Wrongful dismissal

In this Guidance Note, we examine the different types of wrongful dismissal, the remedies available for such, and the effect of wrongful dismissal on the contract of employment.

MEANING OF WRONGFUL DISMISSAL

There are a number of different circumstances in which an employer wrongfully dismisses an employee, as follows:

Justifiable summary dismissal

Misconduct which is such as to show the employee to have disregarded one or more of the essential conditions of the contract of employment will justify summary dismissal at common law (Laws v London Chronicle (Indicator Newspapers) Ltd). In other words, the misconduct must amount to a "repudiatory" breach of contract by the employee. If it does, then the employer may choose to "waive" that repudiation (that is, "affirm" the contract or treat it as continuing), and bring an action for breach of contract against the employee in a civil court, or to "accept" it (that is, dismiss the employee on the spot). If the employer opts for the former, then it cannot rely on the employee's repudiation to justify summarily dismissing him or her in the future.

The degree of misconduct which will justify summary dismissal is a question of fact in the particular circumstances of each case. It depends on, for example, the nature of the employer's business, the position held by the employee and his or her past conduct, and current attitudes towards the misconduct in question and the employer/employee relationship. It may also depend on the terms of the contract of employment, if those define what kind of misconduct merits instant dismissal (see, for example, Dietmann v London Borough of Brent (No.2)).

Previous case law is therefore of limited value. But it is well established that dishonesty (such as fraud or theft), serious negligence and wilful disobedience of a lawful and reasonable instruction all justify summary dismissal at common law (see Boston Deep Sea Fishing & Ice Co v Ansell, Jupiter General Insurance Co Ltd v Shroff and Laws). So does taking part in a strike (Simmons v Hoover Ltd). But, as Mr Justice Salmon said in Acklam v Sentinel Insurance Co Ltd: "Misconduct is a very serious matter: you cannot get rid of a man ... merely because he turns out to be rather awkward or you find it exasperating to work with him."

The following are recent examples of misconduct which have been held to justify summary dismissal:

Misconduct which is unconnected with the job will justify summary dismissal only if it destroys the confidence which must exist for the contract of employment to be effective. It is also much more difficult for an employer to justify summary dismissal for incompetence, particularly if the degree of skill required of the employee is hard to define. In the case of a recently appointed chief executive, for example, the employer would have to show that his or her continued employment would be impracticable because of the harm he or she was likely to do to it (Jackson v Invicta Plastics Ltd).

Where an employee has in fact been guilty of misconduct justifying summary dismissal, the employer may rely on that misconduct in defence of any action for, or complaint of, wrongful dismissal even if it was unknown to the employer at the time of the dismissal; and, whether or not the employer was aware of the misconduct, the fact that it relied on another ground to dismiss the employee does not of itself make the dismissal wrongful (Boston Deep Sea Fishing & Ice Co v Ansell). The reverse is true in a case of unfair dismissal.

Finally, a summary dismissal is also not wrongful if the employee either agreed to termination of the contract of employment or waived the right to notice under that contract (Baldwin v British Coal Corporation).

Liquidated damages

If a contract of employment expressly provides that the employer may terminate the employment without notice on paying the employee a sum in lieu of notice, and the employer summarily dismisses the employee, then the dismissal is not wrongful whether the employer pays that sum or not. If the employer does not pay it, and its amount is a genuine pre-estimate of the loss which the employee would be likely to sustain if the employer were to wrongfully dismiss him or her (rather than a "penalty"), then the employee may sue the employer to recover it as a sum due under the contract (or "liquidated damages"). In that event, the employee will not be under a duty - which we explain below - to take all reasonable steps to mitigate, or minimise, his or her loss occasioned by the dismissal (Abrahams v The Performing Right Society).

Wrongful repudiation

An employer wrongfully repudiates a contract of employment if its actions and conduct "evince an intention no longer to be bound by the contract" (per Lord Collins in General Billposting Co Ltd v Atkinson). The employee may choose to "accept" that repudiation (that is, resign) and sue the employer for damages for wrongful dismissal, or to keep the contract alive and either bring an action for breach of contract against the employer in a civil court or - if appropriate - complain to an industrial tribunal that the employer has made a deduction from his or her wages contrary to s.1(1) of the Wages Act 1986 (see our Guidance Note Changing terms and conditions 2: consequences of unilateral changes for a more detailed discussion of these options).

If the employee delays his or her resignation, then he or she will not be treated as having affirmed the contract if the employer allowed him or her time to decide whether to resign or not and continued to pay him or her in the meantime (Bliss v South East Thames Regional Health Authority). Nor will the employee be treated as having affirmed the contract if he or she accepted money from the employer on account of his or her claim for damages (Collier v Sunday Referee Publishing Co Ltd).

The question of what conduct on the part of an employer amounts to a wrongful repudiation is one of fact and degree in the particular circumstances of each case. Withholding work from an employee constitutes a wrongful repudiation if the employer is contractually obliged to provide him or her with some work (as where he or she is paid by commission only or is an artiste who was engaged to perform for an audience), or if the employee was employed to do a specific job which the employer makes it impossible for him or her to do (see Collier). Attempting unilaterally to vary an employee's contract of employment without a contractual right to do so often amounts to a wrongful repudiation as well (see our Guidance Note Changing terms and conditions 2: consequences of unilateral changes).

