Doherty -v- British Midlands Airways Ltd

In assessing compensation for unfair dismissal, tribunals routinely include the loss of benefits such as pension rights and health insurance as part of the compensatory award.

In Knapton & ors -v- ECC Card Clothing Ltd, the employment appeal tribunal (EAT) said that even if employees draw their pension early, the value of those benefits should not be deducted from the compensatory award.

The claimants’ union, Amicus, instructed Thompsons to act on their behalf.

What were the basic facts?

Mr Knapton and Mr Daniel – who had both worked for ECC for about 30 years – were dismissed in April 2004. Both had contributed to and were entitled to draw their pension early from the company’s final salary pension scheme, and both enjoyed the benefit of life assurance cover (as did a third claimant, Mr Van Bellen).

Both men decided to take their pensions early and the three men agreed a figure with the company to compensate them for their future loss of the life cover. However, they could not agree compensation for the 70 weeks between the date they were dismissed and the tribunal hearing date.

The employment tribunal said that the company could set off its liability for the two men’s pension benefits against the compensatory award. And because they had not arranged more life cover, refused the three of them compensation up to the date of the hearing.

What was the relevant legislation?

Section 123 (1) of the Employment Rights Act 1996 says that the amount of the compensatory award should be “just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.”

Section 123 (2) says that the “loss” includes the loss of any benefit “which he might reasonably be expected to have had but for the dismissal.”

What did the parties argue at appeal?

Mr Knapton and Mr Daniel argued that the tribunal was wrong to say they had benefited from taking their pension early, since the amount they received was the same whether it was taken early or late.

As for the life assurance, they argued that they were entitled to be put in the same position as if they had not been dismissed. At the time of their dismissal, they were covered by life assurance, but had not received any payment to cover the 70 weeks leading up to the hearing.

The company, on the other hand, argued that, by taking their pension early, the men were in a similar situation to other claimants entitled to benefits such as incapacity benefit or job seekers allowance, which are then deducted from the compensatory award.

What did the EAT decide?

The EAT said that the decision by the men to take their pension early was a personal decision about how to manage their money now that they were out of work.

The overall pot of money they received was the same, whether they drew on it now or later. The EAT could see no reason, therefore, why the company should be allowed to reduce its liability.

It concluded, on the basis of previous cases, that occupational pensions were deferred wages for work done before the dismissal and could not be compared to state benefits. The tribunal was therefore wrong to compare these payments to incapacity and sickness benefits cases.

As a result, the two men will effectively receive double the amount that the tribunal originally awarded to them.

The EAT did, however agree with the tribunal that, since the men had survived for 70 weeks “without the insured event occurring”, they could not claim any financial loss for the life assurance cover.

They had not gone out and bought a substitute policy for which they could have claimed compensation and they had not therefore, suffered any financial loss.