Eastwood and another (Appellants) v. Magnox Electric plc (Respondents). McCabe (Respondent) v. Cornwall County Council and others (Appellants)

The statutory unfair-dismissal code excludes a common-law claim for loss arising from the dismissal itself or the unfair manner of dismissal. It does not extinguish a cause of action which accrued before, and exists independently of, the dismissal.

An employee may therefore claim damages at common law where unfair pre-dismissal conduct caused psychiatric illness or other financial loss before dismissal. A later actual or constructive dismissal leaves that accrued claim intact. Any loss caused by the dismissal remains within the statutory scheme, and overlapping losses cannot be recovered twice.

These conjoined appeals concerned employees who alleged that unfair disciplinary conduct caused psychiatric illness before they were dismissed. Their common-law proceedings alleged breach of contract, negligence or related wrongs, while their dismissals had also generated statutory unfair-dismissal proceedings.

In Eastwood, the Court of Appeal upheld the striking out of the claims: [2002] EWCA Civ 463, reported at [2002] IRLR 447. In McCabe, the Court of Appeal allowed the employee's action to proceed: [2002] EWCA Civ 1887, [2003] ICR 501.

The common issue was where to draw the boundary between loss governed exclusively by the statutory unfair-dismissal scheme and loss recoverable under an independently accrued common-law cause of action.

1. Disposition. Lord Nicholls delivered the leading speech. Lord Hoffmann, Lord Rodger and Lord Brown expressly agreed with it, and Lord Steyn agreed with the proposed orders. The House unanimously dismissed the employers' appeal in McCabe and allowed the employees' appeals in Eastwood. On the assumed facts, all three employees had reasonable causes of action which should proceed to trial.

2. The statutory boundary. Per Lord Nicholls, the remedies provided by Part X of the Employment Rights Act 1996 govern unfair actual or constructive dismissal. A common-law claim cannot be used to recover loss caused by the dismissal itself or by the unfair manner in which the dismissal decision was made. That is the exclusion established by Johnson v Unisys Ltd [2003] 1 AC 518.

3. Accrued pre-dismissal rights. The exclusion does not extinguish a cause of action which accrued before and independently of dismissal. Ordinarily, procedural unfairness during steps leading to dismissal causes no financial loss until dismissal, so the resulting loss belongs to the statutory claim. Exceptionally, unfair pre-dismissal treatment may itself cause financial loss. Suspension and psychiatric or other illness caused before dismissal are examples.

4. Causation and recovery. Courts must separate loss caused by antecedent conduct from loss caused by the later dismissal. That exercise may require medical and factual findings about when illness and financial loss arose. An employee may pursue both jurisdictions but cannot recover overlapping heads of loss twice.

5. Application. On the pleaded and assumed facts, each employee alleged psychiatric injury and consequential loss caused by conduct occurring before dismissal. Those allegations disclosed causes of action independent of the dismissals and could not properly be struck out.

6. Lord Steyn's observations. Lord Steyn agreed with the result but considered, obiter, that Johnson might require future reconsideration. He identified its artificial demarcation, the subsequent ruling that unfair-dismissal compensation excludes non-pecuniary loss, and the apparent exclusion of personal-injury claims from employment-tribunal contractual jurisdiction. The House had not heard oral argument challenging Johnson, so he did not decide its correctness.

1. House of Lords: In [2004] UKHL 35, unanimously allowed the Eastwood employees' appeals and dismissed the employers' appeal in McCabe.
2. Court of Appeal—McCabe: In [2002] EWCA Civ 1887, [2003] ICR 501, allowed Mr McCabe's appeal and permitted the proposed pre-dismissal claim to proceed to trial.
3. High Court—McCabe: In [2002] EWHC 3055 (QB), refused permission to amend and struck out the statement of claim.
4. Court of Appeal—Eastwood: In [2002] EWCA Civ 463, reported at [2002] IRLR 447, upheld the striking out of both employees' common-law claims.
5. County Court—Eastwood: Struck out the negligence and contract claims as having no reasonable prospect of success.