Mark Shulman, Consultant Solicitor at Keystone Law

**COMPENSATION
Uplifting injury to feelings awards
Does the uplift in personal injury damages in civil proceedings introduced by the Court of Appeal in Simmons v Castle [2012] EWCA Civ 1039 apply to injury to feelings awards in the ET? No, said the EAT in [De Souza v Vinci Construction UK Ltd]() UKEAT/0328/14/DXA.

At a disability discrimination remedy hearing an ET determined that the Claimant should receive an award of £9,000 in respect of injury to feelings and £3,000 in respect of the personal injury. The personal injury award was to be subject to the 10% increase directed by the Court of Appeal in Simmons v Castle. But the ET did not consider it appropriate to make such an increase in respect of the injury to feelings award.

The Claimant appealed on the basis that the 10% uplift should also have applied to the compensation for injury to feelings. The Respondent cross-appealed on the basis that the uplift had no application at all to awards for compensation in the ET.

Background
The EAT recapped by referring to the reforms contained in the Legal Aid Sentencing and Punishment of Offenders Act 2012 ("LASPO") under which Claimants can no longer recoup success fees and ATE insurance premiums as part of their costs. In Simmons v Castle the Court of Appeal had made clear that a 10% uplift in damages for personal injury claimants had been given as a quid pro quo for losing the recoverability of those fees and premiums.

Previous EAT decisions
Were the two previous decisions of the EAT correct when the Simmons v Castle uplift had been applied to ET injury to feelings awards in discrimination cases? The EAT thought not.

In [Cadogan Hotels v Ozog ]()(UKEAT/0001/14) HHJ Eady QC had said:

"For those cases in which an injury to feelings award was made after 1 April 2013, it is also right to note that there is a requirement to apply the 10% uplift laid down in Simmons v Castle [2012] EWCA Civ 1039. Here that should have been done by the Employment Tribunal …."

However, the EAT pointed out that in that case (i) the applicability of the 10% uplift had been conceded; (ii) there was no argument advanced that the uplift was not intended to apply to awards in the ET; and (iii) Judge Eady had given no reasons for her decision.

In another EAT case, [Sash Window Workshop v King ]()(UKEAT/0057 and 0058/14), it had been argued that:

injury to feelings awards in ETs could be distinguished from awards for torts in other jurisdictions because of the decision in Da'Bell uprating the Vento* bands in line with inflation and significantly in excess of 10%; the Da'Bell guidelines were unique to the Tribunal jurisdiction and that accordingly the Simmons v Castle* uplift was already accounted for; * the justification for the 10% uplift included the fact that the level of general damages was generally low and that this was not the case for Tribunal awards; the Court of Appeal had not had ETs in mind in its decision in Simmons v Castle*.

Simler J held in Sash Window Workshop that the ET had erred by failing to apply the 10% uplift to the award by reference to the uprated Vento guidelines. She gave no reasons beyond accepting the Claimant's submissions that as discrimination was a statutory tort, under section 124 of the Equality Act 2010 the amount of compensation that may be awarded should correspond (by virtue of section 124(6)) to the amount which could be awarded by a County Court.

Applicability to ETs
Although the EAT was not bound by its own previous decisions, they will only be departed from in exceptional circumstances or where there are previous inconsistent decisions (Secretary of State for Trade and Industry v Cook [1997] IRLR 150). In the present case the EAT thought that there were exceptional circumstances which would justify declining to follow the decision in Sash Window Workshop.

The EAT's view was that the Court of Appeal could not have intended the 10% uplift in Simmons v Castle to apply to claims in the ET. There was no reference at all in any of the documentation relating to the reform package which was the subject of Sir Rupert Jackson's reports or in the Judgment in Simmons v Castle as to the applicability of the 10% uplift to awards in ETs. Had the Court intended to extend the uplift to proceedings in ETs, it would have said so clearly. The rationale of the Jackson reforms had been to review and amend the law relating to costs in civil proceedings and the 10% uplift in damages was to compensate those Claimants who had lost various rights and now had to bear certain costs themselves. But those Jackson reforms applied to "civil proceedings" and proceedings in ETs were not properly to be classified as "civil proceedings"; litigants in the ET never had any right to recover ATE insurance premiums or success fees as part of their costs.

