Free 2.2 Law Essay: (Masters Level)

This assignment will discuss the landmark ruling in Johnson v Unisys Ltd , and it's effect on the recovery of compensation in unfair dismissal cases, in particular its attempt to limit the application of the implied term of mutual trust and confidence. This assignment will explore the case itself and then consider some of the decisions reached in light of the decision in Johnson. It will be concluded that whilst it may have been practical to reach the decision in Johnson it is not necessarily desirable, nor it is argued were the aims of Johnson entirely clear.

In the case of Johnson v Unisys Ltd , the appellant, having already obtained statutory compensation for unfair dismissal, relied on a newly recognised duty to claim damages at common law for psychiatric injury caused by the stressful manner in which his previous employer had conducted his dismissal. His claim failed. Their Lordships affirmed Addis v Gramophone Co Ltd , holding that at common law damages for wrongful termination of a contract of employment were confined to economic loss caused by the fact of dismissal, and no award could be made for personal injury caused by the manner of the dismissal. In other words all that could be claimed for wrongful termination of contract was the salary which should have been paid during the period of notice.

The House of Lords in Johnson accepted that unfair dismissal legislation stood in the way of the development of a common law implied term or duty of care governing the fairness of dismissal. This gave rise to the anomaly that an employer who suspended an employee pending an investigation could be the subject of a claim for psychiatric damage arising from a breach of the duty of care or the implied term of trust and confidence, but an employer who simply dismissed without question could have no such liability. Given that context, there was an understandable temptation for employees to view unfair dismissal compensation as covering non-economic damage so that an employee suffering damage to health arising out of the fact or manner of dismissal might not be left without a remedy . However the possible shortcomings of the common law, identified in 2001, could not be a proper basis for distorting the clear meaning of legislation which, in the case of the compensatory award, was based on a formula which had essentially remained unchanged since 1971. Nor could the unfair dismissal legislation fill perceived gaps in the common law, having regard to the qualifications and limits of the legislation-notably the one year period of qualifying service and the statutory cap applicable in most cases.

Lord Hoffmann carefully considered the policy implications of extending common law remedies when Parliament had set up a statutory scheme for compensating employees who suffered unfair dismissal, concluding that all the matters of which Mr Johnson complained were within the statutory jurisdiction of the employment tribunal. He noted that in that scheme:
"The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life".

Prior to their Lordships hearing Johnson v Unisys the Court of Appeal had, in Gogay v Hertfordshire County Council , reviewed the High Court ruling in favour of a claimant who relied on the duty of trust and confidence to found a common law claim for damages for psychiatric injury. In this case the Claimant was a care worker who had been suspended while her employer's investigated statements made about her by a child at the home where she worked. The investigation exonerated her but as a result of this investigation she had become clinically depressed and could not face returning back to work. The Court of Appeal considered that the suspension had not been warranted and therefore amounted to breach of the implied duty of trust and confidence.

Similarly in the case of McCabe v Cornwall County Council and Others the house of lords came to consider whether or not employees who had claimed, or were entitled to claim, statutory compensation for unfair dismissal were barred from claiming common law damages for stress-related personal injury caused by breach of contract prior to and distinct from their dismissal. In both cases the claimants alleged that they had suffered stress related illness as a result of protracted and procedurally faulted investigations preceding dismissal. Lord Nicholls noted the two situations of financial loss flowing from suspension and financial loss from illness caused by pre-dismissal unfair treatment. In his view:
"In such cases the employee has a common law cause of action which precedes, and is independent of, his subsequent dismissal".

His Lordship noted that distinguishing between damage caused by events preceding, and damage caused by the dismissal itself:
"may give rise to difficult questions of causation in cases such as those now before the House, where financial loss is claimed as the consequence of psychiatric illness said to have been brought on by the employer's conduct before the employee was dismissed. Judges and tribunals, faced perhaps with conflicting medical evidence, may have to decide whether the fact of dismissal was really the last straw which proved too much for the employee, or whether the onset of the illness occurred even before he was dismissed... An employer may be better off dismissing an employee than suspending him. A statutory claim for unfair dismissal would be subject to the statutory cap, a common law claim for unfair suspension would not".

