The Supreme Court has finally handed down its reserved judgment in the much anticipated case of Edwards v Chesterfield Royal Hospital NHS Foundation Trust and Botham (FC) v Ministry of Defence which was heard in June this year.

The question was ‘can an employee who is dismissed in breach of a contractual disciplinary procedure claim damages for breach of contract following on from the manner of their dismissal? Following the Court of Appeal (CA) decision in Edwards, if an employee could show that they would not have been dismissed if an express contractual disciplinary procedure had been followed correctly, then they were entitled to general compensation for a breach of contract.  But, asks Julian Hoskins, would the Supreme Court agree?

Background to the cases

Botham v Ministry of Defence [2010]

Following allegations of inappropriate conduct with teenage girls, Mr Botham (a youth worker) was summarily dismissed for gross misconduct and placed on the Department of Education and Skills' list of persons deemed unsuitable to work with children. He brought claims for unfair and wrongful dismissal arguing that his employer had failed to comply with the terms of his contract as to the conduct of disciplinary proceedings, which had led to his dismissal and, furthermore, a loss of reputation arising out of this. A tribunal upheld his claims and awarded him compensation for unfair dismissal and damages for breach of contract in respect of his notice period (wrongful dismissal).

Mr Botham then issued High Court proceedings for breaches of express and implied terms of his contract which caused him loss over and above that which he had been awarded in the tribunal.

The MoD argued that Mr Botham's claim fell within the "Johnson exclusion area" because his claim arose out of the process that had led to his dismissal.

"Johnson exclusion area"

This concept sets out the position that compensation is not available for pre-dismissal breaches of the implied term of mutual trust and confidence, in respect of the ‘manner’ of the dismissal (be it actual or constructive). The reason for this is so as to prevent a duplication of an employees statutory right to claim compensation for being unfairly dismissed under the Employment Rights Act 1996 (ERA) which can only be exercised in the employment tribunal.

Claims can, however, be brought which "precede and are independent of" the dismissal.

This concept was introduced by the House of Lords in the case of Eastwood v Magnox Electric and McCabe v Cornwall County Council (2004) following the case of Johnson v Unisys Ltd (2001).

The High Court dismissed Mr Botham's claim and agreed with the MoD’s argument that, as the loss for which he sought damages arose out of his dismissal and not out of any prior breach of contract, his claim fell within the "Johnson exclusion area". In reaching this decision the High Court held that the remedy for a dismissal which occurs as the result of a breach of disciplinary procedures is provided exclusively by the unfair dismissal provisions of ERA 1996.

Edwards v Chesterfield Royal Hospital NHS Foundation Trust (2010)

For the facts of this case and a more detailed review of the CA’s decision in Edwards, please see our earlier article on the case.

In Edwards the CA disagreed with the suggestion in Botham that the remedy for a dismissal which occurs as the result of a breach of disciplinary procedures is provided exclusively by the unfair dismissal provisions of the ERA.

The CA held that the ‘Johnson exclusion area’ only applies to a breach of the implied term of mutual trust and confidence.  Therefore employees who can establish that their dismissal was caused by a flaw in a contractual dismissal procedure (i.e. an employer’s breach of an express contractual term) can claim general damages for any loss of earnings caused by such a breach. 

This removed the previously held view that the overlap between a dismissal in breach of a contractual disciplinary procedure, and the unfair dismissal rights in the ERA , would preclude an employee from bringing such a claim.

The decision in Edwards meant that if an employee can show that they would not have been dismissed if an express contractual disciplinary procedure had been followed correctly, then they are entitled to general compensation for a breach of contract.  This left employers exposed, therefore, to potentially substantial claims.

 Supreme Court Judgement

However, the Supreme Court disagreed.  In the combined employers’ appeals of the above two cases the court held that an employee who is dismissed in breach of a contractual disciplinary procedure cannot claim damages for the manner of their dismissal. The appeals were allowed and the court confirmed that:

  • employees may not recover damages for loss suffered as a result of a breach of a term in their employment contract as to the manner of their dismissal unless the loss can be said to precede and be independent of the dismissal; and
  • compensation for the manner of dismissal is limited to what they may recover in an unfair dismissal claim under the ERA.

The judgement held that both Edwards and Botham fell, on their facts, within the Johnson exclusion area; Mr Edwards’ dismissal flowed from the panel’s ‘erroneous’ findings, which flowed from its improper constitution, while Mr Botham’s allegation was that the loss of reputation was caused by the dismissal itself.

In terms of the recovery under ERA, it was explained that Parliament specified the consequences of a failure to comply in unfair dismissal proceedings and it could not have intended that they would also give rise to a common law claim for damages.

What does this mean for me?

This judgement provides welcome protection for employers as it has confirmed that, unless parties express otherwise, there is no intention that a failure to comply with contractual disciplinary procedures would give rise to a common law claim for damages.  Consequently claimants are not permitted to claim for general losses caused by the breach of an express contractual disciplinary procedure.

Despite this judgement it is, however, preferable to ensure that disciplinary and dismissal procedures are explicitly and clearly stated to be non-contractual where at all possible.  Where this is not an option employers should, wherever possible, ensure that contractual disciplinary procedures are followed carefully and at all times throughout a disciplinary process.  In cases where they are not, however, this case should provide some comfort.