account of a tribunal award. The Employment Protection (Recoupment of Jobseeker's Allowance and Income Support) Regulations 1996, which apply to unfair dismissal and certain other awards, do not apply to discrimination compensation. The basic principle is that the claimant should be put in the position they would have been in, but for the discriminatory act. If receipt of a loss of earnings award would reduce entitlement to a benefit for a period to which the award relates, then, arguably, the tribunal has no need to deduct that benefit in calculating loss because the claimant will not, after recalculation of benefits, end up with more than their loss of earnings. However, the EAT in Chief Constable of West Yorkshire Police v Vento (No.2) [2002] IRLR 177 (EOR 102) held that a tribunal did not err in deducting from an award income support paid in respect of a claimant's children, and mortgage interest.
There is conflicting authority on whether part or the whole of incapacity benefit should be deducted in calculating compensation. The latest authority (dealing with an unfair dismissal compensatory award) held that the full amount of receipts from a third party should be deducted: Morgans v Alpha Plus Security Ltd [2005] IRLR 234. In Chan v Hackney London Borough Council [1997] IRLR 1014, the EAT held that a tribunal was right to deduct invalidity benefit from an award for loss of earnings.
In Atos Origin IT Services UK Ltd v Haddock [2005] IRLR 20, the EAT held that payments from an accident or a health insurance policy for which the premiums had been paid by the employer, without contribution from the employee, should be deducted in calculating an award of financial loss under the Disability Discrimination Act 1995. The EAT said the same approach applied as in personal injury cases: a claimant cannot recover damages in respect of loss that will be avoided, other than payments resulting from the benevolence of third parties and from an insurance policy for which a claimant has paid or contributed to the premiums.
Other events
A tribunal may need to assess the chances of certain events happening, in calculating loss, eg the chance that the claimant would have obtained a promotion and received higher pay, had they remained in the employment of the respondent, or the chance that the claimant would have remained with the respondent until retirement. A tribunal should assess aspects of loss by application of a percentage, reflecting the likelihood of an event, rather than on an all or nothing basis.
In Ministry of Defence v Wheeler [1998] IRLR 23, CA, in calculating the loss of claimants who had been dismissed for pregnancy after working several years of a 22-year engagement, it was necessary for the tribunal to consider the chance that they would otherwise have returned to work with the MoD after maternity leave, the chance that they would have completed their engagement, and the chance that they would have found alternative employment at the same rate of pay in the future.
Future loss
A tribunal will calculate separately financial loss to the date of the hearing and any likely future loss. Assessment of future loss is inevitably a highly speculative exercise. If the future loss is for a lengthy period, some deduction may be required to take account of the benefit of receiving the money early, as it may be invested and earn income. Tribunals may take accelerated receipt into account in different ways. They may choose to apply the annual rate of discount used in personal injury cases, which is currently 2.5%.
Where career-long loss is established, tribunals may use the Ogden tables, used in personal injury cases, to calculate future loss of earnings, but use of the tables by tribunals will be rare: Kingston upon Hull City Council v Dunnachie (No.3) [2003] IRLR 843. The Ogden tables provide a multiplier to be used for calculating future loss of earnings to retirement, making provision for accelerated payment and taking into account the chance that the claimant may die before retiring age or live beyond it. Other contingencies, such as the possibility that the claimant would have ceased working due to ill health, would have to be taken into account by means of a separate discount.
Pension loss
There are guidelines to assist tribunals in calculating pension loss. Compensation for Loss of Pension Rights (3rd edition) is written by ET Chairmen, David Sneath and Colin Sara, the government actuary and a member of the actuary's department. Tribunals do not have to use these guidelines but are likely to do so unless presented with expert or other evidence that suggests loss should be calculated in a different way in the particular case.
The guidelines suggest two approaches to the calculation of pension loss: the simplified approach and the substantial loss approach. Where the lost pension is a money purchase scheme, the simplified approach will be used. Where the lost pension is a final salary scheme, the simplified or the substantial loss approach may be used, depending on the period of loss. The simplified approach will be applicable where there is a relatively short period of continuing pension loss. The substantial loss approach will be used where there is longer term, or whole career, loss.
