Lavarack v Woods of Colchester Ltd [1966] EWCA Civ 4
Damages for wrongful dismissal; whether increase in salary and bonuses included
Facts
Lavarack was employed by Woods of Colchester (WOC). Under the employment contract, he was to earn £4,000 per year and such bonuses as the directors determined. He was wrongfully dismissed in breach of contract. Lavarack was then employed by another company on a lower salary. He purchased half the share capital in that company and invested in another company which was in competition with WOC. Lavarack sought damages for wrongful dismissal.
Issues
Lavarack contended his investment in the other companies should not be taken into consideration when his damages were assessed because these were separate investments which he could have made in WOC’s employment. Profits accruing to employees may only be taken into account in mitigation when they stem from the employer’s breach. He sought to claim for an increase in salary and the bonuses he argued he would have been awarded. WOC argued the investments were benefits accruing to Lavarack in consequence of breach, and as such should be taken into consideration. WOC contended the award of the bonuses was discretionary and did not amount to a contractual obligation and, were therefore, unrecoverable. Further, the evidence showed his salary would have likely decreased had he remained in WOC’s employment.
Decision/Outcome
Lavarack was not entitled to recover extra benefits which the contract did not oblige the employer to confer. Lavarack was only contractually entitled to receive £4,000 per annum. His release from the contract allowed him to increase his shareholding in his new employer’s company and, therefore, the increase in value of the shareholding was consequent upon the breach and could be off-set against his losses. Lavarack’s investment in the other company, however, was not consequent upon the breach and could not be so offset.
Updated 19 March 2026
This case summary remains legally accurate. Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 (also cited as [1966] EWCA Civ 4) continues to be good law and is regularly cited as a leading authority on two principles: first, that damages for wrongful dismissal are limited to what the contract obliged the employer to provide, and do not extend to purely discretionary benefits; and second, that gains accruing to the claimant as a direct consequence of the breach must be taken into account in mitigation, whereas collateral gains need not be. These principles have been affirmed and applied in subsequent case law, including Clark v BET plc [1997] IRLR 348 and Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287 (which refined the position on discretionary bonuses by holding that an implied term of good faith may constrain the exercise of a discretion, though this does not affect the core rule in Lavarack that purely discretionary benefits remain unrecoverable as of right). There have been no statutory changes that alter the continuing relevance of this case to the law of wrongful dismissal damages. Readers should note that the distinction between contractual entitlements and discretionary benefits in the context of bonuses has continued to develop through case law, and specialist employment law sources should be consulted for the latest position on any specific bonus clause.
