LABOR LAWYER

1.Introduction
As indicated in the key words of the case report of Dunnachie v Kingston Upon Hull City Council [2004] IRLR 727 HL, the decision of the House of Lords in this case mainly deals with scope of “compensatory award” or “compensation” as a remedy in “unfair dismissal” actions concerning the judicial interpretation of Employment Right Act 1996 (‘ERA’) section 112, 113,114 (2) (a), 115 (2) (b), 123 (1), 123 (2). It was held that section 123 (1) does not allow for the recovery of non-economic loss resulting from an unfair dismissal. To explore the impact of this decision on regulation of unfair dismissals, I will start from the original legislation and case law, and then compare the legal position prior and subsequent to it.

2.Industrial Relations Act 1971 and Norton Tool
Industrial Relations Act 1971 was the ultimate genesis of unfair dismissal legislation and s.116 (1) of the Act provides: “... the amount of the compensation shall ... be such amount as the court or tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the aggrieved party in consequence of the matters to which the complaint relates, in so far as that loss was attributable to action taken by or on behalf of the party in default.” Section 116 (2) makes it clear that the relevant loss includes expenses reasonably incurred as a result of the matters complained of and the loss of any benefit which, but for those matters, the complainant could reasonably have expected. However the subsection goes on to bring in the common law rules concerning the duty of a complainant to take reasonable steps to mitigate his own loss. Accordingly if he could, acting reasonably, have avoided suffering the loss, incurring the expenses or losing the benefit the amount of the compensation will be reduced to the extent of that loss, expense or loss of benefit was avoidable.
In Norton Tool Co Ltd v Tewson [1972] IRLR 86, an appeal against the assessment of compensation by the Tribunal, the question arose whether under s. 116 (1) compensation could be awarded for injury to feelings. The National Industrial Relations Court held:
“... the amount to be awarded is that which is just and equitable in all the circumstances having regard to the loss sustained by the complainant. ‘Loss’ in the context of the section does not include injury to pride or feelings. In its natural meaning the word is to be so construed, and that this meaning is intended seems to us to be clear from the elaboration contained in subsection (2). The discretionary element is introduced by the words ‘having regard to the loss’. This does not mean that the Court or tribunal can have regard to other matters, but rather that the amount of the compensation is not precisely and arithmetically related to the proved loss. ”
Since Norton was decided in 1972, it has been consistently applied in practice at all levels that only economic losses are recoverable for unfair dismissal until called into question in Johnson. Let me now turn to the relative legislations and cases between Norton and Johnson.

3.Subsequent re-enactments, Devine, and Malik
S.116 (1) of the Industrial Relations Act 1971 was reenacted by Schedule 1, para.19, of the Trade Union and Labour Relations Act 1974, by s. 76 of the Employment Protection Act 1975 and by s.74 of the Employment protection (Consolidation) Act 1978. Now, the relevant statutory provisions are contained in s.123 of the Employment Right Act 1996. For present purposes, I only set out the most relative provisions:
ERA 1996 s.123 Compensatory award
(1)Subject to the provisions of this section and sections 124[, 124A and 126], 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.
(2)The loss referred to in subsection (1) shall be taken to include—
(a)any expenses reasonably incurred by the complainant in consequence of the dismissal, and
(b)subject to subsection (3), loss of any benefit which he might reasonably be expected to have had but for the dismissal.
...
(4)In ascertaining the loss referred to in subsection (1) the tribunal shall apply the same rule concerning the duty of a person to mitigate his loss as applies to damages recoverable under the common law of England and Wales or (as the case may be) Scotland.
...
(6) Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding...
After more than thirty years and several reenactments, as we can see, the formulation of compensatory award remains the same and there had been no real challenge against the interpretation of Norton. However, two cases deserve some comments.
In Devine v. Designer Flowers Wholesale Florist Sundries Ltd [1993] IRLR 517, As a result of unfair dismissal, Mrs. Devine suffered from anxiety and reactive depression and had been unfit to look for work. She appealed against the Industrial Tribunal’s refusal of making any award for loss of earnings. Allowing the appeal, the Employment Appeal Tribunal held that taking into account “the personal circumstances of that employee” and “the effect of the dismissal on her health”, considering how far the loss “is attributable to action taken by the employer”, an employee who has become unfit for work wholly or partly as a result of an unfair dismissal should be “entitled, at least, to compensation for loss of earnings for a reasonable period following the dismissal, until she might have reasonably been expected to find other employment. ”[1]
Thus it seems to suggest that s.123 of ERA or Norton does not prevent the recovery of loss of earnings, or in a wider term “financial loss”, flowed from ill health, or specifically as described by the doctor “anxiety and reactive depression” caused by the facts or circumstance of unfair dismissal. This implication coincidentally can be further endorsed by the approach in Malik.
In Malik v Bank of Credit and Commerce International SA (In Liquidation) [1997] 3 W.L.R. 95, the House of Lords drew a distinction between injured feelings, loss to reputation, manner of dismissal and financial loss flowed therefrom. Lord Nicholls observed: “For present purposes, I am not concerned with the exclusion of damages for injured feeling. The present case is concerned only with financial loss.” “In my view these observations cannot be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term and this caused financial loss.”[2] Lord Nicholls observed that financial losses in respect of damage to reputation are in principle recoverable in respect of unfair dismissal. [3]
By the two preceding cases, I am prepared to accept the view put forward by Bowers and Lewis, “Nothing in the reasoning in Dunnachie prevents employees claiming for economic loss which is consequential on damage to health, such as where the ill-health leads to the employee being unable to find alternative work or costs of treatment are incurred.”[4] There are, however, forceful competing arguments, to which I will return after comments on Johnson and Dunnachie.