The simplified approach involves three stages:
1. In the case of final salary schemes only, the loss of the enhancement to the pension already accrued because of the increase of salary that would have occurred if the claimant had not been dismissed;
2. In all cases, the loss of rights accruing up to the hearing; and
3. In all cases, the loss of future pension rights.
Stage one involves an actuarial calculation to assess the difference between the deferred pension the claimant will actually receive and the one they would have received had they not been dismissed, allowing for contingencies. For stages two and three, in general, loss is calculated as being the amount of pension contributions the employer would have made in the relevant period.
The substantial loss approach uses actuarial tables to assess the current capitalised value of the pension rights that would have accrued up to retirement.
Injury to feelings
All of the equality legislation contains provisions to the effect that damages for discrimination may include compensation for injury to feelings whether or not they include compensation under any other head.
The leading authority on injury to feelings is now the Court of Appeal decision in Vento v Chief Constable of West Yorkshire Police (No.2) [2003] IRLR 102 (EOR 114). The Court of Appeal approved the summary of the general principles on compensation for injury to feelings in HM Prison v Johnson [1997] IRLR 162, which are as follows:
awards for injury to feelings are compensatory. They should be just to both parties. They should compensate fully without punishing the tortfeasor, ie the employer. Feelings of indignation at the employer's conduct should not be allowed to inflate the award;
awards should not be too low, as that would diminish respect for anti-discrimination legislation. Society has condemned discrimination and awards must ensure that it is seen to be wrong. On the other hand, awards should be restrained, as excessive awards could be seen as the way to "untaxed riches";
awards should bear some general similarity to the range of awards in personal injury cases;
in exercising their discretion in assessing a sum, tribunals should remind themselves of the value in everyday life of the sum they have in mind. This may be done by reference to purchasing power or by reference to earnings; and
tribunals should bear in mind the need for public respect for the level of awards made.
The Court of Appeal in Vento identified three broad bands of compensation for injury to feelings, which was distinct from compensation for psychiatric or similar personal injury:
the top band is normally between £15,000 and £25,000. Sums in this range should be awarded in the most serious cases, such as where there has been a lengthy campaign of discriminatory harassment. Only in the most exceptional cases should an award of compensation for injury to feelings exceed £25,000;
the middle band is between £5,000 and £15,000. This should be used for serious cases that do not merit an award in the highest band; and
the lower band is between £500 and £5,000. This is for less serious cases, such as where the act of discrimination is an isolated or a one-off occurrence. In general, awards of less than £500 are to be avoided altogether, as they risk being regarded as so low as not to be a proper recognition of injury to feelings.
The Court of Appeal said tribunals have considerable flexibility within each band to fix what is considered to be fair, reasonable and just compensation in the particular circumstances of the case. Regard should be given to the overall magnitude of the sum total of the awards of compensation for non-pecuniary loss made under the various headings of injury to feelings, psychiatric damage and aggravated damage. Double recovery should be avoided by taking appropriate account of the overlap between the individual heads of damage. The extent of overlap will depend on the facts of each particular case.
The injury to feelings must have resulted from the knowledge of discrimination: Coleman v Skyrail Oceanic Ltd [1981] IRLR 398 and Alexander v The Home Office [1988] IRLR 190.
The claimant must provide evidence of the injury suffered. The EAT said in MOD v Mrs Cannock & Others [1994] IRLR 509, "injury must be proved. It will often be easy to prove, in the sense that no ET [employment tribunal] will take much persuasion that the anger, distress and affront caused by the act of discrimination has injured the claimant's feelings. But it is not invariably so."
An admission of discrimination by the respondent may reduce the injury suffered: Orlando v Didcot Power Station Sports & Social Club [1996] IRLR 262 EAT (EOR 67). Conversely, a respondent may increase the injury suffered by the way its defence is conducted.
Injury to health
Employment tribunals can award compensation for personal injury caused by unlawful discrimination: Sheriff v Klyne Tugs (Lowestoft) Ltd [1999] IRLR 481(EOR 88). The personal injury could be physical and/or psychiatric. The extent of the injury does not have to be foreseen for the employer to be liable. In Essa v Laing Ltd [2004] IRLR 313 CA (EOR 128), the Court of Appeal held that a claimant needs to establish only a causal link between the discriminatory act and the injury suffered, with no need to show that the injury was reasonably foreseeable. Medical evidence may be required to prove injury to health.
