Harper v Virgin Net Ltd

This is an appeal by the applicant Sally Harper against a decision of the Employment Appeal Tribunal (“EAT”) on 9^th July 2003 which allowed an appeal by the respondent Virgin Net Ltd from the award of damages for wrongful dismissal made in her favour by an Employment Tribunal sitting at London (Central) on 8^th May 2002. The tribunal in an earlier decision dated 29^th November 2001 had found that she had been wrongfully dismissed, and there was no appeal against that finding. The respondent did not dispute the element of the award which amounted to £9,514.04 in respect of three months’ net pay, being the amount she would have received during her contractual notice period if she had not been summarily and wrongfully dismissed.

The dispute between the parties both on the appeal to the EAT and on the appeal to this court centred around the correctness or otherwise of an additional sum awarded to her by the Employment Tribunal which represented the full award she would have received if she had been permitted to bring a claim for unfair dismissal under the terms of the Employment Rights Act 1996 (“the 1996 Act”). The tribunal held that she would have succeeded in such a claim because her dismissal was so clearly unfair, but she was precluded from bringing it because she had no statutory right not to be unfairly dismissed by her employer at the time of her summary dismissal. Her employment with the respondent commenced on 4^th April 2000 and was summarily terminated on 2^nd March 2001, 33 days short of the date when she would have completed the qualifying one-year period of employment needed for a claim for unfair dismissal to be open to her. The Employment Tribunal assessed her damages at £30,844.57 under this head, although it was obliged to cap her total award at the statutory maximum of £25,000. The EAT, for its part, ruled that this extra award was not available as a matter of law. It reduced her award accordingly to the sum of £9,514.04 which was not in dispute.

The issue we have to resolve falls within a comparatively small compass. A statutory right not to be unfairly dismissed was first granted to employees by section 22 of the Industrial Relations Act 1971 (“the 1971 Act”). In order to qualify for this right, an employee must have completed a specified period of continuous employment at the effective date of termination (“EDT”) of the contract of employment. This period was originally set at 104 weeks’ continuous service (1971 Act, s 28). After some variations over the years it is currently set at one year’s continuous employment (1996 Act, as amended, s 108(1)).

Soon after the 1971 Act came into force, a question arose in the Court of Appeal as to the position that would arise if an employer wrongfully dismissed an employee just before the end of his first 104 weeks of service in circumstances in which he would have qualified to have a right not to be unfairly dismissed if he had been given proper notice. In Brindle v Smith [1972] IRLR 125 Lord Denning MR held that the dismissal took place when the contract was terminated, and that the termination took place when the notice expired or was due to expire. He continued:

Megaw LJ said that he wanted to reserve consideration on this point, and after he had agreed that the appeal should be allowed, the third member of the court, Sir Gordon Willmer, said, delphically:

The 1971 Act was repealed in its entirety by section 1 of the Trade Union and Labour Relations Act 1974 (“TULRA”). Section 1(2) of TULRA provided that Schedule 1 of that Act was to have effect for re-enacting the unfair dismissal provisions of the 1971 Act (among other provisions) together with certain amendments to which reference was then made. The position was then governed by paragraphs 5 and 10 of that schedule until the Employment Protection Act 1975 (“the 1975 Act”) was enacted. Paragraph 5(5)(b) of Schedule 1 to TULRA provided that “the effective date of termination”, in relation to an employee whose contract of employment was terminated without notice, meant the date on which the termination took effect. In Dedman v British Building and Engineering Appliances [1973] IRLR 379 this court had held that where there was an immediate dismissal with salary in lieu of notice, the effective date of termination was the date of the dismissal and not the expiry of the period in respect of which the salary in lieu was paid.