Further, in his report Sir Rupert Jackson had expressly stated that "any proposed reform of Tribunals falls outside my terms of reference". Therefore, the Court of Appeal had no mandate to vary the tariff of awards in ETs as set out in Vento. It could not be said that there were circumstances relevant to the Vento guidelines that had changed, nor that there was a clear need for change established.

Also, section 124(6) of the Equality Act did not require ETs to award precisely the same compensation as a County Court. In Vento, the Court of Appeal had approved a dictum of Smith J in HM Prison Service v Johnson [1997] ICR 275:

"Awards should bear some broad general similarity to the range of awards in personal injury cases. We do not think that this should be done by reference to any particular type of personal injury award, rather to the whole range of such awards."

For these reasons the appeal was dismissed and the cross-appeal allowed. The EAT confirmed that the 10% uplift provided in Simmons v Castle had no application in ETs and the earlier decision in Sash Window Workshop should no longer be followed.

Although not mentioned in the judgment, it is worth noting that the Remedies section in the ET Presidential Guidance issued in March 2014 refers to injury to feelings awards which follow "…guidelines first given in Vento v Chief Constable of West Yorkshire Police, which have since been updated by Da Bell v NSPCC and Simmons v Castle…" (emphasis added). It remains to be seen whether this Guidance is to be amended and indeed whether the De Souza case will be the last word on the issue of the Simmons uplift.

**Grossing up of injury to feelings awards
*Should an injury to feelings award should be grossed up to take account of tax? No said the EAT in [Timothy James Consulting Ltd v Wilton ]()*UKEAT/0082/14/DXA.

The Claimant was found by the ET to have been constructively dismissed as the result of three acts of harassment related to her sex. The ET made various awards to the Claimant, including an award of £10,000 for injury to feelings. That award was grossed up on the understanding that it would be liable to income tax and so there was a grossed-up award of £16,666.

The Respondent appealed on the ground that the ET had been wrong in law to gross up the figure because an award of damages for injury to feelings is exempt from tax. The EAT considered this an important point of principle which turned on the correct interpretation of the tax legislation concerned.

ITEPA 2003
The Income Tax (Earnings and Pensions) Act 2003 ("ITEPA") section 401, so far as material, provides that:

"(1) This chapter applies to payments and other benefits which are received directly or indirectly in consideration or in consequence of, or otherwise in connection with -

(a) the termination of a person's employment …"

By virtue of section 403(1) ITEPA, the amount of a payment or benefit counts as employment income of the employee or former employee for the relevant tax year, if and to the extent that it exceeds the £30,000 threshold. It is then liable to income tax subject to any exemption.

An exemption in section 406 ITEPA provides that:

"This Chapter does not apply to a payment or other benefit provided -

(a) in connection with the termination of employment by the death of an employee, or

(b) on account of injury to, or disability of, any employee."

Conflicting  authorities
In what appeared to be the only previously reported decision of the EAT on the point (Orthet Ltd v Vince-Cain, the EAT decided that an award of damages for injury to feelings for sex discrimination was not taxable. Judge McMullen had said that this reflected the clear understanding that awards for injury to feelings were not subject to tax:

"…the central question in the instant case is whether the employment tribunal was correct to pay no attention to the tax implications of its award of £15,000 for injury to feelings. In our judgment, it was correct to make the award it did…"

His reasoning was that:

In Vento v Chief Constable of the West Yorkshire Police *[2003] ICR 318 nothing was said about the possibility of the award being taxed. Further, the analogies for damages for "pain and suffering, disability and loss of amenity" in personal injury claims was considered correct. Such damages are not subject to tax. While there is a difference between "injury to health" or "personal injury" and "injury to feelings", the two are not inconsistent, may overlap and injury to feelings may contribute to injury to health' (Essa v Laing Ltd . * The assessment of such awards was based upon the guidelines of the Judicial Studies Board which said nothing about tax. * The exception in the tax statutes of payments made on account of "injury to or disability of the employee" was accepted to include mental and physical injury. Injury to feelings encompassed hurt and humiliation and so the meaning of "injury" wherever it appeared in the legislation carried the same meaning. * Where an award was in respect of injury to feelings occurring during the course of employment, section 19 of the Income and Corporation Taxes Act 1988 (the equivalent predecessor legislation) could not apply (since the award was not made in respect of the individual acting as employee) and section 148 of that Act could not apply (since the employment continued i.e. there was no payment in connection with termination). * The advice of the Equal Opportunities Commission was that an award for injury to feelings should not be taxable. In at least one appeal to the Special Commissioners, it was accepted by HMRC that such an award was not taxable: Walker v Adams* SPC 344.