DAMAGES FOR WRONGFUL DISMISSAL

There are three remedies for a wrongful dismissal: damages, a declaration and an injunction. The last two are discretionary remedies (see below ), while damages are awarded as of right.

An award of damages is the main remedy for wrongful dismissal, and it is the only remedy available to an employee who complains of wrongful dismissal to an industrial tribunal instead of bringing an action for such in a civil court. The tribunal or the court will award only "nominal damages" (that is, a trivial sum) if the employee fails to show that he or she has sustained a quantifiable loss as a result of the wrongful dismissal. Otherwise, the starting point in calculating the award of damages is as follows: the employee is, so far as money can do it, to be put in the position he or she would have been in if the employer had brought the contract of employment to an end as soon as it lawfully could.

The period by reference to which damages for wrongful dismissal are assessed (which we will refer to in this article as "the damages period") is, therefore, the period between the date of the wrongful dismissal and the earliest date on which the employer could lawfully have terminated the employee's contract of employment. This in turn depends on the terms of that contract.

If, for example, the contract was a contract of indefinite duration terminable by notice, then the damages period will be the period of notice which the employee was entitled to receive to terminate the contract (less the length of any shorter period of notice which the employer gave him or her); and that is the contractual notice period (as expressed in the contract or, if it is not expressed, a "reasonable" period) or the minimum period of notice to which the employee is entitled under s.49 of the Employment Protection (Consolidation) Act 1978 (the EP(C)A), whichever is the longer.

If, however, the employee was employed under a fixed-term contract, then the damages period will be the unexpired remainder of the fixed term (unless the employer was entitled to terminate the contract by notice before the expiry of the fixed term, in which case the damages period will be the period of that notice). In the case of a contract which was not terminable except on the grounds specified in it, the damages period will be the period between the date of the dismissal and the date on which the employee would have been contractually obliged to retire (see Acklam v Sentinel Insurance Co Ltd).

Where a disciplinary procedure was incorporated into the employee's contract of employment, and the employer summarily dismissed him or her on disciplinary grounds without carrying out that procedure, the damages period will be extended by a "reasonable" period from the date of the wrongful dismissal for carrying out the procedure (Gunton v London Borough of Richmond-upon-Thames and Boyo v London Borough of Lambeth) but no further - even if in all probability the employee would not have been dismissed had the procedure been carried out (see Alexander and others v Standard Telephones & Cables Ltd (No.2)). And the effect of the incorporation of such a procedure is not to imply into the employee's contract a term that he or she will have the equivalent of the statutory right not to be unfairly dismissed (Focsa Services (UK) Ltd v Birkett).

Recoverable losses

A wrongfully dismissed employee can recover damages for the loss of both the amount which he or she would have earned during the damages period and the fringe benefits or "perks" which he or she would have been provided with during that period (see below). A wrongfully dismissed apprentice can also recover damages for the loss of the training and work experience which he or she would have received and gained during the damages period (Dunk v George Waller & Son Ltd).

In Dietmann v London Borough of Brent (No.2), the High Court declined to award a wrongfully dismissed employee a sum to reflect the fact that she would have to be continuously employed for the same period as she had been before she again became entitled to the same statutory minimum notice period. But it has been suggested that a wrongfully dismissed employee may be able to recover damages for the loss of the right to complain of unfair dismissal to an industrial tribunal if he or she would have qualified for that right had he or she been lawfully dismissed, particularly if he or she was wrongfully dismissed for the specific purpose of depriving him or her of that right (see Robert Cort & Son Ltd v Charman and Stapp v The Shaftesbury Society).

A wrongfully dismissed employee cannot recover damages for the manner of the dismissal, for his or her hurt feelings or for the loss he or she may sustain from the fact that the dismissal of itself makes it more difficult for him or her to get another job (Addis v Gramophone Co Ltd, and see Shove v Downs Surgical plc, Bliss v South East Thames Regional Health Authority and O'Laoire v Jackel International Ltd (No.2)). Nor can he or she recover "stigma damages", for the fact that he or she is stigmatised by having been employed by a corrupt and dishonest employer (Malik and another v BCCI SA (in compulsory liquidation)). Furthermore, in Boyo v London Borough of Lambeth, Lord Justice Ralph Gibson said: "There is no ground for enlarging any award [of damages] by reference to any alleged intention [of the employer] deliberately to injure the [employee]."

But a wrongfully dismissed apprentice is entitled to damages for the diminution of his or her future prospects, or the loss of the status he or she would have had if he or she had completed the apprenticeship (Dunk). And a wrongfully dismissed artiste who was employed to perform in public or, arguably, for a cinema, television or radio audience is entitled to damages for "loss of publicity" (that is, the loss of the opportunity of making, maintaining or enhancing his or her reputation by appearing on the stage or screen or being heard on the air) as distinct from loss of, or damage to, an existing reputation by not allowing such an appearance (Withers v General Theatre Corporation).

Authors, such as screenplay writers, are also entitled to damages for loss of publicity (Tolnay and another v Criterion Film Productions Ltd), but journalists are not, in the absence of an express or implied term of their contracts of employment stipulating for publicity (Collier v Sunday Referee Publishing Co Ltd).