A significant change to the original statutory scheme was enacted in paragraph 10 of Part III of Schedule 16 of the 1975 Act. This provision inserted a new sub-paragraph 5(6) in Schedule 1 of TULRA to the following effect (so far as is material):

It will be seen that Parliament expressly legislated to the effect that an employee dismissed without the statutory period of notice attributable to his employment would be deemed to have an EDT at the end of the statutory notice period. The complication in the present case lies in the fact that whereas Ms Harper’s statutory period of notice was only seven days (see the 1996 Act s 86(1)), she had a contractual entitlement to three months’ notice.

The modern equivalent of the statutory provisions I have quoted is to be found in section 97 of the 1996 Act:

After the changes introduced in 1974 there were two further occasions when senior judges expressed views similar to those expressed by Lord Denning in the Brindle case, although neither was material to the ruling they were then making. In Robert Cort & Son Ltd v Charman[1981] IRLR 437 Browne-Wilkinson J, the President of the Employment Appeal Tribunal, said (at para 14 of the report):

In Stapp v The Shaftesbury Society[1982] IRLR 326, a decision of this court, both Stephenson LJ (at para 32) and Sir David Cairns (at paras 40-41) referred to the dicta in Brindle and Court without approval or disapproval, except to the extent that Sir David Carins said that it might well be that in a common law action for wrongful dismissal the dismissed employee could recover damages for the loss of his right to allege unfair dismissal “particularly if the summary dismissal had been effected for the specific purpose of depriving him of his right”.

By the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 the jurisdiction of Employment tribunals was extended for the first time to include claims for wrongful dismissal, subject to a statutory cap of £25,000 (see Article 10 of that order). In Raspin v United News Shops Ltd [1999[ IRLR 9 the EAT was concerned for the first time to decide the point which had been discussed in Brindle, Cort and Stapp.

In that case Judge Hicks QC applied orthodox principles relating to the recovery of damages for breach of contract. He said (at para 59) that what must be compared for the purposes of assessing damages was the position in which the employee found herself when dismissed, at a date when she had no right to complain of unfair dismissal, with the position in which she would have found herself had she been dismissed on or after the date at which the right to bring such a complaint arose. He added:

In Johnson v Unisys[2001] UKHL 13; [2003] 1 AC 518 the House of Lords held that the existence of a statutory remedy for unfair dismissal precluded the development of a common law obligation on an employer to exercise a power of dismissal in good faith. Lord Millett ended his speech (at para 80) in these terms:

In the present case the EAT held that the decision of the House of Lords in Johnson precluded them from upholding the Employment Tribunal’s additional award. In paragraph 39(1) of the judgment of the EAT, Judge Peter Clark explained the position in these terms:

I cannot fault this reasoning. I agree with the judge that it would have been open to Parliament, when it reviewed the scheme following Lord Denning’s observations in Brindle, to enable someone in Ms Harper’s position to have a statutory right to claim compensation for unfair dismissal by crafting the new sub-paragraph 5(6) in Schedule 1 of TULRA (see para 7 above) and its subsequent re-enactments (see para 9 above) so that the EDT in the case of an employee whose contract of employment was terminated by no or inadequate notice would be the date on which a contractual period of notice, if given, would have expired. But Parliament decided not to adopt its statutory scheme in this way, and I do not consider it is open to the courts, through the machinery of an award of damages for wrongful dismissal, to rewrite Parliament’s scheme and to place a financial burden on employers which Parliament decided not to impose on them. In this context I accept Ms McCafferty’s submission on behalf of the respondent to the effect that Ms Harper did not lose the right to claim compensation for unfair dismissal: she never had such a right because she fell short of the requirement of one year’s continuous service which Parliament has prescribed as the gateway to such a right.

To take any other course would be to expose courts and tribunals to something akin to the chaos which Lord Millett feared. Everyone is now familiar with the statutory scheme for claiming compensation for unfair dismissal. The EDT can generally be identified without too much difficulty, and provided that it falls at a time when the employee has attained his/her statutory right not to be unfairly dismissed (see para 3 above), then an application may be made to an employment tribunal, subject to the observation of the strict time limits for such applications.

