Dunnachie v Kingston upon Hull City Council

The House considered the proper construction of section 123(1) of the Employment Rights Act 1996 and whether a compensatory award for unfair dismissal may include non-pecuniary heads of loss such as humiliation, injury to feelings and distress. The court held that the word "loss" in section 123(1) is to be understood in its ordinary, contextual sense as referring to pecuniary loss and does not embrace non-economic loss. The decision reaffirmed the long-standing precedent in Norton Tool Co Ltd v Tewson that compensation for unfair dismissal is compensatory for financial loss, and treated Lord Hoffmann's observations in Johnson v Unisys about non-pecuniary compensation as obiter. The House also relied on statutory context (including the absence of any express provision for injury to feelings in the Employment Rights Act while such provision is explicit in other discrimination statutes) and on the need for consistency within the remedial scheme (for example, with sections dealing with reinstatement and re-engagement) to support a pecuniary-only construction.

Background and facts.

Mr Dunnachie alleged constructive and unfair dismissal after a period of conduct by colleagues and managers which a tribunal found amounted to a breach of the implied term of mutual trust and confidence and which caused his ill-health. The employment tribunal found unfair dismissal and, at a remedies hearing, awarded substantial sums for pecuniary losses and included £10,000 for injury to feelings, relying on observations in the House of Lords' decision in Johnson v Unisys. The employer appealed.

Procedural history.

• The Employment Tribunal found unfair dismissal and awarded compensation including a head for injury to feelings.
• The Employment Appeal Tribunal allowed the employer's appeal: Dunnachie v Kingston upon Hull City Council [2003] ICR 1294.
• The Court of Appeal allowed the employee's appeal and upheld the award: Dunnachie v Kingston upon Hull City Council [2004] IRLR 287 (EWCA Civ 84).
• The House of Lords granted further appeal.

Nature of the claim and issues.

• The claimant sought compensatory damages for unfair dismissal including non-pecuniary loss (humiliation, injury to feelings and distress).
• The main issues the House framed were: (a) whether paragraph 55 of Lord Hoffmann's opinion in Johnson v Unisys formed part of the ratio decidendi of that case; (b) if so, whether the House should depart from it; and (c) whether section 123(1) of the Employment Rights Act 1996 permits recovery of non-pecuniary loss.

Court's reasoning.

• The House held that Lord Hoffmann's remarks at paragraph 55 in Johnson were obiter and did not definitively decide that tribunals could award non-pecuniary damages under section 123.
• In construing section 123(1) the court examined the original statutory predecessor (section 116(1) of the Industrial Relations Act 1971), the statutory language and subsequent re-enactments, and said that the ordinary meaning of "loss" in that provision is pecuniary loss. The court noted the consistent judicial practice following Norton Tool Co Ltd v Tewson that limited compensation to financial loss.
• The court rejected the argument that the discretionary wording "just and equitable" allowed tribunals to award non-pecuniary sums additional to proved financial loss, explaining that the statutory scheme and context (for example, the absence of provision for injury to feelings in remedies tied to reinstatement or re-engagement, and explicit provision for injury to feelings in discrimination statutes) support a pecuniary-only construction. The court also noted the undesirable consequences of allowing aggravated or exemplary awards on the face of the statute.
• For these reasons the House allowed the appeal and restored the decision of the Employment Appeal Tribunal.

Appeal allowed. The House held that section 123(1) of the Employment Rights Act 1996, properly construed, confines compensatory awards for unfair dismissal to pecuniary loss and does not permit compensation for non-pecuniary injury to feelings, humiliation or distress. Lord Hoffmann's observations in Johnson v Unisys about the possibility of non-pecuniary awards were obiter and did not bind the court.

Employment Tribunal (remedies hearing awarding compensation including £10,000 for injury to feelings); Employment Appeal Tribunal allowed the employer's appeal: Dunnachie v Kingston upon Hull City Council [2003] ICR 1294; Court of Appeal allowed the employee's appeal: Dunnachie v Kingston upon Hull City Council [2004] IRLR 287 (EWCA Civ 84); House of Lords allowed the employer's appeal and restored the EAT decision: [2004] UKHL 36.