Dunnachie (Respondent) v. Kingston-upon-Hull City Council (Appellants)

A compensatory award for unfair dismissal under section 123(1) of the Employment Rights Act 1996 compensates economic loss. It cannot include compensation for injury to feelings, humiliation, distress or other non-pecuniary loss.

The requirement to award an amount which is just and equitable gives an employment tribunal flexibility when assessing the recoverable economic loss. It does not create an independent power to award compensation unrelated to such loss. This construction also excludes aggravated or exemplary awards.

An employment tribunal found that the employee had been constructively and unfairly dismissed after workplace bullying and awarded £10,000 for injury to feelings as part of his compensation. The Employment Appeal Tribunal allowed the employer's appeal, holding that section 123 of the Employment Rights Act 1996 did not permit recovery for non-economic loss: [2003] ICR 1294.

The Court of Appeal, by differing majorities, held that Lord Hoffmann's observations in Johnson v Unisys Ltd were obiter but that section 123(1) nevertheless permitted compensation for non-economic damage: [2004] EWCA Civ 84; [2004] IRLR 287.

The House considered whether Lord Hoffmann's observations formed part of the ratio of Johnson and whether section 123(1), properly construed, permitted compensation for injury to feelings or other non-pecuniary loss.

1. Appeal allowed unanimously. Lord Steyn delivered the leading speech. Lord Nicholls, Lord Hoffmann, Lord Rodger and Lord Brown agreed with his reasons. The decision of the Employment Appeal Tribunal was restored.

2. Per Lord Steyn, Lord Hoffmann's observation in paragraph 55 of Johnson v Unisys Ltd, suggesting that an employment tribunal might compensate distress, humiliation, reputational damage or damage to family life, was obiter. The correctness of Norton Tool Co Ltd v Tewson had not been in issue or tested by adversarial argument in Johnson. Lord Hoffmann had himself described the question as doubtful and academic before offering a comment. The observation therefore did not prevent the House from deciding the construction issue.

3. Per Lord Steyn, the plain contextual meaning of “loss” in section 123(1) of the Employment Rights Act 1996 is economic loss. It excludes injury to feelings and other non-pecuniary harm. The contrary construction was inconsistent with the express provision for injury-to-feelings compensation in discrimination legislation and with the elaboration of recoverable loss in section 123(2).

4. Section 123(1) is a composite formula. The direction to award an amount which is just and equitable does not authorise compensation independently of the loss attributable to the dismissal. It permits flexibility in proving and assessing economic loss and allows a tribunal to decide whether all or any of that loss should justly be awarded. It does not permit additional sums which are not loss. An expansive construction would also leave nothing in the provision itself to exclude aggravated or exemplary awards, which Parliament could not have intended.

5. Per Lord Steyn, the equivalent formula in section 116(1) of the Industrial Relations Act 1971 had the same meaning. Its re-enactment did not enlarge it, and the always-speaking principle could not give the formula a meaning which it had not originally borne.

6. Lord Rodger added that compensation is broadly a substitute for reinstatement or re-engagement. Those remedies provide for pecuniary benefits lost between dismissal and return but contain no provision for non-pecuniary loss. Allowing such loss within a compensatory award would create an anomaly within the statutory scheme.

1. House of Lords: The employer's appeal was allowed unanimously. The decision of the Employment Appeal Tribunal was restored: [2004] UKHL 36 .
2. Court of Appeal: By differing majorities, the court held that Lord Hoffmann's observations in Johnson v Unisys Ltd were obiter but that section 123(1) permitted compensation for non-economic damage. It unanimously upheld the amount and reasons for the injury-to-feelings award: [2004] EWCA Civ 84 ; [2004] IRLR 287.
3. Employment Appeal Tribunal: The employer's appeal was allowed. Burton J held that Lord Hoffmann's observations were obiter and that section 123 did not permit recovery for non-economic loss: [2003] ICR 1294.
4. Employment tribunal: The employee was found to have been constructively and unfairly dismissed. The tribunal included £10,000 for injury to feelings within the assessed losses, although the compensatory award was subject to the statutory maximum.