If Mr Cramsie’s submissions on behalf of Ms Harper are well-founded, a wrongfully dismissed employee whose EDT predates the end of his/her first year of employment (perhaps by a number of months) will have the benefit of a much longer limitation period in which to make a claim that the dismissal deprived him/her of the chance of continuing in employment for a longer period and then making a claim for compensation for unfair dismissal. In Ms Harper’s case, this claim cannot be based on the actual facts of her actual dismissal because by statute she has no right to claim compensation for unfair dismissal in respect of that dismissal. Instead, the court would have to speculate about the chances of her being unfairly dismissed on some later hypothetical occasion after her statutory right had accrued. This, in my judgment, would be a very unsatisfactory way of proceeding and would attract the justified opprobrium that was of concern to Lord Millett.

Ms McCafferty, in her powerful submissions, referred us to passages in the speeches in Johnson of Lord Nicholls (at para 2), Lord Steyn (at para 17, final sentence) and Lord Hoffmann (at para 37) as showing variously that the House of Lords recognised in that case that the law relating to employment contracts had always possessed certain special features, and that today the judges when developing the law must have regard to the policies expressed by Parliament in legislation. To permit a claim such as that now being advanced by Ms Harper would, in Lord Nicholls’s words (as adapted to the different situation we are considering):

For these reasons I would dismiss this appeal.

Section 94(1) of the Employment Rights Act 1996 confers on an employee the right not to be unfairly dismissed by his employer. But that section has effect subject to section 108 of the Act – section 94(2). And section 108(1) of the Act provides (in the cases to which it applies) that section 94 has no application to the dismissal of an employee unless he or she has been continuously employed for a period which, for the purposes of this appeal, is one year ending with the effective date of termination. The “effective date of termination” may, therefore, be critical in determining whether an employee has a right not to be unfairly dismissed.

In the present case it is common ground that the effective date of determination of the appellant’s contract of employment was 9 March 2001. That is the effect of section 97(2) of the Act, read with section 86(1), in circumstances where her employment commenced on 4 April 2000 and was terminated by the employer without notice on 2 March 2001. It is common ground, also, that – in those circumstances – she had no right under the Act not to be unfairly dismissed.

It is important to keep in mind that the Act provides its own criteria for determining whether, for the purposes of Part X, the dismissal of an employee is unfair - sections 98 to 107. It would, I think, be conceptually possible to incorporate, as an express term of a contract of employment, an obligation upon the employer not to act unfairly (having regard to those statutory criteria) when dismissing an employee; but there was no such express term in the appellant’s contract. In JohnsonvUnisysLtd [2001] UKHL 13, reported at [2003] 1 AC 518, the House of Lords explained why the courts should not imply such a term – see, in particular, the observations of Lord Hoffmann at paragraph [37].

In the present case, therefore, the appellant’s rights in relation to dismissal were confined to the rights conferred upon her by her contract of employment. Those rights included, of course, a right not to be wrongfully dismissed; that is to say, a right not to be dismissed in breach of the contractual terms. The employment tribunal held, in the decision sent to the parties and entered on the register on 29 November 2001, that in dismissing her without notice on 2 March 2001, the respondent had acted in breach of the contract term as to notice. Following a subsequent hearing to assess the damages to be awarded in respect of that breach, the tribunal held that the appellant was entitled not only to the salary that she would have received if she had been given the three months’ notice for which her contract provided but also to a further sum described as “loss of opportunity to claim unfair dismissal”. In quantifying that further sum the tribunal treated the appellant, in effect, as a person who had been unfairly dismissed by a notice given on 2 March 2001 in accordance with the contractual requirements.

