The claimant was dismissed and found new temporary employment, paying less than the old job, within 7 weeks. However, very soon afterwards she went off sick and only received statutory sick pay. The claimant won her claim of unfair dismissal at the ET and the ET assessed  compensation based on the difference between her old pay and new pay over a period of 40 weeks which amounted to over £13,000. They then deducted the wages she received from the new employer and the statutory sick pay she had received. The respondent appealed the remedy decision and put forward two arguments: 1) the compensation should have been limited to 7 weeks pay because the claimant was unable to work after that cut off point; 2) in the alternative, if the claimant had continued in her employment with the respondent and had gone off sick, she would only have been entitled to SSP – since she received SSP from the new employer, she suffered no loss during the period of sickness.

The EAT rejected the first argument but agreed with the second. The first argument was rejected because the law did not recognise such a cut off point. However, any compensation awarded should have been limited to the difference between what she did receive and what she would have received from her previous employer. In this case there was no difference so the compensatory award was set aside and the parties were invited to make representations relating to the amount of compensation due.

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Appeal No. UKEAT/0382/12/JOJ

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX

At the Tribunal

On 23 January 2013

Before

MR RECORDER LUBA QC

MR C EDWARDS

MR M WORTHINGTON

AVIA TECHNIQUE LTD (APPELLANT)

MS R KALIA (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR RICHARD REES (Representative)
Peninsula Business Services Ltd
The Peninsula
2 Cheetham Hill Road
Manchester
M4 4FB

For the Respondent
MR STEVEN FULLER (of Counsel)
Instructed by:
Atkinson Rose LLP
26 York Street
Mayfair
London
W1U 6PZ

UNFAIR DISMISSAL – Calculation of compensatory award

Having been unfairly dismissed, the employee took short term lower paid employment. But after a few weeks she fell ill and incapable of work. The Employment Tribunal made a compensatory award of 40 weeks from dismissal assessed at the difference between her old and new pay rates. On appeal, the employer argued:

(1) Supervening and incapacitating ill-health should have triggered a cut-off to the compensatory award; or

(2) After she became ill, the former employee suffered no loss because she received statutory sick pay from the new employer at same rate the old employer would have paid.

Appeal allowed on ground 2. Compensatory award reduced to actual loss (i.e. difference between old pay and new pay for the weeks the employee had been able to work).

Appeal did not succeed on ground 1 because the law recognised no such cut-off.

1. This an employer’s appeal against the amount of an award of compensation for unfair dismissal made by an Employment Tribunal. The employer’s case is that the award was vitiated by an error of principle made by the Tribunal and must be set aside. The employee seeks to uphold the Employment Tribunal’s award contending that no error of principle was made.

1. Ms Kalia had worked for the employer, Avia Technique Ltd, from April 2008. On 25 October 2010 she was dismissed and paid a month’s salary in lieu of notice. The reason given for dismissal was redundancy and so she also received a statutory redundancy payment. Arising from that dismissal, Ms Kalia brought various claims before the Employment Tribunal.

1. After a three day hearing, the Employment Tribunal at Reading (Employment Judge Gumbiti Zimuto and members) upheld her claims of harassment on the grounds of race and sex, victimisation and unfair dismissal. The employer does not contest those findings on liability.

1. The Employment Tribunal made an award of compensation in the sum of £10,073.14 in respect of the victimisation and harassment. That award is not challenged on appeal. The Employment Tribunal also made an award of £11,070.80 in respect of unfair dismissal. It is from that compensatory award for unfair dismissal that this appeal is brought.

1. An Employment Tribunal’s remit in determining a compensatory award for unfair dismissal is fixed by the terms of s.123 of the Employment Rights Act 1996. Subsection (1) of that section provides as follows:

“[…] the amount of 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 in so far as that loss is attributable to action taken by the employer.”

1. The Employment Tribunal addressed the question of any compensatory award and its amount in Part 5 of their Judgment on remedy. Part 5, paragraphs 5.1 to 5.8 inclusive, give their reasoning:

“5. Compensation for unfair dismissal:

5.1 The Claimant has been unemployed for the majority of time since her dismissal. The Tribunal have been asked by the Claimant to take into account the Claimant’s health in assessing compensation. The Claimant has not produced any evidence from which we are able to conclude that there is a causal link between the serious ill-health suffered by the Claimant and her treatment by the Respondent.