Whilst Johnson v Unisys illustrates a situation where non-economic damages might be caused by a disciplinary process carried out in haste, in other cases the converse situation of an elongated process, with a lengthy period of suspension, might be alleged to cause damage to health-as was alleged to be the case in Eastwood v Magnox Electric plc . In such cases, it may be open to an employee to contend that there was a breach of the requirement that each step under the procedure must be taken without unreasonable delay. If delays caused heightened stress, or damage to health to the employee, this might be taken into account in relation to assessing the degree of uplift.

In Eastwood v Magnox Electric the House of Lords have now held that 'if before his dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action remains unimpaired by his subsequent unfair dismissal and the statutory rights flowing therefrom'. Eastwood requires that the employer act fairly during any disciplinary process. A decision to the contrary would have been incompatible with the rationale of the implied obligation of mutual trust and confidence. As Lady Smith explained in King v University of St Andrews since disciplinary proceedings may or may not culminate in dismissal, if ultimately there
"was a decision not to dismiss then the implied duty of trust and confidence would obviously apply to the continuation of the ongoing working relationship between employer and employee. It is hard then to see how and why, bearing in mind the purpose of the implication of the duty, it should be regarded as suspended whilst the employer carries out the critically important task of assessing whether good cause for dismissal has been shown. For an employer to act in breach of that duty during an assessment which has the potential either to reinforce or to terminate the contract of employment would clearly be highly destructive of and damaging to the relationship between them".

Given the decision in Johnson would an employer be free to exercise his powers in respect of termination in any way he chose? If the answer to that question is yes then an employer might be able to deprive an employee of, not just his employment, but also the benefit of a contractually provided scheme of income protection. As a result of Johnson, there would be no implied restraint on the notice clause as such, however, that is not to say that there is no scope, depending upon the language used, for implication where a scheme of income protection is concerned. It could be said that it was implicit in such a scheme that entitlement to income protection would not be lost where employment was forfeited in an unreasonable manner..

It would seem now that the decision reached in Addis, barring recovery for injury to feelings at common law, looks increasingly anachronistic in the context of the employment contract. It is worthy of note that in Johnson Lord Millett explains the rule by stating that contractual parties, by the very fact of contracting, take the risk of the 'ordinary feelings of anxiety, frustration and disappointment caused by any breach of contract'. Such a stance may be justifiable where commercial relations are concerned. It must be doubted whether it is appropriate to view an employment contract on this basis. In the words of McLachlin J in Wallace v United Grain Growers the employment contract 'is not a simple commercial exchange in the marketplace of goods or services.

Primary obligations, such as the obligation of mutual trust and confidence, recognise the intangible element in employment relations and it is to be hoped that the law on damages will evolve and follow suit. Indeed one might go further and assert that the obligation of trust and confidence falls outside the rationale of Addis. The all embracing nature of the obligation means that non-pecuniary harm is not only within the contemplation of the parties but would be a 'direct result of the breach itself and not the manner of the breach '

The case of Sheriff v Klyne Tugs (Lowestoft) Ltd the Court of Appeal held a county court judge had correctly struck out as an abuse of process the appellant's claim for damages for psychiatric injury caused by racial harassment during the course of employment. The appellant had already brought before an employment tribunal a claim for race discrimination couched in almost identical terms to the common law claim he sought to pursue. The Court of Appeal pronounced that an employment tribunal has jurisdiction under the Race Relations Act 1976 section 56(1) to award compensation for personal injury caused by the statutory tort of unlawful racial discrimination.

Dunnachie v Kingston-upon-Hull City Council required the House to clarify whether the statutory provision which empowers tribunals dealing with unfair dismissals to award such compensation as 'just and equitable' was sufficiently broad in intent to cover psychiatric injury. Mr Dunnachie experienced a bad case of bullying which, according to the tribunal at first instance, clearly breached the employer's implied contractual term of trust and confidence and gave rise to his constructive dismissal. Over a period of many months, the humiliation, aggression and threatening behaviour of his manager reduced him to a state of overt despair and resulted in a three week period of stress-related absence from work. Before tendering his resignation, Mr Dunnachie was able to find an alternative position with Doncaster City Council and thus managed to avoid any break in employment continuity.

