Legislation
Case law: compensation award may exceed amount envisaged by contract
30/06/2010 10:34
Employers may not be able to rely on a contractual cap on compensation for dismissal of an employee, following a significant Court of Appeal ruling.
In this case, an employee was summarily dismissed from his position for gross professional and personal misconduct. His contract gave three months’ notice. The contract also stipulated that a disciplinary procedure would be followed, but the employee said it had not been. Accordingly, the employee started proceedings for breach of contract, claiming damages of almost £4.3 million on the basis that, if the disciplinary procedure had been followed, damaging findings would not have been made against him which, in the event, had made it impossible for him ever to obtain work again in a senior medical role, with the consequent loss of future earnings and pension rights.
Following a number of hearings, the High Court determined that the employee would be entitled to recover loss of earnings for his notice period (ie three months), and also for the time during which he would have remained employed while the disciplinary procedure ran its course. This amounted to much less than £4.3 million.
On an appeal by the employee against the High Court’s decision, however, the Court of Appeal said that the employee was entitled to claim damages for breach of contract, as regards the nature of the disciplinary proceedings, and, if a different procedure had been used, it should be assumed that it would have resulted in a finding of no misconduct.
As a result, the employee would now be entitled to have his claim for damages considered on the basis of the full amount, although the amount that would actually be awarded will depend on the established rules for quantifying loss.
Operative date
- Immediate