Loss of earnings

The amount which a wrongfully dismissed employee would have earned during the damages period is the salary or wages (including any increases in such), bonuses and the like which the employer would have been contractually obliged to pay him or her during that period, and any overtime, tips or commission and the like which the employer would have been contractually obliged to give him or her the opportunity of earning during that period. It follows that, unlike in a claim for unfair dismissal compensation, payments or pay-rises which would have been discretionary, or which the employee might reasonably have been expected to receive during the damages period, are not recoverable losses.

For example, in Beach v Reed Corrugated Cases Ltd, the High Court held that the wrongfully dismissed managing director of a company could not recover damages for loss of director's fees because, even though he would no doubt have received such fees during the damages period, the company was not contractually obliged to pay any such fees to him. And, in Lavarack v Woods of Colchester Ltd, a majority of the Court of Appeal held that the wrongfully dismissed European sales manager of a company could not recover damages for the loss of a pay rise which the company gave to most of his former colleagues in lieu of a bonus when, during the damages period, it discontinued the bonus scheme in which he and they participated. The company was not contractually obliged to continue the scheme.

By contrast, in Basnett v J & A Jackson Ltd, the damages awarded by the High Court to a company's works manager who was wrongfully dismissed by reason of redundancy included one half of the enhanced contractual redundancy payment which he would have received if he had been made redundant at the end of the damages period (there having been only a 50% chance that he would in fact have been made redundant at that time).

As evidence of the amount of overtime, tips, commission and the like which a wrongfully dismissed employee would have earned during the damages period, he or she may take the average amount which he or she has previously earned and/or the amount which his or her successor has earned, or is likely to earn, during the damages period. The performance of the employer's business over the damages period may also show the extent of the employee's loss.

The assessment of the employee's damages for loss of salary or wages is normally straightforward, but it is not necessarily so. For example, in O'Laoire v Jackel International Ltd (No.2), the High Court awarded the wrongfully dismissed deputy managing director of a company damages for loss of salary at the deputy managing director's rate for a period of six months, which was the damages period. But, on appeal, the Court of Appeal held that he had a contractual right to become the company's managing director. He was therefore entitled to damages for loss of salary at the deputy managing director's rate for one month and at the appropriate rate for a managing director for the remaining five months.

Loss of pension rights

A wrongfully dismissed employee can recover damages for the loss of pension rights if he or she was a member of an occupational pension scheme which he or she was contractually entitled to be a member of. If that scheme was a money-purchase scheme, then the loss will be the value of the contributions which the employer would have had to pay into the scheme during the damages period. If, however, it was a final salary scheme, then the loss will be the difference (calculated on an actuarial basis, and taking into account any contractual entitlement of the employee to pay rises) between the capitalised value of his or her pension rights at the beginning of the damages period and their capitalised value at the end of that period.

Where the employer had a right to discontinue the pension scheme as a whole, but no discretion to withhold contributions in respect of the employee so long as the scheme continued, the employee can still recover damages for the loss of pension rights (Bold v Brough, Nicholson & Hall Ltd). But the employee cannot recover such damages if the employer was contractually entitled to stop paying contributions in respect of him or her whether or not it discontinued the scheme as a whole (Beach v Reed Corrugated Cases Ltd).

In Acklam v Sentinel Insurance Co Ltd, the rules of an insurance company's pension scheme obliged its members to exercise one of three options if they left the company's employment for any reason except retirement or death. A branch manager of the company who was a member of the scheme chose to take a refund of all his contributions, being one of those options, after he was wrongfully dismissed. The High Court held that, by so doing, he did not forfeit his claim for damages for the loss of pension rights which he sustained because of the dismissal.

Share-option rights

A wrongfully dismissed employee can recover damages for the loss of the right to obtain share options either if he or she had a contractual right to be granted them, in which case he or she will recover their value, or if he or she had lost the hope of obtaining them (O'Laoire v Jackel International Ltd (No.2)). Alternatively, he or she may be able to recover damages for the loss of the right to exercise options which the employer has already granted him or her. In that case he or she will also recover their value, which is what would have been the employee's net gain on exercising them (Chapman v Aberdeen Construction Group plc).

In Jackel, the wrongfully dismissed deputy managing director of a company would have had the benefit of share options had he been appointed to the position of managing director, as was his contractual right. But the Court of Appeal held that he had no enforceable legal right either to the options or to the exercise of them. The company would have had a discretion whether or not to grant him the options, and they would only have been exercisable with its consent. He could not therefore be entitled to the value of the options. His only loss would have been the loss of the hope of obtaining and exercising the options, but - given the company's attitude towards him - there was no value of such hope either. No damages were therefore recoverable.

In Chapman, an executive director of a company claimed damages for wrongful dismissal as a result of his having been deprived of the right to exercise share options granted to him under a scheme adopted by the company. He had been summarily dismissed before those options became exercisable and a rule of the scheme provided that, in the event of his dismissal, he would "not become entitled to any damages or compensation... by reason of any alteration or expectation of his rights under the scheme". The Court of Session held that this rule, standing by itself, was sufficient to exclude the director's claim because "damages" had to include damages for wrongful dismissal. But the rule was made void by s.23 of the Unfair Contract Terms Act 1977 (the UCTA) (which only applies in Scotland).

