UK: Dunnachie Overturned –Tribunals May Award Compensation for Distress in Unfair Dismissal Claims

Last year, much to the relief of employers, the EAT in the case of Dunnachie v Kingston made it clear that compensation could only be awarded for financial loss. However, by a recent majority decision, the Court of Appeal, in an appeal against the EAT’s decision has reversed this decision, enabling Tribunals to once again make such awards.

Mr Dunnachie worked as an environmental officer for Hull City Council. After 15 years of employment, he resigned following a prolonged campaign of harassment. Mr Dunnachie brought a claim against his former employers in which it was held that he had been unfairly and constructively dismissed. The Tribunal included in its calculation of compensation, an award of £10,000 as "compensation under Johnson v Unisys". Hull CC appealed to the EAT. The EAT overturned the Tribunal’s award on the basis that the Tribunal was not bound by the comments of Lord Hoffman in his judgment in Johnson v Unisys. It held that the famous case of Norton Tool v Tewson (which held that the applicable legislation governing compensation for unfair dismissal did not enable an employee to recover compensation for injury to pride or feelings) was rightly decided.

The CA considered the construction of section 123 of the Employment Rights Act 1996 (ERA), which states at 123 (1) "…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….". The CA held that the word "loss" included non-economic losses as well as pecuniary losses and that the famous case of Norton Tool v Tewson is no longer good law. Interestingly a majority of the Law Lords concluded that the relevant passage in the speech of Lord Hoffman was obiter and not binding authority, but nevertheless concluded that compensation for injury to feelings was recoverable on the basis of the construction of section 123 ERA.

Consequently Tribunals again have the power to make awards to reflect distress, humiliation, damage to reputation in the community or family life and psychiatric damage caused by the manner of dismissal. However, the Court of Appeal has made it clear that not every upset caused by an unfair dismissal will carry a compensatory award for injury to feelings: only where there is "a real injury to his or her self-respect", and "principally in cases of constructive dismissal".

As to the amount of compensation which should be awarded for this head of loss, the Court of Appeal have directed Tribunals to consider the scale established in discrimination cases by the recent Ve n t o decision.

Employers can, therefore, expect applicants to seek such awards as a matter of routine. 

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