The Court of Appeal has ruled that an employee subject to a contractual disciplinary procedure, who was dismissed for misconduct in breach of that procedure may, in principle, recover damages for loss of future employment prospects. The case of Edwards v Chesterfield Royal Hospital NHS Foundation Trust represents a significant departure from decades of established case law concerning the calculation of damages for wrongful dismissal. The decision (which we understand is being appealed) potentially opens the door to huge loss of earnings awards for employees who are unable to find alternative employment due to loss of reputation because of their dismissal.

What happened in this case?

Mr Edwards was employed by the Chesterfield Royal Hospital Trust (the “Trust”) as a consultant surgeon. In 2006 he was dismissed for gross professional and personal misconduct following a disciplinary hearing and had since then been unable to obtain work as a permanent consultant. Mr Edwards maintained that if the contractual disciplinary procedure to which he was subject had been followed correctly, he would never have been dismissed. He brought a High Court claim seeking damages for breach of his contract of employment in the sum of little under £4.3 million (including a loss of earnings claim for £3.8 million to cover his loss of employment income from dismissal to retirement at age 65).

Usually a wrongful dismissal claim would be limited to loss of earnings over the contractual notice period and, where there is a contractual disciplinary procedure, the period in which the procedure should have been followed. Since Mr Edwards’ claim went beyond this (to include loss of earnings to retirement), the Trust applied for an order from the Court that any damages which exceeded the loss of earnings over the notice period should be struck out. This matter was dealt with as a preliminary issue and for those purposes the Court only had to consider whether Mr Edwards had any real prospect of recovering, after trial, damages in excess of the loss of earnings over the notice period. For this purpose, it was entitled to assume that Mr Edwards would succeed in all the allegations made in his Particulars of Claim.

The issue finally ended up before the Court of Appeal, and the issue the Court had to consider was whether Mr Edwards was entitled to damages for loss of professional status in circumstances where, if the disciplinary proceedings had been conducted properly and not in breach of contract, he would not have been dismissed. The Court concluded that damages should not be limited to damages over the notice period and the time which the employer would have taken for the disciplinary procedure to be followed.

What were the issues considered by the Court of Appeal?

1.     What cause of action and remedy does an employee have when an employer fails to follow a contractual disciplinary procedure properly?

The employee’s cause of action is for breach of contract. As for his remedy, he could apply for an injunction to restrain the threatened breach of contract. Alternatively he could claim damages (in addition of course to his claim for unfair dismissal).

It was established in the case of Gunton v Richmond upon Thames [1980] ICR 755 that where an employer failed to follow a contractual disciplinary procedure before dismissing an employee, the measure of the employee’s damages for wrongful dismissal included the salary the employee would have earned while the employer followed the disciplinary procedure.

The Court of Appeal reasoned that the fact that in Gunton the employee was able to recover these damages reflects the fact that the employee has a right to have the disciplinary procedure followed, meaning, in turn, that a term of that kind has legal effect and is capable of giving rise to damages if broken.

2.     Has there been a breach of the implied term of trust and confidence by the way Mr Edwards was dismissed?

No, case law has firmly established that an employee cannot bring a claim for breach of the implied term of trust and confidence for the manner in which he is actually or constructively dismissed. This is because the implied term of trust and confidence is concerned with preserving the ongoing relationship of the employer and employee (and therefore has no application on termination). Furthermore, Parliament has already provided an employee with the statutory right to claim compensation for being unfairly dismissed under the Employment Rights Act 1996. This principle was set down by the House of Lords in the case of Johnson v Unisys Ltd [2001] UKHL 13.
However, this point is not relevant here as the Court only needed to consider breaches of express contractual terms. Those were:

• Breach of the provision concerning the notice period.
• Breach of the disciplinary procedure.

3.     What is the scope of damages that Mr Edwards might expect for breach of the express term relating to the disciplinary procedure?

The Court was only therefore concerned with the scope of damages arising from these causes of action, so the question which the Court needed to address was: “Do damages extend to loss of opportunity to hold another full time employment in the NHS?”

In answer to that question, the Court said that previous case law has not established that loss of this kind is too remote to be recoverable. Nothing in the Employment Rights Act 1996 excludes the employee’s rights under the general law and there is no reason why Mr Edwards should not be entitled to recover damages for breach of contract in accordance with ordinary principles. What the damages are will depend on the evidence at trial. No further guidance was given, except it is worth noting that the Court did not say that Mr Edwards would necessarily succeed in his claim for loss of earnings to retirement – this issue would have to be decided at trial in relation to quantification and remoteness of loss.

What this case means for employers

This case will be most relevant to those employers who currently have disciplinary procedures which are incorporated into their employees’ contracts of employment. Up until now, an employer who fails to follow the disciplinary procedure correctly would face claims for wrongful dismissal (i.e. breach of notice period), failure to follow disciplinary procedure (loss of salary over the period in which the disciplinary procedure should have been followed) and unfair dismissal (subject to the statutory cap). This case opens the door to possible claims for damages going far beyond the loss of earnings damages which can currently be claimed for breach of contract on termination of employment. It should of course be remembered that Mr Edwards was not awarded damages to cover his losses in salary to retirement, but merely that the Court indicated that this may be a possibility, depending on the evidence provided. An employee in this position would of course be subject to the duty to mitigate his loss by finding suitable alternative employment, but for employees who are employed in an industry or occupation where there is in effect only one employer, such as the NHS, and where it may be impossible to obtain employment elsewhere once reputation has been damaged, this case should certainly be ringing alarm bells.

We understand that the Trust is seeking leave to appeal to the Supreme Court, where it is hoped that some clarification may be provided. If the Trust fails in its appeal, the case is likely to go to full trial where a number of issues will be fought before the question of damages can be addressed. The Trust may dispute the alleged contractual status of the disciplinary procedure as well as the assertion by Mr Edwards that he would not have been dismissed had the disciplinary procedure been properly followed. The outcome is therefore by no means cut and dry.