In Micklefield v SAC Technology Ltd, an option granted to a company director subject to the rules of a share-option scheme, which was incorporated into his contract of employment, lapsed when the company dismissed him just before the option became exercisable. On the assumption that he was wrongfully dismissed, the High Court had to decide whether he was entitled to recover damages for the loss of the option. It held that, on the true construction of his contract of employment and of the share-option scheme, he was not so entitled.

One of the scheme's rules provided: "If any option holder ceases to be an executive for any reason he shall not be entitled... by way of compensation for loss of office or otherwise howsoever to any sum or other benefit to compensate him for the loss of any rights under the scheme." This rule was sufficiently clear and decisive to operate as an exemption clause. It could only apply in the case of a wrongful dismissal, and it was intended and clearly sufficient to enable the company to escape liability in damages for the director's loss of his option.

Furthermore, so far as the director's contract of employment related to his option, it was excluded from the scope of the UCTA by para. 1(e) of the first schedule to that Act. That allows an employer to exclude or restrict any of its liability for breach of a contract "so far as [the contract] relates to the creation or transfer of securities or of any right or interest in securities". (This provision does not apply in Scotland.)

Other fringe benefits

A wrongfully dismissed employee can also recover damages for the loss of other perks to which he or she was contractually entitled, and which would have been provided to him or her over the damages period. Those exclude job-related expenses which the employer reimbursed the employee. But they may include a company car, although only to the extent that it was made available to the employee for his or her private use; life assurance and private medical insurance; rent-free or low-rent accommodation; preferential loans; staff discounts; and free or subsidised meals and non-business travel.

The amount of the damages will generally be the cost to the employee of providing himself or herself with the equivalent perk during the damages period. In the case of accommodation, however, the employee may also recover the value of any improvements which he or she made to it and his or her removal expenses (Ivory and others v Palmer). In the case of a "fully-expensed" company car, the employee may instead recover all its standing and running costs over the damages period (Shove v Downs Surgical plc).

Mitigation

A wrongfully dismissed employee has a duty, once he or she is dismissed, to take all reasonable steps to mitigate, or minimise, his or her loss consequent on the dismissal. In other words, following his or her dismissal the employee must take all reasonable steps to find another suitable job or to become self-employed. If he or she sits back and does nothing, then the damages will be reduced by the amount he or she should reasonably have earned from new employment or self-employment during the damages period.

The damages will also be reduced by the amount the employee in fact earned in another job, or as a self-employed person, during the damages period, even if the steps he or she took to get that job, or to set up his or her own business, were more than could reasonably have been required of him or her. But the employee may offset the reasonable expenses he or she incurred, such as the cost of travelling to job interviews or taking out advertisements (Westwood v Secretary of State for Employment), even if the steps he or she took were unsuccessful or led to greater loss.

In Berry v Aynsley Trust Ltd, the Court of Appeal held that the projected profits, over the damages period, of a business set up by a wrongfully dismissed employee following his dismissal were deductible from the damages he was awarded. But a figure representing the value to the employee of his stake in the business was not deductible, because the likelihood of the business having any value at the end of the damages period was not sufficiently proven.

By contrast, in Lavarack v Woods of Colchester Ltd, the Court of Appeal held that a wrongfully dismissed employee had to give credit for the improvement over the damages period in the value of his shareholding in a company which employed him as its manager after the dismissal. But he had to do so only insofar as that improvement was due to his own efforts, and he could offset the "total risk rate" on his investment in respect of the damages period.

The onus is on the employer to show that the employee has failed to take particular steps to mitigate his or her loss resulting from the wrongful dismissal which he or she should reasonably have taken. The test which is applied by the tribunal or the court is whether the employee acted reasonably or not in doing what he or she in fact did. That is a question of fact in the circumstances of each particular case. Where the employee did not take or apply for a particular job, those circumstances will include the pay and conditions of that job, the employee's personal circumstances (that is, his or her age, health, mobility, responsibilities for caring for children or other dependants, aptitude, skills, knowledge, qualifications, experience and contacts) and the availability of suitable alternative employment.

The employee does not therefore have to take or apply for any old job. Indeed, he or she may well act reasonably in not taking or applying for a job with less status (see, for example, Basnett v J & A Jackson Ltd) or a different kind of job (see Edwards v SOGAT). And he or she may also act reasonably in not taking or applying for a job which involves commuting further or moving house, or even a lower-paid job.

For example, in Berry v Aynsley Trust Ltd, the Court of Appeal held that a wrongfully dismissed employee of a company to whom the company had paid a salary in the range of £14,000 to £15,000 had acted reasonably in not applying for jobs which paid less than £10,000. And, in Yetton v Eastwoods Froy Ltd, the High Court held that the wrongfully dismissed joint managing director of a company had acted reasonably, in view of his past career and achievements, in applying for comparably-paid jobs during the first six months of the damages period before dropping his sights.

He had also acted reasonably in rejecting the company's offer to re-engage him as its assistant managing director, at the same salary, for three years after the dismissal. That would have involved a significant reduction in status; he was entitled to consider whether he might not have got more permanent employment elsewhere; and he had been dismissed in an arbitrary manner.

Whether the employer gave the employee a reference or not and, if so, what its terms were may also be taken into account by the tribunal or the court, as may the fact that prospective employers are usually reluctant to recruit someone who has sued his or her former employer (Acklam v Sentinel Insurance Co Ltd). Finally, the older the employee is and the less transferable his or her skills are, the more likely it will be that he or she acted reasonably in becoming self-employed rather than looking for other jobs (see, for example, Beach v Reed Corrugated Cases Ltd and Shove v Downs Surgical plc).

