*[*Mark Shulman, Consultant Solicitor at Keystone Law*](http://www.keystonelaw.co.uk/other/lawyers/mark-shulman/keyachievements)*

UNFAIR DISMISSAL COMPENSATION

**Nil awards
When might it be appropriate to award an unfairly dismissed employee no compensation? The general principles were recently considered in [Lemonious v Church Commissioners]() **UKEAT/0253/12/KN.

The Claimant, who had worked for the respondent for 37 years, was dismissed after his employer found that he had sent derogatory emails to other colleagues. The Claimant denied the allegations and made numerous allegations against his colleagues suggesting that he had been set up. The employer rejected his evidence.

**Flawed investigation
First, the case is instructive about investigations into an employee's conduct. In Lemonious** the investigation was flawed (and therefore rendered the dismissal procedurally unfair) because:

* the employer had become "excessively focussed" on whether it could be shown that the emails had come from a particular terminal, rather than on who had sent the relevant e-mails; * the investigation involved informal chats with witnesses; * the Claimant had no advance notice before being confronted with the emails; * no proper record was taken of the initial meeting between management and the Claimant; * reliance was placed on a conversation between the Claimant and a senior manager which had not been recorded in a file note at the time; * evidence inconsistent with his guilt was not followed up * the internal panel hearing the Claimant's appeal against the dismissal consisted of three persons, only two of whom expressed a view as to guilt, but the third wrongly stayed silent.

Practitioners should therefore be aware of such shortcomings when advising employers on what is required when handling conduct investigations.

**Nil compensation
The ET in Lemonious** decided that despite the unfairness of the Claimant's dismissal, both the basic and compensatory awards should be reduced to nil because of contributory fault. The Claimant appealed.

*Procedural failings
*First the Claimant contended that a finding of 100% contributory fault was unjustified where procedural failings by an employer are causally relevant to the dismissal itself. In Ingram v Bristol Street Parts UKEAT/0601/06/CE, Elias P had said: "Sometimes procedural failings by the employer will be causally relevant to the dismissal itself, and where that is so a finding of 100% contributory fault is unjustified".

The EAT accepted that it could not be just and equitable for the reduction to be 100% if the dismissal was caused not only by the Claimant's conduct, but by other factors too, outside his control. Whilst "sometimes" the employer's procedural failings could cause a dismissal, this had not been so in the present case. The sole reason for the dismissal was the employee's conduct in sending the offending emails, lying about having done so, blaming others for what had happened and alleging a conspiracy against him. The EAT concluded that in these circumstances it would not be perverse for the ET to make a nil award.

An allied argument was that the ET had given insufficient reasons for their findings. In Moreland v David Newton (T/A) Aden Castings (22nd July 1994) EAT/435/92, Mummery P said:

"…depending on the facts of a case, it is possible to have both a finding of unfair dismissal and a refusal to award any compensation on the grounds of contributory fault, but it is a rare and unusual combination. Because of its rare or exceptional combination it requires justification by reference to evidence and requires the giving of reasoning."

The Claimant succeeded on this point. Although, in the EAT's view it was open to the ET to conclude that the Claimant's conduct was such as to extinguish the claim for a basic award in its entirety, their reasoning was so succinct that the Claimant must have been unsure why his conduct was so bad that he should receive nothing.

What is "just and equitable" may not always be easy to explain at any length. However, the employer had not dealt fairly with a long serving employee. Whilst the offending emails sent by the Claimant were described by the ET as "relatively mild", it was not obvious why the ET therefore felt it was just and equitable to reduce what would otherwise have been his compensation to nil. Even "a few short words" might have sufficed. Even if the employee's conduct were wholly responsible for the dismissal, it might still not be just and equitable to reduce compensation to nil. There might be cases where conduct is so egregious that that is the case, but they called for a spelling out by the ET of reasons for taking what is undoubtedly a rare course. In particular, it must not be the case that an ET should simply assume that because there is no other reason for the dismissal, therefore 100% contributory fault is appropriate. In some instances that may be the case, but the percentage might still require to be moderated in the light of what is just and equitable.

