Compensation awards: does a new job break the chain of causation?

17 Sep 2012

What losses do employers pay for?

In Howley v Commercial Motors (Wales) Limited, the Employment Appeal Tribunal had to consider what losses an employer pays for when it has unfairly dismissed an employee.

After H had been unfairly dismissed by CM he got another short term job that lasted two months ("the second job").

The Employment Tribunal awarded him compensation totalling £44,579.02.  This award included losses suffered by H after the second job had ended
CM appealed, in part, against the award of losses awarded after the second job had ended.  They said that the employment by the new employer should act as an automatic guillotine of the Claimant’s claim for damages because of the wording of Section 123 of the Employment Rights Act 1996. 

Section 123 provides that 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, insofar as that loss is attributable to action by taken the employer. 

The Claimant’s case was that the second job was a short term, two-month consultancy.  The Tribunal, while taking into account in the calculation of the Compensatory Award the money that H had earned doing the second job, rejected the assertion that this employment broke the chain of causation.  It said that it was satisfied that the primary cause of the Claimant’s ongoing loss of earnings, after finished the second job, was his dismissal by CM

This approach is consistent with the leading case of Dench v Flynn & Partners, when Lord Justice Beldam in the House of Lords said: “No doubt in many cases a loss consequent upon unfair dismissal when an applicant gets employment of a permanent nature at an equivalent or higher level of salary or wage than the employee enjoyed when dismissed will cease.  But to regard such an event as always and in all cases putting an end to the attribution of the loss to the termination of employment, cannot lead in some cases to an award which is just and equitable.”

Another Judge added that the test was: “The ordinary common sense test of common law.  Was the loss in question caused by the unfair dismissal or by some other cause?  The Tribunal must ask itself and answer that question, and then ask what amount is just and equitable for the employee to recover.  Rules will no doubt help as guidance in the process, but that is a task which ultimately has to be undertaken.”

In Howley, the Employment Appeal Tribunal (EAT) decided that the approach of the Employment Tribunal was wholly consistent with Dench, particularly as Mr Howley had been engaged on a short two-month consultancy with the second employer, and not as a permanent employee as envisaged in Dench.  

This case demonstrates that, subject to the current statutory cap of £72,300, employers who unfairly dismiss employees are liable for the employee’s losses which are caused by that unfair dismissal.  The mere fact that an employee tries to mitigate his loss (which of course he is required to do) by securing alternative employment, does not mean that the losses terminate at the point of being engaged by the second employer.

That being said, if an employee caused his dismissal by the second employer, there might be powerful arguments for saying that any subsequent losses are not caused by the first employer and therefore not losses for which that employer should be liable.

Our view:

This is a sensible decision as, if Commercial Motors appeal had been successful, unfairly dismissed employees would be very reluctant to take short term jobs which, given their duty to mitigate, would not be fair or right.