Taxation

Damages for wrongful dismissal are taxable to the extent that they exceed £30,000 (ss.148 and 188 of the Income and Corporation Taxes Act 1988). Where they do not exceed £30,000, the industrial tribunal or the court must deduct from them the income tax which the employer would have deducted from the employee's salary or wages under PAYE if his or her employment had continued until the end of the damages period (British Transport Commission v Gourley and Parsons v BNM Laboratories Ltd).

Where the damages do exceed £30,000, the industrial tribunal or the court must make the same deduction and then add a sum equivalent to the amount of income tax payable by the employee on the excess over £30,000. In other words, the sum awarded as damages will be such sum as will after deduction of tax leave the employee with an amount equal to his or her net loss (Stewart v Glentaggart Ltd and Shove v Downs Surgical plc).

Where the award of damages is made during the damages period, the calculation of the employee's probable tax liability is made on the basis that the rates of tax at that time will remain the same until the end of the damages period. The tribunal or the court must also take into account the employee's tax reliefs (such as personal allowances and MIRAS); any other income which he or she may have had during that period (whether earned or unearned); any time which he or she may have spent abroad during that period; and such outgoings during that period as, for example, maintenance payments which may have reduced his or her liability to tax (see Beach v Reed Corrugated Cases Ltd, Acklam v Sentinel Insurance Co Ltd, Bold v Brough, Nicholson & Hall Ltd and Shove v Downs Surgical plc).

Other deductions

In addition to deductions in respect of mitigation and taxation, damages for wrongful dismissal will be reduced by:

Collateral benefits

Damages for wrongful dismissal will not be reduced by so-called "collateral benefits" received by the employee following the dismissal. These include:

DISCRETIONARY REMEDIES

We now turn to the two discretionary or so-called "equitable" remedies for wrongful dismissal. An injunction (see below) is an alternative remedy to damages, while a declaration may be made whether or not damages or an injunction are or could be claimed.

Declarations

A declaration is, in the present context, simply a statement of the rights of the employee. There is no legal sanction if the employer fails to act on one, but in practice it may well feel morally or politically bound to do so. Only a civil court may make a declaration, and it will not do so without a good reason or if the declaration would serve no useful purpose.

A declaration that a dismissal was wrongful, if necessary at all, is unobjectionable. But, as a general rule, a court will not make a declaration that a wrongful dismissal was invalid (that is, that the employee is still employed under the contract). As Lord Morris put it, in Francis v Municipal Councillors of Kuala Lumpur: "... when there has been a purported termination of a contract of [employment] a declaration to the effect that the contract of [employment] still subsists will rarely be made ... Special circumstances will be required before such a declaration is made..."

A court will declare that a wrongful dismissal was invalid where the employee would otherwise be prevented from working in the capacity in which he or she worked for the employer (see Francis ); where the principles of natural justice applied (in particular, the right to be heard in answer to charges of misconduct) and the employer failed to observe them; and, possibly, where the employee's contract of employment was not terminable except on specified grounds and the employer dismissed him or her on some other ground (see McClelland v Northern Ireland General Health Services Board).

In R v BBC ex parte Lavelle, Mr Justice Woolf suggested that the principles of natural justice apply to the dismissal of any employee whose employer is under a contractual restriction, whether substantive or procedural, as to the circumstances in which it can dismiss him or her. If that is right, then the principles of natural justice are implied terms of any contract of employment which incorporates a disciplinary procedure; and a court may declare to be invalid any dismissal in breach of those principles of an employee employed under such a contract. To date, however, there are no reported cases in which such a declaration has been made.

But, in Gunton v London Borough of Richmond-upon-Thames, the High Court made a declaration that a month's notice of dismissal given to the registrar of a college of technology was "ineffective lawfully to determine" his contract of employment with a local education authority. The incorporation of a disciplinary procedure into that contract disentitled the authority from dismissing him on disciplinary grounds, as it had purported to do, until it had carried out that procedure which it had short-circuited.

On appeal to the Court of Appeal, Lord Justice Buckley said the declaration was "correct in law and inoffensive in its effect" even though the employee's rights were "purely contractual". They were "not entrenched by any statutory or other extra-contractual provisions". Nor was the authority's discretionary power to dismiss the employee on a month's notice limited in any way apart from the terms of the contract of employment itself, relating to disciplinary matters.

Injunctions

An injunction may be granted by a civil court if it appears to the court to be just and convenient to do so, and a failure to comply with one is an actionable contempt of court. In the present context, an injunction is almost always an order restraining an employer from wrongfully dismissing an employee (a "prohibitory" injunction). Exceptionally, however, it may be an order requiring the employer to do some positive act (a "mandatory" injunction).

An injunction is also "perpetual" or "interlocutory". A perpetual injunction is granted at the trial or at some other hearing where the parties' rights are finally determined, and it is intended permanently to prevent the infringement of those rights. An interlocutory injunction is granted at an earlier stage of the proceedings, and its purpose is to preserve the status quo until the trial at the latest. It is only granted subject to the employee's undertaking to pay damages to the employer - for any loss sustained by the employer because of it - if the employee were not to succeed at the trial.

