What is the difference between “wrongful” dismissal and “unfair” dismissal?
Employment law is largely statutory in character but it relies to a large extent on the ordinary principles of the law of contract, particularly with regard to such matters as repudiation, remedies and implied terms. A number of statutory schemes exist in English law beside their common law counterparts (the Rent Act 1977 is one example which immediately springs to mind). An employee is entitled, for example, to the notice period set out in his contract of employment, and if no notice period is specified, to such notice as is reasonable having regard to the nature of the position held. In addition to this common law requirement, Parliament has made provision for certain minimum notice periods. The Employment Protection (Consolidation) Act 1978 (EPCA) provides that an employee in full-time employment is entitled to a minimum notice period of one week (section 49(2)).
In general, Parliament has sought to overlay the common law rules with principles of fairness by which a dismissal, though not in breach of contract, is deemed to be unfair and therefore worthy of some remedy from an industrial tribunal. Common law actions for breach of the employee’s contract of employment by the employer are begun in the appropriate court depending on whether the sum involved in compensation is above or below the county court limit. One preliminary point which must be made is that a dismissal may be unfair even though it is not in breach of contract and thus, in this sense, the two matters must be considered separately. How the two remedies interlink has been a matter of close, and sometimes confusing, examination by the courts.
Wrongful dismissal
A contract of employment is subject to many of the principles of the law of contract applicable to other contracts and the principles relating to rescission, consideration and frustration must be considered in their appropriate contexts. There are, of course, important differences between contracts of employment and other types of contract; for example, an employer injured by the breach of contract by one of his employees will be left to his remedy in damages and will not generally be entitled to the remedy of specific performance. When an employee is dismissed in a manner effective to terminate the contract of employment, it should be asked in every case whether the employee is dismissed in breach of the contract of employment, and whether the employee has suffered loss as a result of that breach.
The general principle is that an employee who is dismissed in breach of contract is entitled to compensation for the difference between the notice period, or money paid in lieu of notice, and that amount of notice which he ought to have received under the contract of employment. Therefore, where the employee concerned is entitled to two months’ notice but is given only one month he is entitled to damages for the difference.
A contract may automatically come to an end if it is a fixed-term agreement, or it may be terminated with the correct period of notice and sometimes it may be brought to an end prematurely by the payment of money in lieu of notice. In cases of misconduct the employer also has the remedy of summary dismissal available to him. In order to decide whether summary dismissal (as opposed to giving the correct or a reasonable notice period) is justified in a particular case, it is necessary to ask whether a reasonable employer presented with the same circumstances would be justified in summarily dismissing the particular individual. It is a question of fact in each case, but the tribunal should look at the circumstances as they existed at the time of the dismissal and should not, therefore, try too much to impart the benefit of hindsight.
The employer will be justified in dismissing an employee without notice in a wide variety of circumstances depending on the type of employment. Certain conduct on the part of the employee will almost invariably justify summary dismissal, for example, a criminal conviction by the employee for an offence of dishonesty against his employer or against a fellow employee. However, in Laws v The London Chronicle (Indicator Newspapers) Ltd [9] 2 WLR 698 at p 701 it was stated that “one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating on the contract or one of its essential conditions”.
Payment in lieu of notice may not necessarily extinguish the employee’s common law rights. The test will be whether the employee is in the position he would have been in had the correct notice been given; thus he may be able to claim incidental expenses connected with his premature dismissal, such as hotel expenses, if his dismissal involves losing living accommodation. The employee may also wish to claim damages under heads other than contractual damages for unlawful dismissal; for example, he may wish to claim damages for the emotional distress caused by his dismissal. However, these are in practice rarely recoverable since the case of Addis v Gramophone Co Ltd [9] AC 488 made a general exclusion of this head of damage in the early years of this century. (Addis was recently upheld in the case of Bliss v South East Thames Regional Health Authority [1985] IRLR 308.)
Unfair dismissal
Section 54 of the EPCA 1978 provides that an employee has the right not to be “unfairly dismissed”. Dismissed in this context means termination of the contract of employment with or without notice; expiry of a fixed-term contract and failing to renew at the conclusion of it, as well as the case of constructive dismissal when the employer, by his conduct, makes it extremely difficult for the employee to continue in his job.