5.2 The Tribunal acknowledge that the Claimant has made efforts to mitigate her loss by seeking alternative employment. The Claimant’s assertion that she was applying for 60 jobs a week is not supported by any documentary evidence and is challenged by the Respondent. The Claimant did obtain employment with the Royal Mail in November 2010. The employment however was frustrated by the fact that the Claimant became ill in around December 2010.

5.3 Taking account of the general economic climate and the fact that the Claimant was someone who the parties described as having excellent IT skills we consider that it could reasonably be expected that the Claimant would secure new employment so that she was able to mitigate her losses entirely within a period of about 6 to 12 months. The Tribunal therefore assesses the Claimant’s loss from her employment for period of 40 weeks.

5.4 In her employment with Royal Mail the Claimant earned £684.00. She received SSP in the sum of £2,100.00.

5.5 The Claimant’s net pay in the employment of the Respondent was £337.62 per week.

5.6 The Claimant’s loss for [the] period of 40 weeks is £13,504.80.

5.7 The Tribunal considers that it is appropriate to make an award compensating the Claimant for loss of statutory rights in the sum of £350.00.

5.8 The Claimants loss giving credit for the sums set out in paragraph [5.4] against the total loss of £13,854.80 is £11,070.80.”

1. In recounting 5.8 of the Tribunal’s reasoning we insert after the word ‘paragraph’, in that sub-paragraph, the reference 5.4. So that paragraph 5.8 reads:

“The Claimant’s loss giving credit for the sums set out in paragraph [5.4] against the total loss […]”

1. The employer’s case is that the Employment Tribunal’s reasoning discloses an error of principle. The employer’s case is put in two ways by its representative, Mr Rees. He submits firstly that the Tribunal assessed compensation based on a period of 40 weeks running from the date of dismissal. Its award, he asserts, is intended to reflect a loss of earnings by the Tribunal over that period. However, he submits that the fact is that for the majority of that 40 week period Ms Kalia was incapable of any work for a reason wholly unconnected with her previous employment.

1. Mr Rees submits that the Employment Tribunal erred in principle in compensating the employee for loss of earnings in respect of a period of incapacity for work wholly unconnected with her former employment or the circumstances of her dismissal. The employer’s case is that the compensation should be limited to a seven week period following dismissal during which the employee had been fit for work. As Mr Rees put it to us, the Tribunal should have identified a cut off point, that being the point in time at which the employee became incapable of work. From that point forward she ought not to have been given any compensatory award.

1. In support of the proposition that there is, and should have been imposed, such a stark cut off point, Mr Rees relies on the decision of the Employment Appeal Tribunal in the case of Devine v Designer Flowers Wholesale Florists Sundries Limited [1993] IRLR 517. In that case Lord Coulsfield, giving the Judgment of the Employment Appeal Tribunal, said as follows at paragraph 2:

“There were three possible situations concerning dismissal and ill health. Firstly, an employee might become ill after a dismissal without there being any relationship between the dismissal and the ill health. For example, if the employee sustained a broken leg. In that case he would not be entitled to claim compensation from his employer in respect of the period from which he was unfit for work […]”

1. The second and third alternatives mentioned by Lord Coulsfield are not presently relevant. Thus, it is submitted by Mr Rees that there has here been a supervening event at the end of seven weeks after the termination of employment and that the compensation ought, by law, to have stopped then. That is the first way in which the employer’s case was put to us.

1. In the alternative, Mr Rees submits that if there was not a cut off point, in any event the Tribunal was required to have regard to what would have occurred had the employee remained in employment and then suffered the ill health that she did in fact suffer.

1. His case is that the evidence before the Tribunal was that the only support or assistance she would have derived in her continued employment was an entitlement to Statutory Sick Pay. In the events which happened she received Statutory Sick Pay from an alternative employer and, accordingly, she suffered no loss.

1. For the employee in this case, Mr Steven Fuller invites us to dismiss the appeal. As to the first way in which the case for the employer is put, he submits that there is no cut off required where a supervening illness or injury is suffered by a former employee. He invites us to prefer a more modern approach by the Employment Appeal Tribunal represented not least by the decision in the case of [Wood v Mitchell S.A. Limited ]()UKEAT/0018/10/CEA. He meets the alternative way in which the employer’s case is put by submitting that in this case the Tribunal was fixing a period of 40 weeks as the period for which the employee might be expected to be entitled to compensation once she was fully fit for work.

1. We were rightly reminded in the skeleton arguments before us that the statutory rubric of s.123(1) confers a good deal of discretionary judgement on an Employment Tribunal in fixing a compensatory award and, secondly, that awards of compensation should not be lightly interfered with on appeal, certainly not in the absence of any error of principle.