Following the House of Lords' decision in American Cyanamid Co v Ethicon Ltd, a court will refuse an interlocutory injunction unless:

The court must balance the need to protect the employee against the loss he or she may sustain if the injunction is refused, and yet he or she succeeds at the trial, against the need to protect the employer from the loss it may sustain by granting the injunction in the event that it succeeds at the trial. If those needs are evenly balanced, then the court should grant the injunction.

At common law, the general rule is that courts will not order "specific performance" of a contract of employment (that is, in the present context, reinstatement) or grant an injunction which indirectly enforces such a contract. That rule is reinforced by s.236 of the Trade Union and Labour Relations (Consolidation) Act 1992, which provides: "No court shall, whether by way of - (a) an order of specific performance ... or (b) an injunction ... restraining a breach or threatened breach of such a contract, compel an employee to do any work or attend at any place for the doing of any work."

Exceptional cases

In Hill v C A Parsons & Co Ltd, Lord Denning said: "The rule is not inflexible. It permits of exceptions. The court can in a proper case grant a declaration that the [employer/employee] relationship still subsists and an injunction to stop the [employer] treating it as at an end." He added: "It may be said that, by granting an injunction in such a case, the court is indirectly enforcing specifically a contract for personal services. So be it."

Lord Denning and Lord Justice Sachs, constituting a majority of the Court of Appeal (with Lord Justice Stamp dissenting), went on to grant an interlocutory injunction restraining an employer from treating the dismissal notice which it had given to one of its employees as having ended his employment.

This was an exceptional case in that the employer had "complete confidence" in the employee, who had been with the employer for 35 years. It had dismissed him only because he had refused to join a trade union with which it had signed a closed-shop agreement, and the union had threatened to "black" its products if it did not sign that agreement.

In addition, damages would not have been an adequate remedy for the employee in the event of his succeeding at the trial. Before the employer could have lawfully dismissed him, he would have been able to complain of unfair dismissal to an industrial tribunal; the tribunal would probably have ordered reinstatement if his complaint were upheld; and, if the employer had not complied with that order, he would have been awarded compensation far in excess of the damages he could expect to recover.

Purportedly by analogy with Hill, in Irani v Southampton and South West Hampshire Health Authority, the High Court granted an interlocutory injunction restraining the authority from implementing a notice purporting to dismiss a part-time opthalmologist before exhausting the disputes procedure incorporated into his contract of employment. The authority was convinced that continuing to employ both him and a consultant with whom he had fallen out was incompatible. But it had not complained about or criticised his conduct or professional competence, and it had "perfect faith" in his honesty, integrity and loyalty.

In addition, damages would not have been an adequate remedy for the employee. It would have been arguable at the trial that a perpetual injunction could not be granted because, since the employee's dismissal notice would have expired by then, he could no longer rely on the procedure. Furthermore, if the employee were to be dismissed by the authority, he would have become unemployable in the NHS and lost any right he had to use NHS facilities to treat his private patients. The employee was also seeking the protection of a procedure to which he was entitled if, as was the case, the circumstances were appropriate. Had the Court refused the injunction, it would in effect have held that the authority was entitled to "snap its fingers" at the rights of its employees under the procedure.

Having regard to the decision in Hill, in Powell v London Borough of Brent Lord Justice Ralph Gibson said: "... the court will not by injunction require an employer to let [an employee] continue in his employment, when the employer has sought to terminate that employment and to prevent the [employee] carrying out his work under the contract, unless it is clear on the evidence not only that it is otherwise just to make such a requirement but also that there exists sufficient confidence on the part of the employer in the [employee's] ability and other necessary attributes for it to be reasonable to make the order. Sufficiency of confidence must be judged by reference to the circumstances of the case, including the nature of the work, the people with whom the work must be done and the likely effect upon the employer and the employer's operations if the employer is required by injunction to suffer the [employee] to continue in the work."

Ralph Gibson LJ also indicated that the employer must have some rational ground to lack confidence in the employee's ability to do his or her job. And, in the same case, Sir Roger Ormrod said the question of confidence between employer and employee was obviously relevant, but from a "pragmatic" point of view. Nobody would willingly grant an injunction forcing an employee on an employer, simply on the basis that it would not work. If, however, the situation would be workable were the court to grant an injunction, then it might do so (as the High Court did in Wadcock v London Borough of Brent).

Similarly, in Robb v London Borough of Hammersmith and Fulham the High Court granted an interlocutory injunction restraining the council from giving effect to the purported summary dismissal of its director of finance on disciplinary grounds - and requiring it to treat him as suspended on full pay - unless and until it had properly complied with the disciplinary procedure incorporated into his contract of employment. There was "very cogent" evidence that the council had lost trust and confidence in the employee's ability to do his job. But the Court rejected as "far too sweeping" the council's submission that, unless trust and confidence between employer and employee remains, an injunction to preserve the contract of employment should never be granted.

The Court acknowledged that if an injunction were sought to reinstate a wrongfully dismissed employee, so that when reinstated he or she could actually do the job for which he or she was employed, clearly trust and confidence were highly relevant. Without the employer's trust and confidence in the employee's ability to do his or her job, his or her position as an employee would be unworkable. In the present case, however, the employee did not seek reinstatement so that he could actually perform and carry out his duties and responsibilities. The injunction he sought was one to restore the position to what it had been before the council unilaterally aborted the disciplinary procedure and summarily dismissed him. And he undertook to agree to be treated as suspended on full pay, and not to go to the council's offices other than as was necessary to carry out the procedure.