The rules as to the fairness of a dismissal and the principles which industrial tribunals apply in particular cases have created a large body of case law. Section 53 requires an employer to show that he acted reasonably in a particular dismissal and it also provides that it is for the industrial tribunal which hears the case to decide the validity of the dismissal, although the right of appeal exists to the Employment Appeal Tribunal on a point of law.
Repudiation by the employer
In Rigby v Ferodo [7] IRLR 516 (HL), the employers were faced with a financial crisis and therefore decided that, rather than make a section of the workforce redundant, they would reduce their wages. This amounted to a repudiatory breach of contract. The question that the court had to consider was whether this act automatically brought each contract of employment to an end or simply gave each employee an option of accepting the repudiation or pressing ahead with performance. A number of cases before Ferodo had considered this point and had given conflicting anwers, but the general view was that the contract was brought to an end by such action on the part of the employers.
It was held that the employers’ acts gave rise to an election on the part of the employee, so that for the contract to be brought to an end the employee had to accept the repudiation. Here the wage reduction, it was agreed, left the employee with no practical option but to treat the contract as at an end and therefore walk away from his employment. This, therefore, amounted to unfair dismissal.
An alternative argument was suggested by the employers: that the reduction in wages amounted to notice to the employee concerned and therefore that the notice period for the calculation of compensation ran from that date. The Law Lords rejected this argument. The employee working on after the employers’ repudiation did not indicate acceptance of the repudiation, for he did so under protest.
In general terms, the industrial tribunal hearing an application from an employee claiming to have been unfairly dismissed will look at the facts available to the employer at the time the decision to dismiss was made, and not facts which subsequently came to light, in judging the fairness or otherwise of the dismissal. This is illustrated by the case of Polkey v A E Dayton Services Ltd [7] 3 All ER 974 (HL).
In that case the employee was dismissed by being given a redundancy letter and being told that he was being made redundant without any prior warning or consultation. This was in fact part of a business reorganisation whereby the employers wished to shed a proportion of their van drivers who would be of least use to them in their proposed new activity. The employee claimed that he had been unfairly dismissed, having particular regard to the fact that statutory procedures had not been followed. The tribunal found in favour of the employers and the employee appealed against this ruling.
The basis of the industrial tribunal’s ruling had been that, even if the correct procedures had been followed, the employee’s dismissal would still have been justified on the facts and a reasonable employer would have so acted. The House of Lords, in upholding the appeal, considered that in deciding whether the employer had acted reasonably or not, in terms of having sufficient cause to dismiss the employee concerned, the industrial tribunal was required to have regard to the facts known to the employers at the time of the dismissal. It was not open to the employer to claim on the basis of facts which subsequently came to light, that the dismissal was reasonable because the employee did not in fact suffer any injustice as a result of the dismissal. In the circumstances, the House of Lords remitted the matter back to the industrial tribunal for them to determine whether on the facts known to the employers at the time of the dismissal they acted reasonably.
Can a dismissal be wrongful but fair?
As we have seen a dismissal can be “unfair” without being “wrongful”, but can it be “wrongful” without being “unfair”? The case of ESC Sports v Morgan [7] IRLR 391 establishes the principle that a wrongful dismissal is not regarded as unfair simply because of its wrongfulness. In that case the manager of a club was summarily dismissed for maintaining the club in question in an unhygienic condition. The question for the court was whether the dismissal was unfair because of its summary nature, notwithstanding that it was justified in the circumstances, and should the employee have been given the statutory notice period?
The court held that the correct approach was to look at the ordinary principles of contract and especially at whether summary dismissal had been justified in the circumstances. Even if it was not justified, this might give rise only to an action for wrongful dismissal and not one for unfair dismissal.
The message of these cases is that the common law is still crucial in the employment context, despite the large overlay of statute law; indeed, in section 131 of the EPCA 1978, Parliament recognised the continuing need for common law remedies. A working knowledge of the legislation is therefore useful for both employer and employee and both sides should remember the large measure of common sense retained in the legislation which often owes much to the common law.