1. We turn then to the employer’s two asserted errors of principle in this case. As to the first we say immediately that we are not satisfied that the Employment Tribunal erred in law in failing to identify a cut off point for the award of compensation in the light of the serious illness developed by the employee in this case after the termination of her employment. To the extent that the passage we have referred to in the Judgment in Devine suggests to the contrary, we respectfully disagree with it.

1. We prefer the approach taken by this Employment Appeal Tribunal in the Wood case. In particular, in that case, this Employment Appeal Tribunal re-stated the guidance that had been given by it in the earlier decision Software 2000 Ltd v Andrews [2007] IRLR 568. As appears in paragraph 17 of the Judgment in Wood, the correct approach for the Tribunal is to assess the loss flowing from a dismissal using commonsense, experience and a sense of justice.

1. It requires a Tribunal ordinarily to ask: for what period would the employee have remained in employment but for the dismissal? The ascertainment of such a period must be taken to subsume the possibility that during such a period the employee may, by reason of some accident, injury or illness, become incapable of work or of reduced capacity. The appropriate question then becomes: what would have happened in relation to such illness or injury but for the dismissal? If the employment would have continued and wages or salary would have continued to have been paid during that period of illness or injury then, it seems to us, that such a loss can be said to be a loss attributable to the dismissal.

1. We, therefore, reject the first of the two ways in which the employer’s case has been put to us. We do not accept that the Tribunal erred in failing to adopt a cut off point at the point at which the former employee became incapable of work. We then turn to the second way in which the employer’s case is put on appeal.

1. We record, again, that there is no disagreement from the employer with the Tribunal’s assessment that it would have taken the employee a period of some 40 weeks to find at least equivalent, if not better, employment. The case for the employer is that the Tribunal was treating the 40 weeks as starting at the date of termination of the employment. Mr Rees, for the employer, submits that if that is correct, i.e. the 40 weeks started with the effective date of termination of employment, there was no continuing loss in this case. That is because the employee’s entitlement from her former employers in the circumstances of sickness or injury would only have been to Statutory Sick Pay. Yet that is exactly the payment she received as a result of the employment that she did obtain within the 40 week period.

1. The crucial question, therefore, on this second aspect of the appeal, is when the Tribunal were treating the 40 week period as having started. Were they, as Mr Rees submits, treating it as having started from the effective date of termination or were they, as Mr Fuller contended, treating it as starting from the next period after which the employee would be fit and available for work. On our reading of Part 5 of the Tribunal’s Judgment there is only one way in which that question can be answered. It is that the Tribunal were treating the 40 weeks as starting from the termination of the employment. Not least, that is because it is only logically consistent with that approach to have set off, as the Tribunal did, the sums received from other sources within that 40 week period by way of wages and Statutory Sick Pay. Mr Fuller acknowledges that his case on this aspect is inconsistent with such set-off and he suggests that the employee might have brought a cross appeal contending that the Tribunal had erred in making such a set off.

1. In the event, there was no such cross appeal. But, in our judgment, it would have been doomed to fail. Here the Tribunal were, on any fair reading of Part 5 of their written reasons, intending to identify with certainty the period for which they were awarding compensation and that period was a period of 40 weeks running from the date of termination of the employment. The Tribunal treated the employee as suffering the continuing loss of her full previous wages for the 40 week period, even after the date at which she became incapable of work. They did so in circumstances where it is agreed between the parties that the terms of her previous employment only entitled her to Statutory Sick Pay. To have adopted a compensatory assessment based on an entitlement to the full previous wages or salary seems to us to have been manifestly in error of principle and law. Any compensation should have been limited to the difference between what she did receive, that is to say, Statutory Sick Pay from her subsequent employer, and what payment she would have received, while sick, from her previous employer. In fact, on the evidence in this case, her entitlement was precisely the same and, accordingly, there was no such loss. The Employment Tribunal, accordingly, erred in law and the employer has, on this appeal, made out its second or alternative ground.

1. In those circumstances, we shall set aside the Employment Tribunal’s compensatory award and we shall hear representations from both parties on the appropriate order for us to make in relation to the quantum of compensation.

1. Our order arising from the Judgment we have just delivered, in the light of the representations as to the terms of our order, will be as follows. First, the appeal is allowed. Second, the compensatory award made by the Employment Tribunal in the sum of £11,070.80 is set aside. Third, in place of that award there shall be an award of compensation for unfair dismissal and loss of statutory rights of £350.