4.The effect of Johnson on Norton authority
When decision of Johnson v. Unisys Ltd [2001] UKHL 13 was handed down, many believed the door towards the recovery of non-pecuniary loss in unfair dismissal action had been unlocked. Lord Hoffman observed in para 55 of the judgment: “I know that in the early days of the National Industrial Relations Court it was laid down that only financial loss could be compensated: see Norton Tool Co Ltd v Tewson [1972] IRLR 86; Wellman Alloys Ltd v Russell [1973] ICR 616. It was said that the word 'loss' can only mean financial loss. But I think that is too narrow a construction. The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable. So I see no reason why in an appropriate case it should not include compensation for distress, humiliation, damage to reputation in the community or to family life.” Although this is not an unfair dismissal action, since the speech addressing the issue is so direct and it comes from the leading opinion of House of Lords, it did lead to compensatory award for injury to feelings being granted by employment tribunals in some counties. However, this jurisdictional confusion was soon corrected by Dunnachie.

5.Dunnachie-the door closed
Mr. Dunnachie was found constructively dismissed after a campaign of bullying and harassment over several months. The unfair dismissal action was successful, and when assessing the compensation, the employment tribunal included £10,000 for injury to feeling. The case was appealed to the House of Lords, where only one judgment, that of Lord Steyn, was delivered. His Lordship held the status of Lord Hoffman’s observation in para 55 of Johnson was clearly obiter dictum at paragraph 12, 13:
“It can readily be accepted that Lord Hoffmann's observation in paragraph 55 was relevant to his reasoning that the development of a general common law remedy as contended for by the employee would have involved a complete or virtually complete overlap with the statutory scheme. It tended to support his reasoning. But that does not mean that it was part of the ratio decidendi. Lord Hoffmann's language clearly excludes such a view. He described it as 'a doubtful question'. He described it as 'academic'. Then he introduced his comments by the words 'But perhaps I may be allowed a comment all the same.' This is not the language of a Law Lord inviting the House to overrule a longstanding decision on a point of statutory construction that was not in issue and not explored in opposing arguments.
It is unnecessary to struggle any further with the point. The observation of Lord Hoffmann was an obiter dictum. It presents no obstacle to the House now considering the matter in depth.”
His Lordship further held the plain meaning of the word 'loss' in s.123 (1) excludes non-economic loss at paragraph 17, 22:
“It can readily be accepted that the words 'loss' in varying contexts may have wider and narrower meanings. But that proposition is of no legal interest. The question before the House is the meaning of the word 'loss' in s.116 (1) of the 1971 statute. If properly construed it was restricted to economic loss, the re-enactment of the statutory formula in 1996 must bear the same meaning. It is not a case in which the ambulatory consequences of the always speaking canon of construction has any role to play. Nothing that happened since 1971 could justify giving to the statutory formula a meaning it did not originally bear.
…
For all these reasons I would hold that the plain meaning of the word loss in s.123 (1) excludes non-economic loss.”
At last, his Lordship drew a conclusion that s.123 (1) does not allow for the recovery of non-pecuniary loss at paragraph 26, 28:
“In my view s.123 (1) must be construed as a composite formula. The interpretation preferred by Sedley LJ splits up the formula in a way which, with great respect, is more than a little contrived. It unjustifiably relegates the criterion of loss to a subordinate role. Given the hypothesis that the legislature expressly provided for the recovery of economic loss, it fails to explain why the legislature did not also expressly provide for compensation for injury to feelings. It also fails to take full account of the context. For example, on this expansive interpretation there would, as already mentioned, be nothing on the face of the statute to exclude the award (subject to the cap which is now standing at £55,000) of aggravated or exemplary damages. This could not have been intended. The better view is that the provision was not intended, in the words of Brooke LJ, to provide for 'palm tree' justice.
…
I would hold that s.123(1) does not allow for the recovery of non-pecuniary loss.”
Thus the floodgate opened by Johnson shut again and the approach in Notron was restored.