*Statutory wording
A further ground of challenge was that whilst ever since Devis and Sons Ltd v Atkins [1977] AC 931 it had been assumed that Section 122(2) Employment Rights Act 1996 and its predecessors had allowed for 100% reduction in the basic award for contributory fault, this principle should be reconsidered. The EAT thought that this was "a tall challenge". It related only to the basic award as the Claimant accepted that it was open to the ET to conclude that where the sole cause of a dismissal was blameworthy conduct, it may be just and equitable to reduce a compensatory* award to nil.

The EAT pointed out that all relevant case law accepted without any recorded reservation or contrary decision that a deduction to nil may apply equally to a basic award. Further, there was no basis upon which to interpret the relevant statutory provisions as suggested by the Claimant. He sought to argue that the statutory wording in Section 122 (2) – which deals with basic awards – used the word 'reduce', but does not add "…or extinguish". The EAT pointed out that the section allows reduction of the amount of the basic award to any extent…". Also, the word 'reduce' is also used in Section 123 (6) (dealing with compensatory awards) and as the Claimant accepted it was permissible to "reduce" a compensatory award to nil, there was no warrant for interpreting "reduce" in one sense in Section 123 (6), and in a contrary sense in Section 122 (2).

The Claimant having succeeded on the lack of reasoning argument, the case was remitted to the same ET to reconsider the extent of reduction in respect of the compensatory and basic awards, given the paucity of its reasoning relating to both.

**Practical tips
**Key points to consider in cases where the basic award and/or compensatory award have been reduced are:

* Basic award – was there any conduct of the complainant before the dismissal to justify a reduction in the award? Note that Section 122 (2) of ERA 1996 does not require any consideration of the cause of the dismissal. * Compensatory award – was the dismissal to any extent caused or contributed to by any action of the complainant? Note that Lemonious confirms the fact that the employer's unfair dismissal of the Claimant does not automatically make the employer's procedural faults the cause of the dismissal. * Has the ET explained why either or both reductions have been made (including the reasons(s) for any difference between the percentage reduction in one case and any reduction in the other)? In a case of a nil award, have cogent reasons been given by the ET? * Check the order of any adjustments such as would apply under Polkey v AE Dayton Services Ltd [1987] UKHL 8, or as a result of contributory fault when calculating any compensatory award: (see the Employment Claims Toolkit.

**Compensatory award – cut-off period
Should there be an automatic cut-off when awarding unfair dismissal compensation if a former employee suffers long term sickness shortly after starting a new job? No said the EAT in [Avia Technique Ltd v Kalia]() **UKEAT/0382/12/JOJ. In that case 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 SSP in her new job. The Claimant won her claim of unfair dismissal at the ET and compensation was based on the difference between her old pay and new pay over a period of 40 weeks, even though for the majority of that 40 week period the Claimant was incapable of any work (for a reason wholly unconnected with her previous employment). The ET then deducted the wages she received from the new employer and the SSP she had received.

The Respondent employer appealed the remedy decision and put forward two arguments:

* First, that the compensation should (as a matter of law) have been limited to 7 weeks' pay because the Claimant was unable to work after that cut off point (relying on Devine v Designer Flowers Wholesale Florists Sundries Limited [1993] IRLR 517); * Alternatively, if there was not a cut-off point, the ET was required to have regard to what would have occurred had the employee remained in her original employment and then suffered the ill health that she did in fact suffer. She would only have been entitled to SSP and since she received SSP from the new employer, she suffered no loss during the period of sickness.

*Cut-off point
*As to the first contention, the EAT was not satisfied that the ET 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 after the termination of her employment. Rejecting the approach in Devine and applying the decision of the EAT in [Wood v Mitchell S.A. Limited]() UKEAT/0018/10/CEA, the correct approach for the ET is to assess the loss flowing from a dismissal "using common sense, experience and a sense of justice".

This approach required an ET ordinarily to ask:

* for what period would the employee have remained in employment but for the dismissal? This would include the possibility that during such a period the employee may, by reason of accident, injury or illness, have become incapable of work or of reduced capacity; and * if the employee was unable to work, the appropriate question then became: 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 such a loss could be said to be a loss attributable to the dismissal.

In the light of these questions, it was not possible to say that there should have been an automatic cut-off period for compensation simply because the employee had become incapable of working.