Employment tribunals will often refer to the Judicial Studies Board's Guidelines for the Assessment of General Damages in Personal Injury Cases to help them determine the appropriate award for injury to health. These guidelines suggest different levels of award according to the type of illness and specified factors.
If an act of discrimination may have resulted in injury to health, any discrimination claim in the employment tribunal should specifically include the claim for injury to health. A later claim in another court for personal injury, which arises from the same facts, may be struck out for abuse of process or on the basis of the public policy principle that claims that have been or could have been litigated in one forum should not be allowed to be litigated in another.
Aggravated damages
The courts have taken different views in recent years as to whether a separate award should be made for aggravated damages or whether such damages should be included in the award for injury to feelings. The most recent view, taken by the Court of Appeal in Scott v Commissioners of Inland Revenue [2004] IRLR 713 (EOR 129), is that tribunals may make separate awards for injury to feelings and aggravated damages. In practice, tribunals often include aggravated damages as part of the injury to feelings award without specifying a separate amount.
Aggravated damages may be awarded where the employer has behaved in a "high-handed, malicious, insulting or oppressive" manner in committing the act of discrimination: Alexander v the Home Office [1988] IRLR 190 (EOR 20).
The way a respondent has acted after the act of discrimination may be taken into account in making an award of aggravated damages. In British Telecommunications plc v Reid 126 [2004] IRLR 327 CA (EOR 126), an award was made where the employer had promoted an alleged perpetrator of discrimination or harassment while the grievance against him was still being investigated.
Aggravated damages may be awarded because of the way a respondent conducts proceedings, including conduct at the hearing, although such awards will be exceptional: City of Bradford Council v Arora [1989] ICR 443 and Zaiwalla & Co v Walia [2002] IRLR 697, EAT (EOR 111).
Aggravated damages are compensatory in nature rather than punitive. The claimant must prove that they suffered greater injury as a result of the respondent's conduct. The claimant must know, or have some suspicion, of the improper conduct or motive of the employer for aggravated damages to be awarded: Ministry of Defence v Meredith [1995] IRLR 52, EAT (EOR 62).
Exemplary damages
These are damages designed to punish the wrongdoer rather than to compensate the claimant for loss suffered as a result of the wrong. There was authority that exemplary damages could not be awarded in discrimination cases: Deane v The London Borough of Ealing [1993] IRLR 209, EAT (EOR 49). However, the House of Lords decision in Kuddus v Chief Constable of Leicestershire Constabulary [2001] (3 All ER 193), although not a discrimination case itself, has undermined the basis of the reasoning in that authority and opened up the possibility of exemplary damages being awarded in appropriate discrimination cases. We are not, as yet, aware of any awards of exemplary damages being made in discrimination cases. However, the EAT in Virgo Fidelis Senior School v Boyle [2004] IRLR 268 has said there is no reason in principle why exemplary damages should not be awarded in discrimination cases if the conditions in Rookes v Barnard [1964] AC 1129, HL are met. These conditions are that:
there was oppressive, arbitrary or unconstitutional action by the servants of the government; or
the defendant's conduct was calculated by him to make a profit for himself.
Awards of exemplary damages in discrimination cases are likely to be rare.
Compensation for indirect discrimination
A tribunal may award compensation for indirect sex, sexual orientation, religion or belief discrimination or indirect race discrimination relating to race, ethnic or national origins, whether the discrimination was intentional or unintentional. A tribunal cannot award compensation for indirect race discrimination relating to colour or nationality if the respondent proves that the requirement or condition in question was not applied with the intention of treating the claimant less favourably on racial grounds: s.57(3) Race Relations Act 1976.
The Employment Appeal Tribunal in JH Walker Ltd v Hussain [1996] IRLR 11 (EOR 66) held that "intention" will include the situation where the employer imposes a condition wanting to bring about the state of affairs that constitutes the prohibited result of unfavourable treatment on racial grounds, and knows that the prohibited result will follow the imposition of the condition. In that case, the employer knew that the application of a rule that does not allow holidays to be taken over a period that included Eid would adversely affect Muslim employees, and the tribunal was entitled to infer that the employer wanted to bring about the unfavourable treatment.