According to the Court, although an injunction would only rarely be granted in a case such as the present, the "all important criterion" was whether the injunction sought was workable. In the present case, the council's lack of trust and confidence in the employee's ability to do his job had no relevance to the workability of the disciplinary procedure if ordered by the Court. Nor was there any rule of law or practice which prevented a court from granting the injunction sought if the balance of convenience so required, which it did in the present case for a number of reasons.

First, the council was in admitted breach of contract in ending the disciplinary procedure and summarily dismissing the employee. Secondly, damages would not have compensated the employee for the manner of his dismissal and his deprivation of the disciplinary procedure. Thirdly, without the injunction sought, the employee had lost the opportunity of airing his case and justifying himself at the hearings and enquiries under the disciplinary procedure. Fourthly, that procedure was workable now but could well have become impracticable if delayed until after the trial. Finally, granting the injunction now restored the employee to his position and entitlement to the disciplinary procedure which the council had unlawfully deprived him of.

A final exceptional case to note, which was decided on quite different grounds to the preceding ones, is Jones v Lee and another. In that case, the Court of Appeal granted an interlocutory injunction restraining the managers of a Roman Catholic primary school from dismissing or purporting to dismiss the school's head teacher other than in accordance with a term of his contract of employment. That term provided that he would not be dismissed without the local education authority's consent, to be given after a hearing before the authority, and the school's managers had not complied with it when they summarily dismissed him for divorcing his wife and then marrying a former teacher at the school.

The Court granted the injunction solely on the basis of its construction of the head teacher's contract of employment. The managers had been unaware of the relevant term, because the authority had given the contract to the head teacher. But he had been led to believe that the term applied to him, and the authority had acted as the managers' agent. The managers were therefore bound by the term. But, following a hearing before the authority and subject to the requisite consent, it would have been open to the managers to dismiss the head teacher if both they and the authority thought that that was right.

CONTRACTUAL EFFECT OF WRONGFUL DISMISSAL

The question of whether a wrongful dismissal - as distinct from a wrongful repudiation - automatically puts an end to the contract of employment, or whether it amounts to a repudiatory breach of contract by the employer which brings the contract to an end only when the employee chooses to accept that repudiation, remains unresolved.

If the employee has no option but to accept the dismissal as a fait accompli, then clearly his or her only remedy is damages. That is almost always also the case, however, if the employee chooses to treat the contract of employment as continuing. That is because, as was held by a majority of the Court of Appeal (Lord Justices Buckley and Brightman) in Gunton v London Borough of Richmond-upon-Thames, a wrongfully dismissed employee cannot sue the employer for his or her salary or wages as such in respect of any period after the wrongful dismissal.

Buckley LJ also said that only "very rarely" can the employee expect the employer to relent and reinstate him or her; and only "very rarely" can the employee expect to minimise his or her loss resulting from the dismissal, which he or she comes under an immediate duty to do (see above), in a way which would leave him or her free to return to his or her old job should the employer relent. It follows that at least as soon as the employee starts a new job, if not earlier, he or she must be taken to have accepted the employer's repudiation. Furthermore, in the absence of "special circumstances", a court should "easily infer" that the employee has done so.

According to Brightman LJ, the employee cannot assert that he or she still retains his or her employment under the contract. But, although a wrongful dismissal brings the de facto relationship of employer and employee to an end, contractual rights and obligations which do not of necessity depend on the existence of that relationship may well survive.

Where a disciplinary procedure is incorporated into the contract, those rights include the employee's right not to be dismissed on disciplinary grounds before the employer has carried out that procedure. But those obligations do not include the employee's negative obligations under any restrictive covenants in the contract. The employer cannot enforce them once it has wrongfully dismissed the employee, or once the employee has accepted that repudiation (General Billposting Co Ltd v Atkinson).

¹Jobseeker's allowance will replace unemployment benefit and income support from October 1996.

Wrongful dismissal: main points to note

Jurisdiction of tribunals and courts

Industrial tribunals' jurisdiction

The Industrial Tribunals Extension of Jurisdiction (England and Wales) Order 1994 (and its counterpart in Scotland), which came into force on 12 July 1994, enabled employees for the first time to bring claims for damages for wrongful dismissal before industrial tribunals (article 3). But the maximum amount of damages an industrial tribunal may award a wrongfully dismissed employee is £25,000 (article 10), and an employee who wants a remedy for wrongful dismissal other than damages must bring an action for such in a civil court.

An industrial tribunal has no jurisdiction to hear an employee's claim for damages for wrongful dismissal unless:

Industrial tribunals' jurisdiction to hear employees' claims for damages for wrongful dismissal is exercisable concurrently with civil courts (s.131(6) of the EP(C)A).

Civil courts' jurisdiction

There is no limit on the amount of damages which a county court or the High Court may award a wrongfully dismissed employee. And civil courts still have exclusive jurisdiction to grant remedies for wrongful dismissal other than damages.