With regard to the second issue (as to what the Claimant wold have been entitled to had her original employment continued), there was no disagreement from the employer with the ET's assessment that it would have taken the employee a period of some 40 weeks to find at least equivalent, if not better, employment. It was also clear that the ET was awarding compensation for a period of 40 weeks running from the date of termination of the employment.

However, as the EAT pointed out, the ET had 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 SSP. To have adopted a compensatory assessment based on an entitlement to the full previous wages or salary was manifestly in error of principle and law. Any compensation should have been limited to the difference between what she did receive, i.e. SSP from her subsequent employer and what payment she would have received while sick from her previous employer. On the evidence, her entitlement was precisely the same and, accordingly, there was no loss.

Therefore the ET's compensatory award of £11,070.80 was set aside and an award of compensation for unfair dismissal and loss of statutory rights of £350 was made instead.

**Practical tip
It should be remembered that pre-dismissal conduct by the employer that causes illness is not a loss deriving from the dismissal itself in this context (see GAB Robins (UK) Ltd v Triggs. The same principle applies to incapacity due to an illness or condition that arises post-dismissal*.

WRONGFUL DISMSISSAL COMPENSATION

**Pay when sick during notice
Is an employee who is off sick for the duration of their notice period entitled to be paid during that notice? The rather puzzling provisions in sections 86-88 of the ERA 1996 were considered in [Milson v Hope]()** UKEAT/0391/12/RN.

Statutory rules govern the right to pay during the statutory part of the notice period for employees who have been continuously employed for 1 month or more (section 87(1) ERA 1996). If the employee has normal working hours, then they are entitled to be paid at their normal hourly rate, even if (amongst other situations) they are incapable of work because of sickness or injury. However, this "windfall" applies only to those employees whose notice period is merely the statutory notice period (or exceeds statutory notice by less than 1 week).

The Claimant was dismissed with 1 month's notice (although there was no contractual notice period set down in her contract of employment), but was unable to work during the notice period. Her statutory notice period was 2 weeks.

She was found to have been unfairly and wrongfully dismissed and was awarded sums to cover both claims. The wrongful dismissal award was calculated at 4 weeks pay. The ET had looked at sections 86 – 91 of the ERA 1996 and concluded that s88, (which states that an employee who is incapable of work through ill health during her notice period is entitled to receive their normal pay), applied and that she was entitled to receive her normal pay during those 4 weeks. The employer appealed on two grounds.

Firstly, the employer contended that the ET should have taken only a 2-week period in calculating notice pay. In this case, there was an implied term that the contractual period of a month agreed by the parties represented the appropriate implied period of reasonable contractual notice. But as the minimum period of statutory notice required by section 86 of the ERA was only 2 weeks, section 87(4) of ERA 1996 applied (i.e.no statutory payment was due during notice because the notice to be given by the employer to terminate the contract was at least 1 week more than the statutory minimum notice required by section 86(1)). Therefore, the normal rule (under section 88of the ERA 1996) requiring payment during notice did not apply and could not be used by the Tribunal in order to award compensation during the notice period when the employee was actually ill and unable to work.

The EAT stated that a similar situation arisen in Scotts Co (UK) Ltd v Budd [2003] IRLR 145,when the employee was dismissed after he had been off work through ill-health for over 2 years. However, in the present case, there was no finding by the Employment Tribunal as to the contractual period of notice applicable to the contract of employment. There did not need to be because it was not in dispute that the employer had given 1 month's notice and there was no claim by the employee that she was contractually entitled to longer. As an appellate Tribunal, the EAT could not make their own finding as to what either the express or the implied term as to notice was in the contract. It was therefore not possible to say that the exception under section 87(4) disapplied the statutory entitlement to pay during notice.

The second point taken by the employer was that the provisions of sections 88 applied only "as respects the liability of the employer for the period of notice required by section 86(1)". That statutory notice period was one of only 2 weeks. Therefore section 88(1) required the employer to pay notice pay only during the statutory minimum period of 2 weeks, even if the employee was incapable of working during that period because of sickness. The EAT agreed. The ET had been wrong to conclude that the employer was liable under section 88 to pay the full period of 4 weeks' notice during which the employee was unable to work through sickness.

The EAT allowed the appeal and reduced to 2 weeks the period of pay for which the former employer was liable.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.