Burlo v Langley & Anor

This appeal concerns the correct measure of the compensatory award for unfair dismissal under section 123 of the Employment Rights Act 1996 and the scope of the so-called Norton Tool principle. The court held that a tribunal must measure compensatory loss by reference to the economic loss attributable to the dismissal and must not award a "bonus" beyond that loss. The narrow Norton Tool rule — that a payment in lieu of notice precludes deduction of earnings obtained in the notice period — survives in its limited form, but wider formulations of Norton Tool relying on newly formulated "good industrial practice" cannot be invoked to increase compensation beyond the actual loss. In the present case the correct measure of loss for the notice period was statutory sick pay under the contract, not full contractual pay, so the cross-appeal failed.

The appellant, a nanny employed from 1999 under a written contract providing eight weeks' notice and a contractual reference to statutory sick pay, suffered a car accident and was unfit for work. The employers engaged a replacement and informed her that they would not require her to work out her notice. The Employment Tribunal (ET) found wrongful and unfair dismissal, awarding wrongful dismissal damages (eight weeks) and a compensatory award for unfair dismissal. The employers successfully appealed to the Employment Appeal Tribunal (EAT) on the wrongful dismissal calculation, arguing that pay in lieu should be measured by statutory sick pay, not the normal weekly wage; that decision reduced wrongful dismissal damages to eight weeks' SSP. A cross-appeal by the employee argued that, under section 123 ERA, she should receive full contractual pay for the eight-week notice period because of the Norton Tool principle.

The Court of Appeal was asked (i) whether good industrial practice and the Norton Tool authority entitled the employee to full pay in lieu of notice when she was sick, and (ii) whether the narrow Norton Tool principle remains good law in the light of later authorities, notably Babcock and Dunnachie. The court analysed the history: Norton Tool (NIRC) established a narrow rule that pay in lieu prevents deduction of post‑dismissal earnings for the notice period; subsequent EAT and Court of Appeal cases had limited or questioned extensions of that rule. Babcock did not finally decide the correctness of Norton Tool but refused to permit double recovery; Dunnachie held that non-pecuniary loss (injury to feelings) is not recoverable under section 123 and emphasised that "just and equitable" permits only flexibility in quantifying pecuniary loss.

The Court of Appeal concluded that Norton Tool survives in its narrow form but that the broader approach — using generalised precepts of good industrial practice to increase compensatory awards above true economic loss — is not permissible where it would produce an award greater than the loss attributable to dismissal. Applying these principles, because the contract limited sick pay to statutory sick pay and section 88 ERA did not apply (contractual notice exceeded the statutory minimum), the correct measure for the notice period was SSP. The appeal was dismissed.

Appeal dismissed. The EAT was right to refuse the cross-appeal: while the narrow Norton Tool principle (precluding deduction of post‑dismissal earnings where pay in lieu is made) survives, it cannot be extended by reference to newly formulated precepts of good industrial practice so as to award compensation greater than the employee's actual economic loss under section 123 ERA; in this case the correct measure for the notice period was statutory sick pay rather than full contractual pay.

Appeal to the Court of Appeal from the Employment Appeal Tribunal (Elias J, UKEAT/0572/05/ZT) which had allowed the employers' appeal on the wrongful dismissal assessment and refused the employee's cross-appeal; the Employment Tribunal had originally found wrongful and unfair dismissal and assessed awards at first instance.