There was no medical evidence presented of any recognised psychiatric condition and Mr Dunnachie therefore had no common law cause of action and, instead, sought sanctuary in the statutory code of unfair dismissal.

Section 123 of ERA 1996 provides that the compensatory award "shall be such amount as the tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer". The principal issue before the House of Lords was whether "loss" could include non-pecuniary damages. Since the decision in Johnson employment tribunals had been plunged into chaos with some tribunals awarding compensation for injury to hurt feelings contrary to the rule in Norton Tool Co Ltd v Tewson , and with other tribunals refusing to make such awards.

In the present case, the issue was to determine the true origins of s 123. Lord Steyn held that the ultimate genesis of this section was s 116 of the Industrial Relations Act 1971 and that "nothing that happened since 1971 could justify giving the statutory formula a meaning it did not originally bear. " Accordingly, the word "loss" in s 116-and therefore s 123-was said to have a plain meaning which excluded non-economic loss and did not cover injury to feelings.

Lord Steyn further went on to deal with the compensatory award under s 123 which was to be determined by reference to what the tribunal considered "just and equitable in all the circumstances having regard to the loss". The majority of the Court of Appeal had accepted that the reference to "just and equitable", together with the ruling in Devis v Atkins , enabled tribunals to include non-pecuniary elements in the award. Lord Steyn however thought that the phrase "gives the tribunal a degree of flexibility having regard to the informality of the procedures, and the fact that the maximum award is capped ". Section 123 was to be construed as a composite formula without relegating the criterion of loss to a subordinate role. Moreover, the Court of Appeal had misinterpreted Devis, as "it was not a ruling that a tribunal is free to award additional sums not amounting to loss ."

In his brief judgment, Lord Rodger further justified the decision by highlighting that the tribunals' remedial options of reinstatement and re-engagement did not permit the recovery of non-pecuniary loss. Hence, any alternative construction of s 123 would have introduced an inconsistency into the statutory framework.

It therefore follows that where the fact of dismissal triggers mental illness, the employer can rely upon the Johnson common law immunity and the employee's redress will be restricted to the capped compensatory provisions of Part X of Employment rights act1996. However, were the illness to arise at any time prior to the dismissal decision, the employee will have an independent cause of action at common law, with damages subject to the rules on remoteness, either for breach of the implied term or in negligence.

However, Dunnachie now shows that there would not necessarily be a complete overlap between unfair dismissal compensation and a putative common law action; the result is that non-economic loss now cannot be recovered at common law on termination nor in the statutory action for unfair dismissal. Moreover, there may be further complications depending on what the ex-employee is suing for; we tend to lump together "manner of dismissal" damages, but these could be for the psychiatric injury itself, injury to feelings or financial consequences of the.

The position of the law is therefore that an employee is entitled to pursue a common law claim for financial losses flowing from the employer's breach of trust and confidence when taking steps leading to dismissal. The Lords in the Eastwood case recognised that this leaves the law in an highly unsatisfactory state for a number of reasons, including:
"it encourages employees to pursue claims both in the employment tribunal and the civil courts; it means that a continuing course of conduct, typically a disciplinary process followed by dismissal, may have to be "chopped artificially into separate pieces"; it gives rise to difficult questions of causation where employees claim psychiatric illness was brought on by predismissal conduct; and in some cases, employers may be better of dismissing than suspending: an unfair dismissal claim will be subject to the statutory £55,000 cap whereas a common law claim for unfair suspension will be unlimited"

It would seem that the position of the claimant seeking to recover damages for psychiatric injury can be summarised as follows:-