Awards against individual respondents
Where there is more than one respondent held liable, the tribunal will normally apportion liability between the respondents, usually the employer and the individual responsible for the discrimination, and make separate awards against them. The tribunal may, if it considers it necessary to do so, make a joint and several award of compensation against the respondents (so the amount can be enforced by the claimant against one respondent only or part against one and part against the other): (1) Peter Way (2) Intro Cate Chemicals Ltd v Crouch [2005] IRLR 603 EAT (EOR 144).
A respondent who has been held jointly and severally liable with another respondent can seek a contribution from the other respondent equal to a percentage set by the tribunal "having regard to the extent of that person's responsibility for the damage in question". The right of one respondent held jointly and severally liable to seek a contribution from the other does not affect the ability of the claimant to enforce the full award against one respondent.
A tribunal may not make a joint and several award because of the relative financial resources of the respondents.
Equal pay
A claimant who is successful in an equal pay claim will, if still employed, have the disputed term in his or her contract modified so that, for the future, the term is no less favourable than the comparable term in the comparator's contract. The claimant can also seek an award of arrears of pay or damages in respect of non-pay terms. In England and Wales, the normal limit on backpay is six years before the date on which the tribunal claim was presented. Where the employer deliberately concealed information without which the employee could not reasonably have been expected to start proceedings, or where the employee was a minor or of unsound mind, arrears can be awarded back to the date of contravention, which could be more than six years before proceedings were commenced. Different limits apply in Scotland where the normal limit on arrears is five years, and a maximum limit of 20 years applies where the employer's actions prevented the employee from commencing proceedings or the employee was under 16 or incapable.
No injury to feelings award may be made in an equal pay claim: Council of the City of Newcastle upon Tyne v Allan; Degnan v Redcar and Cleveland Borough Council [2005] IRLR 504, EAT (EOR 143).
Statutory dispute resolution procedures
Claimants wishing to bring discrimination and equal pay claims, other than claims arising from actual, rather than constructive, dismissal, must normally comply with step one of the statutory grievance procedure ie send a written grievance to their employer, and wait at least 28 days before presenting their claim to an employment tribunal. The tribunal will reject the claim if it is apparent that this has not been done. If it is not apparent on the face of the claim form that this has not been done, the claim may be accepted, but, if it later becomes apparent that the requirements have not been met, a tribunal will have no jurisdiction to deal with the claim and the claim will be dismissed.
If either the claimant or the respondent is at fault in failing to complete an applicable statutory procedure, the tribunal must adjust any compensation in accordance with s.31 of the Employment Act 2002. The statutory grievance procedure will normally apply to any claim of discrimination or for equal pay, other than a claim arising out of an actual dismissal. The statutory grievance procedure must be used where the claimant is claiming to have been constructively dismissed. If the claim arises from an actual dismissal, the employer should have used the statutory dismissal procedure. Completion of the relevant statutory procedure includes making use of the right to appeal.
If the claimant is at fault in failing to complete an applicable statutory procedure, the tribunal must reduce any award of compensation by 10% and may, if it considers it just and equitable in all the circumstances, reduce the award by up to 50%. If the respondent is at fault in failing to complete an applicable statutory procedure, the tribunal must increase any award by 10% and may, if it considers it just and equitable in all the circumstances, increase the award by up to 50%. Only if there are exceptional circumstances that would render a 10% adjustment unjust or inequitable may the tribunal make such lesser, or no, adjustment as it considers just and equitable in all the circumstances.
Taxation of awards
Tribunals should consider whether part or all of an injury to feelings award is likely to be taxable and "gross up" any part calculated on a net basis which is likely to be subject to tax so that the claimant receives, after deduction of tax, the intended amount of award.
The EAT in Orthet Ltd v Vince-Cain [2004] IRLR 857 has said that all the factors point to awards for injury to feelings not being taxable.
If the tax treatment of an award is different in practice to that anticipated by the employment tribunal, either party could seek a review of the tribunal's decision.