The EAT referred to the fact that the relevant legislation has been considered by the First Tier - Tribunal (Tax Chamber) on two occasions. In O*ti-Obihara v Commissioners for HM Revenue and Customs [2011] IRLR 386, reference had been made to the decision of the EAT in Orthet. The point was the subject of a concession by the Commissioners when it was acknowledged that "to the extent that any part of the settlement payment comprised damages for injury to the appellant's feelings as a consequence of discrimination, then that is not taxable under section 6 ITEPA 2003, nor is it taxable under section 401 ITEPA as a termination payment even if it is paid on the occasion of the termination of the employment contract.*"

However, in the more recent case of [Moorthy v Commissioners for Her Majesty's Revenue and Customs]() [2014] UKFTT 834 (TC), the decision went the other way and considered that the leading case on the relevant legislation was a decision by the High Court in the tax case of Horner v Hasted [1995] STC 766). Although that decision related to the meaning of "disability" rather than "injury", the Tax Tribunal in Moorthy concluded that "It is clear that ITEPA section 406 does not encompass payments for injury to feelings" and so the payment was taxable.

Meaning of "injury"
In the absence of any binding authority and in view of the conflicting state of the limited case authorities, the starting point for the EAT was the wording of section 406 ITEPA.

The phrase to be construed was the exemption which applied to payments on account of "injury to … any employee." The EAT pointed out that the provision was not qualified by the words "in connection with the termination of employment" (as the words in the first paragraph of section 406 were). Therefore, any injury to an employee would fall within the exemption.

Secondly, what is the correct interpretation of the word "injury" in this context? Is it confined to physical injury, or is it capable of including injury to feelings? Given that the decision in Horner was concerned with the interpretation of the word "disability" (and not the word "injury") and as Orthet was specifically concerned with the meaning of the word "injury" and had addressed in detail whether that concept could include the concept of injury to feelings, the EAT preferred the reasoning in Orthet. 

Accordingly, the Respondent's appeal was allowed and the amount of the ET award for injury to feelings was reduced to £10,000.

Unfair dismissal compensation
The case of [Kerry Ingredients (UK) Ltd v Little ]()UKEAT/0356/13/JOJ explains what findings are required by an ET in terms of explaining how compensation is calculated for financial loss which includes a Polkey reduction where the Claimant has a disability.

Background
The Claimant was an engineer and worked a three-shift system for a food processing company until he suffered a serious heart attack. After being off work for an extended period the Claimant returned to work, initially on a reduced hours basis. The Respondent considered whether or not it could continue to support the Claimant in a role on reduced hours and, if so, for how long. Management felt that this could not be allowed to continue. The Claimant was only working 18 hours a week and was considered to be only actually working productively for 20% of the time; the work he did could be done by other shift engineers and his temporary role was surplus to requirements. Further, he was being paid full salary while an agency worker was being paid to cover his other duties. At a formal meeting it was confirmed that as the Claimant was no longer able to fulfil the terms and conditions for his role, he was to be dismissed.

An ET upheld the Claimant's claims of unfair dismissal and unlawful disability discrimination and failure to permit him to be accompanied by his trade union representative at a meeting. It awarded him £18,962.47 compensation in respect of the unfair dismissal claim, £10,000 injury to feelings and £860 for the failure to permit the Claimant to be accompanied.

The ET took account of the Claimant's net wage, assuming that he was working his full weekly contractual basis, although at the date of dismissal he was not doing so. The ET also found that the Claimant would have continued to be unable to work more than 70% of his contractual hours because of his admitted medical condition. On that basis the ET utilised a figure of 70% of the net pay as the multiplicand. Taking that sum, the ET made an award of loss from the effective date of termination to the date of hearing and accepted a period of 39 weeks as constituting his future loss. From the total compensatory award, the ET then found that there was a possibility of the Claimant being fairly dismissed in the foreseeable future and considered it just and equitable to reduce the award by 20% on a Polkey basis to reflect that risk.

The Respondent appealed both as to the number of weeks' loss awarded and as to the percentage reduction applied to the unfair dismissal compensatory award.

