Stuart Peters Ltd v Bell

The Norton Tool principle does not automatically apply to constructive dismissal. Its operation depends on the good industrial relations practice relevant to the way employment ended. Where an employer deliberately terminates the contract without proper notice, that practice may require payment in lieu, and the employer cannot benefit from mitigation earnings during the notice period by receiving a credit. Constructive dismissal is different: the employer purports to keep the contract alive, and there is ordinarily no practice of paying in lieu when the employee resigns in response to an alleged repudiatory breach. The limited Norton Tool exception cannot be extended through the “just and equitable” wording in section 123 of the Employment Rights Act 1996 so as to award more than the employee’s actual loss.

An Employment Tribunal found that the respondent had been constructively dismissed and was entitled to six months’ contractual notice. It assessed her compensatory award on the basis that she could obtain equivalent employment at the end of that period, but refused to deduct earnings from temporary work undertaken during the notice period.

The Employment Appeal Tribunal upheld that approach, treating constructive dismissal and direct dismissal alike for the purpose of the Norton Tool principle. The employer appealed. The central issue was whether the principle applied to a constructive dismissal under section 95(1)(c) of the Employment Rights Act 1996, rather than a termination by the employer under section 95(1)(a).

1. Appeal allowed. Earnings from the respondent’s temporary employment during the notice period had to be credited against the compensatory award.
2. The governing question was what good industrial relations practice required. The Norton Tool principle treated an employer who ended the contract without the required notice as unable to improve its position by failing to make the payment in lieu which good practice ordinarily required. The employee therefore did not have to give credit for mitigation earnings during that notice period, even where the employer genuinely believed that summary dismissal was justified.
3. That practice did not ordinarily apply to constructive dismissal. In that situation the employer was purporting to keep the contract alive and to continue paying wages. There was no general practice of making a payment in lieu when the employee resigned in response to an alleged repudiatory breach, particularly because the existence of the breach would commonly be disputed. The principle therefore could not be extended to cover constructive dismissal merely because both forms of dismissal fell within section 95(1).
4. The difference in result did not involve a different construction of section 123 of the Employment Rights Act 1996. The Norton Tool approach was a limited exception to the general rule that compensation reflects actual loss. The “just and equitable” wording could not be used to enlarge that exception and award more than the loss actually suffered.
5. For completeness, an employer may directly terminate the contract by conduct, without expressly instructing the employee to leave, where the conduct unequivocally treats the contract as ended, such as by refusing to pay wages. In such a case the Norton Tool principle may apply; that was not the present case.

Lord Justice Maurice Kay and Lord Justice Scott Baker agreed with Lord Justice Elias. The order was: appeal allowed.

• Court of Appeal (Civil Division) [2009] EWCA Civ 938: appeal allowed; the Employment Appeal Tribunal’s approach was rejected and the temporary earnings had to be credited.
• Employment Appeal Tribunal: upheld the Employment Tribunal’s refusal to offset the temporary earnings under the Norton Tool principle.
• Employment Tribunal: found constructive unfair dismissal, awarded compensation based on a six-month contractual notice period, and refused credit for temporary earnings during that period.