MOD v Wheeler [1998] IRLR 23
Digital Equipment v Clements (No2) [1998] IRLR 134
Thorny problems of calculating compensation for unfair dismissal and unlawful discrimination continues to exercise top legal brains. The Court of Appeal considered both issues separately in the Digital Equipment and MOD v Wheeler cases.
We reported the two EAT decisions in Digital Equipment (LELR Issue 4, EAT slashes compensation payments, and Issue 8, Compensation formula) and welcomed the Employment Appeal Tribunal decision as a fair and logical conclusion. The Court of Appeal has rejected the EAT's decision leading to a significant reduction in compensation for the employee concerned.
Digital Equipment concerns the calculation of compensation for unfair dismissal where an employer had paid a severance payment in excess of the statutory redundancy payment. The law concerned is Section 74(7) of the Employment Protection (Consolidation) Act 1978 (now s123(7) Employment Rights Act). This section states: "If the amount of any payment made by the employer to the employee on the grounds that the dismissal was by reason of redundancy...exceeds the amount of the basic award...that excess shall go to reduce the amount of the compensatory award".
In Mr Clements' case the Industrial Tribunal found that if a fair procedure and proper consultation had taken place there was a 50% chance that Mr Clements would not have been selected for redundancy. The tribunal also found that Mr Clements' losses were £42,000. The excess of the redundancy payment over the basic award was £20,000. How should they take account of the 50% chance of retaining his employment and the excess of the redundancy payment?
The Court of Appeal decided that the language of s74(7) is clear: that Parliament intended that the employer who paid compensation for redundancy on a more generous scale than the statutory scale, was entitled to full credit for the additional payment against the amount of the loss which made up the compensatory award.
In Mr Clements' case therefore the 50% chance of him being retained was to be applied to his total loss leaving £21,000. The excess of the redundancy payment is then taken away leaving Mr Clements with only £1,000 in compensation.
In MOD v Wheeler the Court of Appeal considered the correct approach to the assessment of compensation in cases where the claimant has or should have mitigated her loss by obtaining other employment. The MOD case concerned the long running saga of compensation to women dismissed from the Armed Forces due to pregnancy.
In this case the Court of Appeal said that the general principle to apply when assessing compensation is that, as far as possible, complainants should be placed in the same position as they would have been in but for the unlawful act. The Court of Appeal found that the correct way to assess compensation is to take the sum that the claimant would have earned in the Forces, deduct from that sum the amount she has, or should have earned elsewhere, and then apply the percentage discount (as to whether she would have returned to work and completed her engagement) to the net loss. This is a fair result leading to compensation for the women concerned.
It is unfair that the result of the Digital case means that where employees have been unfairly selected for redundancy, but paid in excess of the statutory redundancy payment, their compensation may be wiped out. It is unjust that compensation for dismissal should be treated less forwardly than compensation for tribunal losses caused by discrimination.