Assessment of compensation
Both parties agreed that the correct approach to the assessment of compensation in unfair dismissal cases was reflected in the well-known passage from the Judgment of Elias J (as he then was) in Software 2000 Ltd v Andrews [2007] ICR 825:

"(1) In assessing compensation the task of the tribunal is to assess the loss flowing from the dismissal, using its common sense, experience and sense of justice. In the normal case that requires it to assess for how long the employee would have been employed but for the dismissal.

(2) If the employer seeks to contend that the employee would or might have ceased to be employed in any event had fair procedures been followed, or alternatively would not have continued in employment indefinitely, it is for him to adduce any relevant evidence on which he wishes to rely. However, the tribunal must have regard to all the evidence when making that assessment, including any evidence from the employee himself. (He might, for example, have given evidence that he had intended to retire in the near future.)

(3) However, there will be circumstances where the nature of the evidence which the employer wishes to adduce, or on which he seeks to rely, is so unreliable that the tribunal may take the view that the whole exercise of seeking to reconstruct what might have been is so riddled with uncertainty that no sensible prediction based on that evidence can properly be made.

(4) Whether that is the position is a matter of impression and judgment for the tribunal. But in reaching that decision the tribunal must direct itself properly. It must recognise that it should have regard to any material and reliable evidence which might assist it in fixing just compensation, even if there are limits to the extent to which it can confidently predict what might have been; and it must appreciate that a degree of uncertainty is an inevitable feature of the exercise. The mere fact that an element of speculation is involved is not a reason for refusing to have regard to the evidence…"

The EAT stated that in the present case it was tolerably clear that the ET did not accept that the Claimant would return to full-time shift work. Having reached that conclusion, what should the ET have done? The answer was that it should have made an assessment of what was likely to have happened had the Respondent acted fairly and in compliance with its obligations to the Claimant as a disabled person.

Relevant questions
On the Respondent's case the Claimant was only working productively for 20% of the time and an agency worker had to cover his other duties. The Claimant was suggesting that he would at some point have been able to return to full-time working. The ET concluded that the Claimant would only have been able to increase his hours to a 70% basis. It may be that the ET rejected the Respondent's evidence on the 20% productive working point, but that was not clear. The parties needed to be able to understand why the ET felt the Claimant would have been able to return to a 70% level of working so quickly given that the Claimant had previously only been able to increase his hours from 8 to 18 over his initial phased return to work.

The finding that the Claimant would only have been able to return to a 70% level of working also fed into the Polkey finding and the question of losses both to the date of hearing and as to future loss after that. If the Claimant could not return to full-time shift working, then what was the ET's assessment of how that might impact upon his future employment prospects with the Respondent given that it operated a 24/7 shift working basis?

Accepting that the Respondent was not obliged to create a job, it was necessary to ask:

* which, if any, of the reasonable adjustments suggested by the Claimant would have been introduced as a result of the claimant's disability? The ET would need to make findings (and explain those findings) as to any obligations upon the Respondent under the Equality Act 2010, including the obligations to make reasonable adjustments and address the indirect discrimination that the Claimant otherwise faced from the PCP of full-time shift working; * how would this have impacted on the Claimant's future employment? * what it was that the Claimant would be doing? * what hours he could work? * in what capacity would he be working (given the constraint that he could not work full-time)?

In making that assessment there would then be some basis for the ET's assessment of the amount of the Claimant's loss, which might well justify a finding that he would have been entitled to something like 70% of his former pay, but equally might lead to the conclusion that he would be entitled to something less.

The ET would further then be in a position to assess whether the Claimant would have been employed from the date of termination to the date of the hearing and beyond that, in order to assess the period of loss and the possible chance that he would in fact have been fairly dismissed in a non-discriminatory fashion (the Polkey finding) in any event. A 20% reduction for the possibility of a fair dismissal might have been an entirely permissible finding given the obligations on the Respondent under the Equality Act, but the ET's reasons simply stated a conclusion without any apparent evidential basis.

Although the EAT considered that the ETs conclusions were not necessarily perverse, it could not be sure from the ET's reasoning that it had adopted the correct, structured approach to its assessment. On that basis, the EAT concluded that the ET's Judgment on pecuniary losses could not stand and the appeal had to be allowed. The matter was remitted to the same ET for re-hearing of those pecuniary loss issues in order to consider such matters afresh.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator. His blog on new employment legislation can be found here.