6.Legal position after Dunnachie
As I indicated earlier at the end of paragraph 3 of this essay, one may argue that economic loss flowed from ill-health or damage to reputation is recoverable in unfair dismissal actions. Contrary to this view, in Eastwood v Magnox Electric Plc and McCabe v Cornwall CC [2004] UKHL 35 which was handed down at the same day as Dunnachie, Lord Steyn held that the assumption that compensation for finical loss flowing from psychiatric injury could be awarded in unfair dismissal case was wrong. The bases relied on are: “The jurisdiction of an employment tribunal does not extend to the awarding of compensation ‘in respect of personal injuries’”, “A claim in contract or tort for damages for psychiatric injury is a claim in respect of personal injuries”, “On the plain meaning of those words claims for financial loss caused by psychiatric injury are excluded from the jurisdiction of employment tribunals.”
I would suggest that the above two competing views can live together. Ill-health or damage to reputation themselves are different from financial loss flowed therefrom: see Malik. The employment tribunals don’t have jurisdiction over personal injury, but should be fully competent to assess future loss of earnings suffered as a result of ill-health due to unfair dismissal. Loss of earnings is only part of the remedy of personal injury as such. Unfair dismissal cause of action embracing “future loss of earnings” does not prevent the employee to claim common law remedy on personal injury if there stands such a cause of action. Two parallel proceedings may be brought at the same time but subject to the application of the usual principle against double recovery: see also Malik. Considering that personal injury of psychiatric or psychological aspect in circumstance of unfair dismissal often falls within the Johnson exclusion zone, insisting on this point is of special significance. The main issue then turns to be how to draw a distinction between the situations where there is financial loss incurred due to ill-health, damage to reputation, the manner of dismissal, and situations where only non-economic loss incurred. In the former case, there will be statutory unfair dismissal remedy for financial loss; in the latter, non economic loss is irrecoverable in such proceeding.
Nevertheless, there will be seldom cases of the above mentioned type brought before the tribunals. One of the reasons is the statutory cap, which renders the remedy too meager to compensate the employee’s expenses at the hands of the employer. The employee will struggle to claim common law remedy for breach of contract independent of, and prior to dismissal or try to frame a claim of unfair dismissal as also including a claim for detriment prior to dismissal. The “Johnson exclusion area” was upheld or redefined in Eastwood, but in narrow terms. Lord Nicholls observed: “The loss flowing from the impugned conduct taking place before actual or constructive dismissal lies outside the Johnson exclusion area, the loss flowing from the dismissal itself is within that area.” [5]This demarcation may give rise to difficult questions of causation when faced with conflicting medical evidence. Further, “Johnson will tend to encourage precipitate and unfair decisions by employers to dismiss employees.”[6] In so far as the Parliament has not either amend s.123, or remove the cap, this is the real situation.
The approach adopted in Eastwood in defining the ‘Johnson exclusion area’ may be applied to the similar distinction, between a detriment which ‘amount to dismissal’ and other detriments ‘short of dismissal’ under Part V of the ERA. Thus Lord Nicholls observed, “If before his dismissal, whether actual or constructive, an employee has acquired a cause of action at law, for breach of contract or otherwise, that cause of action remains unimpaired by his subsequent unfair dismissal and the statutory rights flowing therefrom.”[7] By the same reasoning, “once there is an accrued cause of action in detriment, it will not be lost by the fact of the subsequent dismissal.”[8] Considering the detriment claim which may encompass damage for injury to feeling, and the statutory grievance and disciplinary procedures which more likely provides basis for a detriment claim due to deficiency in procedural steps leading up to dismissal, more unfair dismissal claims will be supplemented with detriment claims in order to boost the size of tribunal awards.
Some argue there are other scopes for non-economic damages for unfair dismissal after Dunnachie. For example, Bowers, John and Jeremy Lewis in “Non-economic damage in unfair dismissal cases: what’s left after Dunnachie?” (2005) 34 ILJ 83 considered the basic award, the additional award in ERA and Employment Act 2002 as proper potential sources. The basic award and additional award “are not calculated by reference to economic loss.” “In the Court of Appeal in Dunnachie, Sedley LJ suggested that in the 'ordinary' case of unfair dismissal it is the basic award which is there to compensate for unfairness.” “Given the tribunal's wide discretion and that there is no requirement even to 'have regard to the loss' …The tribunal may also have regard in an appropriate case to the extent of non-economic damage.” “There is no statutory guidance as to what factors may be taken into account in determining whether and to what extent the award should be uplifted beyond 10%. There appears to be considerable scope to take into account non-economic damage where it can be said to be consequential on a failing in the procedure.”
In Dunnachie, the House of Lords had an opportunity to review not only the opinions in Johnson, but also the whole framework of the compensatory award for unfair dismissal introduced in 1971. Thus Miss Wilkinson in Burlo v Langley and another submitted:
“[In Dunnachie] Lord Steyn held that Sedley LJ was wrong and that the words just and equitable were intended only to allow tribunals a measure of flexibility in calculating the loss; they were not intended to permit 'palm-tree justice'. In effect, Lord Steyn was affirming the principle that a compensatory award must compensate for the (economic) loss attributable to the dismissal. By implication, he was saying that it must do no more. By implication, the decision affirms that there must be no bonuses.” [9]
In Norton it was held good industrial practice requires the employer either to give his notice or pay the wages in lieu. As the employee was given nothing, he was treated as having suffered a loss in so far as he received less than he would receive in accordance with good industrial practice and no reduction was made for his earnings during the notice period. This so called “narrow principle” in Norton, however, can and often leads to the award of a bonus. The Court of Appeal in Burlo refuse to held on this point and observed “issue must await another case and another day” “until a further decision which is directly in point.”[10]