In my view, that approach was wrong in principle. It required the tribunal to ask itself what compensation it would have awarded if the appellant had been dismissed, in the circumstances in which she was dismissed, by a notice given on 2 March 2001 in accordance with the terms of her contract. Such a notice would have expired on 1 June 2001; that would have been the effective date of termination for the purposes of Part X of the 1996 Act – see section 97(1)(a); and, in those circumstances, the right not to be unfairly dismissed conferred by section 94(1) of the Act would not have been excluded by section 108(1). But that approach does not involve the quantification of the loss of an opportunity – or, as it is often put, “the loss of a chance”. It would be wholly artificial for an employment tribunal to ask itself what compensation it would have awarded if the employee had been dismissed in the circumstances in which he or she was dismissed (but with proper notice) and then discount that figure to reflect the “chance” that it might not have awarded that sum. And, of course, this employment tribunal did not engage in such an artificial exercise. It simply asked itself what compensation it would have awarded for unfair dismissal if it had been dealing with the matter as an unfair dismissal claim under the Act.

On a true analysis, as it seems to me, the approach adopted by the employment tribunal in the present case cannot properly be described as the assessment of the loss of a chance. It is an assessment of the compensation for unfair dismissal to which the appellant would have been entitled if she had been given the three months notice to which she was contractually entitled. But, if Parliament had intended employment tribunals to award compensation for unfair dismissal on the basis that the effective date of termination was the end of the contractual notice period, it would have said so when it enacted paragraph 10 in Schedule 16 to the Employment Protection Act 1975 – the origin of the provisions now found in section 97(2)(b) and (3) of the 1996 Act. It did not do so.

It is, I think, plain – as Lord Justice Brooke has pointed out – that paragraph 10 in Schedule 16 to the 1975 Act was Parliament’s response to the observations of Lord Denning, Master of the Rolls, in Brindle v H W Smith (Cabinets) Ltd [1972] IRLR 125, 126 (para. 9). There are two features in that provision which are of significance in the present context. First, Parliament did not leave the matter to be dealt with in an action for wrongful dismissal. It dealt with the problem directly; by postponing the effective date of termination. Second, Parliament did not think it appropriate to have regard to the contractual period of notice. It postponed the effective date of termination by reference to the period of statutory notice. In particular it did not – as it easily could have done – postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice. That must be seen as a deliberate policy choice.

The decision not to postpone the effective date of termination to whichever should be the later of the expiry of the periods of contractual or statutory notice is of significance because it must have been obvious to the legislature that there would be cases in which the period of statutory notice required by section 86(1) of the 1996 Act would exceed a period of contractual notice – and vice versa. It would be bizarre to attribute to Parliament an intention that, if the period of statutory notice were the longer, compensation for unfair dismissal (in a case to which section 97(2) applied) should be dealt with under the Act; but that, if the contractual period of notice were the longer, the same result would be achieved by a claim for wrongful dismissal at common law.

The point may be illustrated by an example. Suppose a case in which the employee is dismissed, wrongfully without notice, eleven weeks before the end of the first year of continuous employment. If the contract provides for twelve weeks notice, but the notice period required under section 86(1) of the Act is only ten weeks, compensation in respect of unfair dismissal can only be awarded (if at all) by treating the claim as one for damages for wrongful dismissal. If the contract provides for ten weeks notice, but the statutory notice required is twelve weeks, compensation for unfair dismissal can be awarded under the Act. If the appellant is correct, the amount awarded will be the same in each case. But, if so, why should Parliament be taken to have intended that the same result be reached by two different routes? The answer, as it seems to me, is that Parliament must be taken to have intended that the result would not be the same in the two cases. It is only in the latter case that the employee is to be compensated for unfair dismissal.

Lord Hoffmann pointed out, in Johnson v Unisys, that:

In my view that legislative decision must be respected. Employment tribunals should not seek to circumvent that decision by awarding compensation for unfair dismissal in cases which are outside the statutory scheme by the pretence that what they are doing is to value the loss of a chance.

For those reasons, and for the reasons given by Lord Justice Brooke with which I agree, I too would dismiss this appeal.

I agree with both judgments.