Digital Equipment Co Ltd v Clements (No 2)

A compensatory award for unfair dismissal must be calculated under the statutory scheme. The tribunal first determines the loss attributable to the dismissal, including any percentage adjustment reflecting the chance that employment would have ended despite a fair procedure. It then applies the statutory credit for any redundancy payment exceeding the basic award. That excess is not deducted when calculating loss; it must reduce the compensatory award in full. Payments made in lieu of earnings are treated as part of the loss. General common-law damages principles do not displace the statutory code, although the statutory scheme expressly imports the common-law rule on mitigation.

Mr Clements was selected for redundancy after Digital failed fully to consult him. The Industrial Tribunal found the dismissal unfair and assessed a 50% chance that he would have been retained following a fair procedure. It calculated his loss at £43,136 and awarded the statutory maximum after deducting the redundancy payment in the manner favourable to Mr Clements.

The Employment Appeal Tribunal initially substituted an award of £883, but on review restored the Industrial Tribunal’s decision. Digital appealed. The central issue was whether the excess redundancy payment had to be deducted before or after applying the 50% chance assessment.

Appeal allowed. Lord Justice Beldam delivered the judgment, with Lord Justice Potter and Sir John Balcombe agreeing. The issue was the proper construction of section 74 of the Employment Protection (Consolidation) Act 1978.

1. The statutory scheme distinguishes between the loss used to calculate the compensatory award and the compensatory award itself. Loss is assessed under section 74(1), having regard to the loss attributable to the employer’s action. The percentage chance that the employee would have retained employment is applied at that stage.
2. Section 74(7) makes separate provision for an actual redundancy payment exceeding the basic award. The excess is not an element of the loss. It must go to reduce the compensatory award after the loss has been calculated, giving the employer full credit for the excess.
3. The approach adopted in Ministry of Defence v Wheeler & Ors (unreported, C. of A. 97/1795) concerned loss of earnings and did not determine the treatment of an excess redundancy payment under the express statutory wording. The different treatment was justified by the statutory distinction.
4. The statutory history, including Norton Tool Co. Ltd v Tewson [1972] ICR 501, supported the conclusion that compensation for unfair dismissal is a statutory measure. Section 74(4)’s express reference to the common-law rule on mitigation would be unnecessary if general damages principles applied automatically.

Applying that sequence, the 50% assessment was made to the £43,136 loss, producing £21,568. The excess redundancy payment of £20,685 was then deducted, leaving £883. The appeal was allowed, with no order as to costs. Leave to appeal to the House of Lords was granted.

Court of Appeal. The appeal from the Employment Appeal Tribunal was allowed: [1997] EWCA Civ 2899.

• Employment Appeal Tribunal. On 4 June 1996, Digital’s appeal was allowed and a compensatory award of £883 was substituted.
• Employment Appeal Tribunal on review. On 5 December 1996, the Tribunal restored the Industrial Tribunal’s decision after finding that material authorities had not been brought to the earlier Tribunal’s attention.
• Industrial Tribunal. The Tribunal found the dismissal unfair because consultation had been inadequate. It assessed a 50% chance that Mr Clements would have been retained and awarded compensation accordingly.