(1) The claimant who invokes statutory provisions relating to unfair dismissal cannot rely on the Employment Rights Act 1996 to obtain such compensation, but may do so if the claim can be founded on the Race Relations Act, because unlawful discrimination is a statutory tort. Possibly (though this has yet to be tested) other discrimination legislation may provide a similar opportunity. It is noteworthy that compensation for discrimination is uncapped.
(2) Reliance can only be placed on breach of the implied contractual term of trust and confidence when the breach can be clearly distinguished from wrongful termination of contract. The occasions on which breach does not amount to termination must be rare. The most likely
(3) situations in which this term may be relied are where (as in Gogay) the psychiatric injury has been caused by unjustifiable suspension or (as in Eastwood) the events leading up to dismissal are extremely protracted and procedurally faulted. This, as Lord Nicholls suggested, is likely to impose upon the courts difficult problems of determining causation of injury, and the distinction is difficult to justify since the employer's wrongdoing and the employee's injury are the same in either situation.
(4) The value of the employer's implied duty to take reasonable care in litigation for breach of contract has yet to be tested, but in Eastwood Lord Nicholls, while considering the ' "trust and confidence" term' opined that it would be 'equally wrong to achieve the same result by imposing a duty of care' (at para 10). He went on to say 'development of the common law along these lines cannot co-exist satisfactorily with the statutory code regarding unfair dismissal'.

If, therefore, the claimant is thrust back on the tort of negligence what are the prospects of success for claims determined using the Sutherland propositions? Barber signals that those propositions must be fairly applied to the evidence. Nevertheless the heavy reliance in negligence litigation on selection, presentation and evaluation of evidence, leaves doubt as to whether objective decisions and uniform standards will ever be achievable in the tort of negligence. Already it is arguable that Colman J's disregard, In Walker, for the financial resources of the large organisation is difficult to reconcile with Hale LJ's proposition, in Sutherland, that in small organisations lack of resources may be relevant to liability. It is therefore concluded that the decision reached in Johnson has far ranging implications some of which are discussed above and some which yet to have been felt by employees.



Employment Rights Act 1996
Industrial Relations Act 1971
Race Relations Act 1976


Addis v Gramophone Co Ltd [1909] AC 488
Barber v Somerset County Council [2004] IRLR 475
Devis v Atkins [1977] IRLR 314
Dunnachie v Kingston-upon-Hull City Council
Eastwood v Magnox Electric plc
Gogay v Hertfordshire County Council [2000] IRLR 703
Johnson v Unisys Ltd [2001] UKHL 13
Levy v Allied Dunbar Assurance plc [2000] WL 33148711
Mahmud v Bank of Credit and Commerce International SA [1998] AC 20
McCabe v Cornwall County Council and Others [2004] UKHL 35
Sheriff v Klyne Tugs (Lowestoft) Ltd [1999] IRLR 482
Wallace v United Grain Growers ((1997) 152 DLR (4th) 1 at 46)

Journal Articles

Allen N, (2004) "Good faith or no faith?", New Law Journal, 30 JULY 2004, P 1170-71.
Allen N, (2004) "Dunnachie - The Door Closes", New Law Journal 154.7140 (1208)
Author Unknown, (2004) "Employment Affairs - Unison Call for Increase in Unfair Dismissal Compensation", Liability, Insurance and Risk 168 (12)
Barnett D, (2003) "Weep no More", New Law Journal 153.7085 (940)
Barrett B, (2004), "Recent Case Notes: - Employers Liability For Stress At The Work Place: Neither Tort Nor Breach of Contract?", Industrial Law Journal 2004.33 (343
Brodie D, (2004), "Recent Cases- Commentary - Health and Safety, Trust and Confidence and Barber v Somerset County Council: Some Further Questions",
Brodie D, (2001) "Legal Coherence and the Employment Revolution' 117 Law Quarterly Review 604;
Bennett M, (2002) "Interpreting Unfair Dismissal And Redundancy Payments Law: The Judicial Reluctance to Disapprove Employer Decisions to Dismiss" Statute Law Review 23 (135)

Bowers J, (2005) "Recent Cases - Commentary- Non - Economic Damage in Unfair Dismissal Cases: What's left after Dunnachie?" Industrial Law Journal 2005. 34 (83)
Enonchong N, (1996) 'Breach of Contract and Damages for Mental Distress' (1996) 16 Oxford Journal of Legal Studies 617.

McMullen J, (2003) "Practice Points: Unfair Dismissal: Time for a Rethink", Law Society Gazette 100.27(42)

Smith I, (2004) "Employment Law Brief", New Law Journal 154.7141 (1249)

Underwood K, (2004) "Unfair Dismissal and Injury to Feelings", Employment Law and Litigation 9.6(21)


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