Stuart Peters Ltd v Bell

The Court of Appeal held that the Norton Tool principle — that a tribunal assessing compensation for unfair dismissal may ignore earnings a dismissed employee obtains during the contractual notice period where the employer has summarily terminated the contract without payment in lieu — is a limited exception rooted in good industrial relations practice and does not extend to cases of constructive dismissal. The court reasoned that constructive dismissal arises where the employee accepts a repudiatory breach and resigns, and the industrial practice that underpins the Norton principle (payment in lieu at the point of dismissal) will not normally exist in that context. Accordingly, where dismissal is constructive the tribunal must give credit for sums earned in mitigation during the notice period when assessing compensatory award under section 123 of the Employment Rights Act 1996.

Background and facts:

• The Employment Tribunal found that Ms Bell had been constructively and unfairly dismissed by her employer, Stuart Peters Ltd, and that she was entitled to a six-month contractual notice period.
• During the notice period Ms Bell obtained temporary work for another employer for about three months. The Employment Tribunal held that the compensatory award should be limited to the notice period and declined to offset the earnings from the temporary work, relying on the Norton Tool principle. The Employment Appeal Tribunal agreed with the Employment Tribunal.

Procedural posture: Appeal to the Court of Appeal from the Employment Appeal Tribunal.

Nature of the claim / relief sought: Assessment of compensatory award for unfair dismissal (constructive dismissal) under section 123 of the Employment Rights Act 1996, specifically whether earnings obtained during the contractual notice period must be credited against the award.

Issues framed:

• Whether the Norton Tool principle applies where the dismissal is constructive rather than a direct termination by the employer.
• Whether section 123 permits awarding compensation calculated without crediting mitigation earnings obtained during the notice period in constructive dismissal cases.

Court's reasoning and conclusion:

• The key question is what good industrial relations practice requires. Norton Tool reflects a practice where an employer who terminates the contract summarily should, in normal course, offer payment in lieu of notice at the time of dismissal; that practice explains why tribunals treat earnings during the notice period differently in direct dismissals.
• The court found that the same industrial practice does not ordinarily exist where termination is triggered by the employee accepting a repudiatory breach. Employers will not normally pay in lieu at the time of the alleged breach and there is often a dispute about whether a repudiatory breach occurred. Therefore the Norton exception does not apply to constructive dismissals.
• The court emphasised that Norton Tool is a limited exception to the general principle that compensation under section 123 should reflect actual loss; that limited exception cannot be extended consistently with the House of Lords' reasoning in Dunnachie.

Outcome: The appeal was allowed and the Court held that credit must be given for earnings obtained in temporary employment during the notice period in a constructive dismissal case.

Appeal allowed. The Court of Appeal held that the Norton Tool principle is a limited exception based on good industrial relations practice and does not apply to constructive dismissal; accordingly, where dismissal is constructive the tribunal must give credit for sums earned by the employee during the contractual notice period when assessing compensation under section 123 of the Employment Rights Act 1996.

On appeal from the Employment Appeal Tribunal (as stated in the judgment). The Employment Tribunal had found constructive unfair dismissal and awarded compensation limited to the notice period without credit for third-party earnings; the EAT upheld that approach; the Court of Appeal allowed the employer's appeal. Neutral citation for this Court of Appeal decision: [2009] EWCA Civ 938. (No neutral citations for the earlier tribunals are stated in the judgment.)