An action for wrongful dismissal in which the value of the employee's claim (that is, the amount of damages which he or she reasonably expects to recover) is less than £25,000 will normally be tried in a county court, and one in which that value is £50,000 or more will normally be tried in the High Court. The action may also be transferred from or to the latter in specified circumstances (see the High Court and County Courts Jurisdiction Order 1991). The time limit for bringing the action, whether in a county court or the High Court, is six years from the date of the wrongful dismissal (s.5 of the Limitation Act 1980), unless the employee is under 18 or "of unsound mind" and in the absence of fraud, concealment or mistake (as to which, see ss.28 and 32 of that Act).

Interest on damages

Civil courts have a discretion to award interest on damages for wrongful dismissal (see s.35A of the Supreme Court Act 1981 and s.69 of the County Courts Act 1984). They normally do so from the date of the dismissal until the date they give judgment, at the rate payable on judgment debts (presently 8% per annum) or at such higher rate as may to them seem just. All unpaid awards of damages made by the High Court, and unpaid awards of damages of £5,000 or more made by a county court, carry interest at the rate payable on judgment debts from the time of "entering up" the court's judgment (see s.17 of the Judgments Act 1838 and the County Courts (Interest on Judgment Debts) Order 1991).

Industrial tribunals have no power to award interest on damages for wrongful dismissal. But such part of a tribunal's award of damages as remains unpaid 42 days after it was made will carry interest at the rate payable on judgment debts from then onwards (see the Industrial Tribunals (Interest) Order 1990).

CASE LIST

Abrahams v The Performing Right Society [1995] IRLR 486

Acklam v Sentinel Insurance Co Ltd [1959] 2 Lloyd's Rep 683

Addis v Gramophone Co Ltd [1909] AC 488

Alexander and others v Standard Telephones & Cables Ltd (No.2) [1991] IRLR 286

American Cyanamid Co v Ethicon Ltd [1975] AC 396

Baldwin v British Coal Corporation [1995] IRLR 139

Basnett v J & A Jackson Ltd [1976] IRLR 154

Beach v Reed Corrugated Cases Ltd [1956] 1 WLR 807

Berry v Aynsley Trust Ltd (1977) 127 NLJ 1052

Blayney and another v Colne Liberal Club 24.7.95 Case Nos. 6948/95 and 6949/95

Bliss v South East Thames Regional Health Authority [1985] IRLR 308

Bold v Brough, Nicholson & Hall Ltd [1964] 1 WLR 201

Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch 339

Boyo v London Borough of Lambeth [1995] IRLR 50

British Transport Commission v Gourley [1956] AC 185

Chapman v Aberdeen Construction Group plc [1991] IRLR 505

Collier v Sunday Referee Publishing Co Ltd [1940] 2 KB 647

Connor v Kwik-Fit Insurance Services Ltd and another 25.1.96 Court of Session

Dietmann v London Borough of Brent (No.2) [1987] IRLR 259

Dunk v George Waller & Son Ltd [1970] 2 QB 163

Edwards v SOGAT [1971] Ch 354

Focsa Services (UK) Ltd v Birkett [1996] IRLR 325

Francis v Municipal Councillors of Kuala Lumpur [1962] 1 WLR 1411

General Billposting Co Ltd v Atkinson [1909] AC 118

Gothard v Mirror Group Newspapers Ltd [1988] IRLR 396

Gunton v London Borough of Richmond-upon-Thames [1980] IRLR 321

Hill v C A Parsons & Co Ltd [1972] 1 Ch 305

Hopkins v Norcros plc [1994] IRLR 18 and [1992] IRLR 304

Irani v Southampton and South West Hampshire Health Authority [1985] IRLR 203

Ivory and others v Palmer [1975] ICR 340

Jackson v Invicta Plastics Ltd [1987] BCLC 329

Jones v Lee and another [1980] IRLR 67

Jupiter General Insurance Co Ltd v Shroff [1937] 3 All ER 67

Kempster v Cantor Fitzgerald (UK) Ltd 19.1.95 Court of Appeal

Lavarack v Woods of Colchester Ltd [1967] 1 QB 278

Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698

McClelland v Northern Ireland General Health Services Board [1957] 1 WLR 594

Malik and another v BCCI SA (in compulsory liquidation) [1995] IRLR 375 and [1994] IRLR 282

Micklefield v SAC Technology Ltd [1990] IRLR 218

O'Laoire v Jackel International Ltd (No.2) [1991] IRLR 170

Parsons v BNM Laboratories Ltd [1964] 1 QB 95

Powell v London Borough of Brent [1987] IRLR 466

R v BBC ex parte Lavelle [1982] IRLR 404

Robb v London Borough of Hammersmith and Fulham [1991] IRLR 72

Robert Cort & Son Ltd v Charman [1981] IRLR 437

Rudd v Cadeb Ltd 3.7.95 Case No.19199/95

Shove v Downs Surgical plc [1984] IRLR 17

Simmons v Hoover Ltd [1976] IRLR 266

Stapp v The Shaftesbury Society [1982] IRLR 326

Stewart v Glentaggart Ltd [1963] TR 345

Tolnay and another v Criterion Film Productions Ltd [1936] 2 All ER 1625

Wadcock v London Borough of Brent [1990] IRLR 223

Westwood v Secretary of State for Employment [1984] IRLR 209

Withers v General Theatre Corporation [1933] 2 KB 536

Yetton v Eastwoods Froy Ltd [1967] 1 WLR 104