Avoiding increased risk on dismissal procedures

Avoiding increased risk on dismissal procedures

27/02/2014

Julian Hoskins

Julian Hoskins

Partner

Getting your dismissal policy and procedure spot-on is now more important than ever, as the Employment Appeal Tribunal has  taken a narrow approach to employers' protection under the 'Johnson exclusion zone' - the rule which stops employees circumventing the unfair dismissal cap on compensation by bringing their claim as a 'breach of contract'.  In the same case, the EAT also looked at an employer's ability to 'make amends' by withdrawing a notice of dismissal on appeal – is this possible..?  Julian Hoskins reports.

The background

The 'Johnson exclusion zone'

Contrary to what some may think, the 'Johnson exclusion zone' is not a geographical area which has banned Boris; it is (more prosaically) a somewhat complex rule which means an employee cannot seek damages for breach of the implied term of trust and confidence based on the manner in which they were expressly or constructively dismissed. This prevents employees from circumventing the statutory unfair dismissal regime (and, in particular, the cap on unfair dismissal compensation).  This principle was established in two House of Lords cases:  Johnson v Unisys Ltd (2001) and Eastwood v Magnox Electric plc (2004) and has, therefore, become known as the 'Johnson exclusion zone'.  The thinking behind this rule is that government had specifically provided a remedy for unfair dismissal in legislation – with its accompanying cap on compensation – and it would, therefore, be wrong to allow employees to pursue an uncapped breach of contract claim instead.

One way in which employees attempt to get around the 'Johnson exclusion zone' is to identify actions of the employer in the events preceding dismissal which can be used as 'pegs' on which to hang a breach of contract claim. However, such events must be separate from or independent of the dismissal itself (this was established in a case called Edwards v Chesterfield Royal Hospital NHS Foundation Trust (2010).

'Curing' a repudiatory breach

A repudiatory breach of contract is a fundamental breach which effectively 'repudiates' a contract, giving the aggrieved party the right to choose either to end the contract or to affirm it. In either case, the aggrieved party may also claim damages.  If an employer commits a repudiatory breach it cannot 'fix' that breach by attempting to make amends or undo what has been done – by, say, allowing an appeal or upholding a grievance.  Once a repudiatory breach has occurred, the ball is firmly in the employee's court: they can either 'waive' the breach (also known as affirming the contract) and carry on as before, or treat the breach as fatal to the employment relationship and so bring it to an end.  This principle was established in a case called Buckland v Bournemouth University Higher Education Corporation (2010).

The facts

In Gebremariam v Ethiopian Airlines the Claimant, Ms Gebremariam, worked in the London office of Ethiopian Airlines as a ticketing agent. At roughly the same time as she returned from maternity leave, Ethiopian Airlines' requirement for call centre staff decreased dramatically. Having decided that Ms Gebremariam had less experience than the other ticketing agent, a manager wrote to her stating that she would be made redundant on a specified date.

Ms Gebremariam submitted an appeal, in which she complained of

  • a lack of consultation,
  • absence of a proper selection procedure and
  • a failure to consider alternative employment.

Ethiopian Airlines replied, upholding Ms Gebremariam's grievance and stating that the redundancy selection process would begin anew.

Nevertheless, Ms Gebremariam then resigned and claimed constructive unfair dismissal. She claimed that the faulty redundancy process amounted to a repudiatory breach, entitling her to terminate the employment relationship.

An employment tribunal rejected her claim. It acknowledged that the redundancy process had amounted to a breach of the implied term of trust and confidence. However, the effect of Ms Gebremariam's appeal, and the employer's reversal of the faulty redundancy process, meant that there was no existing fundamental breach of contract when Mrs Gebremariam resigned. Therefore, she had not been entitled to bring the contract to an end.

Ms Gebremariam appealed to the Employment Appeal Tribunal (EAT). Ethiopian Airlines also cross-appealed to the EAT on two points

  • the 'affirmation issue': that notwithstanding any repudiatory breach by the airline, Ms Gebremariam had affirmed her contract of employment by submitting her appeal against her dismissal – she had effectively said she wanted to continue to be employed by the airline; and
  • the 'Johnson exclusion zone issue': the airline's failures in respect of the redundancy process were part of Ms Gebremariam's dismissal and therefore within the 'Johnson exclusion zone'.

The decision

The EAT rejected both of Ethiopian Airlines' arguments.

The 'Johnson exclusion zone'

The EAT said that the airline's breach of contract (which was the decision to dismiss Ms Gebremariam without following a fair redundancy procedure) was not within the Johnson exclusion zone because the breach was not part of the dismissal itself.   At the time of that breach, Ms Gebremariam had not been dismissed. Although she had been given notice of dismissal, the dismissal would not have taken effect or terminated the contract until the notice expired. Consequently, the breach of contract was not a  step leading to Ms Gebremariam's dismissal.  

In the EAT's view, as long as the employee in such a situation can prove a breach precedes a dismissal, they should be entitled to bring their constructive dismissal claim without it falling within the Johnson exclusion zone.

The 'affirmation issue'

The EAT found the tribunal's findings unclear on this point but, despite the lack of clarity, the EAT found that the language used was more consistent with the concept of Ethiopian Airlines having attempted to 'cure' its breach, rather than with Ms Gebremariam having affirmed the breach.  However, following the decision in the case of Buckland (see above) the tribunal should not have drawn that conclusion.

In any event, the EAT said that an employee does not necessarily lose their right to rely on a fundamental breach of contract where the following two events happen.

  1. An employer makes a decision that is in fundamental breach of contract.
  2. The employee appeals against that decision.

In such circumstances, a tribunal is not required to find that the employee has automatically affirmed the breach; this is not an affirmation but an attempt to persuade the employer to make amends.

What does this mean for me?

Although this is an important decision, a note of caution should be sounded as it appears that there were a number of technical errors in the EAT's reasoning. However, as it stands, the decision of the EAT suggests that the 'zone' in which employees are precluded from bringing breach of contract claims in relation to their dismissal could be  smaller than previously thought. 

If so, the risk is that breaches of the implied duty of trust and confidence in respect of disciplinary steps or a redundancy process, prior to the dismissal itself, may be litigated as an uncapped breach of contract.  The knock-on effect of this for employers is that there is greater exposure to risk in respect of your policies and procedures and how they are implemented. Furthermore, any flawed process cannot be 'fixed' by allowing an appeal; if trust and confidence has been breached, it remains open to the employee to decide whether to continue in employment or resign and bring a claim. The logical extension of this is that you may wish to re-visit your employment policies and procedures – primarily your grievance and disciplinary procedures but other documentation may also be relevant – and ensure that that these are drafted to allow you maximum flexibility and are clearly communicated and understood by managers. 

The team at Bevan Brittan has a wealth of experience in advising on both the 'black letter' drafting of such procedures and also how they may be embedded in an organisation. To speak to us about training for you managers, please do contact Julian Hoskins or another member of the Employment and Pensions team.

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