Interest
Interest may be awarded on discrimination awards for past financial loss and injury to feelings and on Equal Pay Act awards for arrears of remuneration or damages under the Employment Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996. Interest is not awardable on future loss. Tribunals are required to consider whether or not to award interest, without the need for any application by a party. If a tribunal decides not to award interest, it must include its reasons for not doing so in its written reasons. Since 1 February 2002, the interest rate prescribed for England and Wales and Scotland has been 6%. Interest on awards for past financial loss or equal pay arrears will normally run for the period from the midpoint between the act of discrimination or contravention and the day on which the tribunal calculates compensation until the calculation date. Interest on injury to feelings will normally run for the period from the act of discrimination until the calculation date.
Where tax and national insurance contributions are to be deducted from an award, interest should be calculated on the net sum after deductions, rather than on the gross sum: Bentwood Bros (Manchester) Ltd v Shepherd [2003] IRLR 364, CA (EOR 108).
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The same approach to compensation is taken under the Sex Discrimination Act 1975, the Race Relations Act 1976, the Disability Discrimination Act 1995, the Employment Equality (Sexual Orientation) Regulations 2003 and the Employment Equality (Religion or Belief) Regulations 2003, with the exception that a different approach to compensation for indirect discrimination on the grounds of colour and nationality is taken to that for indirect discrimination on other grounds.
A separate regime for compensation applies where there is a breach of the Equal Pay Act 1970 (EqPA).
Compensation (other than for a breach of the EqPA) will be awarded where a tribunal considers it "just and equitable" to make an award. Once the tribunal has decided to make an award, it cannot determine the amount to be paid according to its view of what is just and equitable: Hurley v Mustoe (No.2) [1983] ICR 422 EAT.
Compensation is calculated in the same way that damages would be calculated for any claim in tort or (in Scotland) breach of statutory duty. The aim is to put the claimant in the position they would have been in, had the act of discrimination not occurred: Ministry of Defence v Cannock [1994] IRLR 509 EAT (EOR 57). Compensation is to compensate for loss suffered, with the possible exception of exemplary damages.
The loss must have been caused by the act of discrimination. If there are a number of causes for the loss - for example, if personal difficulties unrelated to the act of discrimination contribute to a claimant's inability to seek work for a period, or contribute to psychiatric illness, the tribunal will need to assess the extent of loss that is attributable to the act of discrimination. This may be calculated by using percentages.
The loss does not have to have been reasonably foreseeable: Essa v Laing Ltd [2004] IRLR 313 CA (EOR 128).
A claimant should be compensated fully for all loss suffered as a result of the act of discrimination: Marshall v Southampton and South West Area Health Authority (No.2) [1993] IRLR 445 ECJ (EOR 51). There is no statutory limit on compensation for acts of unlawful discrimination.
Heads of loss in discrimination cases may include:
- financial loss; - injury to feelings (awardable whether or not any other compensation is awarded); - injury to health; - aggravated damages; and - exemplary damages. A claimant must not be compensated for the same loss twice so, where the claimant has more than one type of claim, the tribunal must be clear as to what loss is being awarded under which legislation. Where the claimant has succeeded in unfair dismissal and unlawful discrimination, and financial loss exceeds the maximum that can be awarded for unfair dismissal, the award should be made under the discrimination legislation so that the claimant is compensated in full for their loss: D'Souza v London Borough of Lambeth [1997] IRLR 677 EAT.
If a tribunal has made a recommendation and the respondent has failed to comply with the recommendation, the tribunal may increase the amount of compensation awarded or, if no award has been made, make an award.
Failure to comply in full with an applicable statutory dispute resolution procedure will normally lead to compensation being increased or decreased by between 10% and 50%, depending on who was at fault in not completing the procedure. Claimants who do not submit a "step one" grievance letter, in cases where the statutory grievance procedure applies, will not be able to pursue a claim in the employment tribunal.
Tribunals should "gross up" any parts of the award that will be taxable in determining the amount of the award, so that the claimant receives the full net compensation after the deduction of tax.
Interest is payable on awards for past financial loss and injury to feelings.
Where there is more than one respondent held liable for unlawful discrimination, the tribunal will normally make separate awards against them but the tribunal may, alternatively, make a joint and several award of compensation against the respondents.
The employment appeal tribunal will only interfere with a tribunal's award of compensation if the tribunal has made an error of law or reached a decision that no reasonable tribunal could reach on the evidence. |