7.Conclusion
Despite the clarity brought by Dunnachie, many problems remain unresolved. Yet, we still can see “the balance between the justice of providing full compensation and considerations of public policy and as to the demands on employers.”[11] Employers may choose to precipitate the dismissal process, but the Employment Act 2002 statutory cap uplift may come into play. Whilst employees are still excluded recovery of injury to feeling in unfair dismissal claims, the common law remedy and the detriment claim scopes are widened. The wide discretion enjoyed by employment tribunal as to the factual question which side of the “boundary line” the alleged conduct by employer falls, is expected to play an important role towards future balance.

Footnote:
1.Devine v. Designer Flowers Wholesale Florist Sundries Ltd. [1993] IRLR 517 para. 3
2. Malik v Bank of Credit and Commerce International SA (In Liquidation) [1997] 3 W.L.R. 95 para 31
3. Malik [1997] 3 W.L.R. 95 para 69
4. Bowers , John and Jeremy Lewis “Non-economic damage in unfair dismissal cases: what’s left after Dunnachie?” (2005) 34 ILJ 83
5. Eastwood v Magnox Electric Plc and McCabe v Cornwall CC [2004] UKHL 35 para 31
6. Eastwood para 40
7. Eastwood para 27
8. Bowers , John and Jeremy Lewis “Non-economic damage in unfair dismissal cases: what’s left after Dunnachie?” (2005) 34 ILJ 83
9. Burlo v Langley and another [2006] EWCA Civ 1778 para 65
10. Buolo para 66
11. Bowers , John and Jeremy Lewis “Non-economic damage in unfair dismissal cases: what’s left after Dunnachie?” (2005) 34 ILJ 83

Bibliography:
Bowers , John and Jeremy Lewis “Non-economic damage in unfair dismissal cases: what’s left after Dunnachie?” (2005) 34 ILJ 83
Neil Allen “Good faith or no faith?” 154 NLJ 1170
Neil Allen “Dunnachie-the door closes” 154 NLJ 1208
James Cox, Kate Sandison and Ashurst “Dismissals - Employers' Exposure Reduced” ELN August 2004, 11
Douglas Brodie “Protecting Dignity in the Workplace: The Vitality of Mutual Trust and Confidence” ILJ 2004 33 (349)
Christopher Chapmen, “Compensating employees for injury to feelings and psychological injury-where do stress claims stand after the House of Lords judgments in Dunnachie and Eastwood” J.P.I. Law 2005, 1, 12-24
Michael Duggan “Compensation” Emp Law & Lit 11 4-5 (5), 6 January 2007