Mitigation of Loss in Employment Tribunals- Not a Happy New Year for UK Employers
So you’ve lost the unfair dismissal or discrimination claim against you and are now staring down the barrel of the Employment Tribunal’s jurisdiction to award compensation for the employee’s losses.
Never mind, you think – he could easily and immediately have got another job at a pay rate sufficient to extinguish his losses, so the Tribunal will undoubtedly give him a comprehensive monetary kicking on the grounds of his failure to do so. You will be out of the remedies hearing by lunchtime and still with change enough for a cab home.
Nice try. Following the EAT’s decision in Cooper Contracting Limited v. Lindsey issued late last month, it is indeed possible that you will be out by lunchtime, but not necessarily in a good way.
Lindsey was dismissed and won his claim that it was unfair. That brought him under Section 123 Employment Rights Act 1996 which says that the compensatory award should be what the Tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the employee, insofar as that loss is attributable to action taken by the employer. Section 123 also notes that in assessing that loss, the Tribunal should use common law damages principles, which impose a duty on the victim to take reasonable steps to mitigate his losses.
The Colchester Tribunal found that Lindsey could have taken up a relatively handsome and stable income from a new employment pretty soon after his dismissal but chose instead to go self-employed at a lower average rate of pay. It then appeared to get itself in a tangle about the impact of this on his compensation. On the one hand, it awarded him his unreduced actual losses for the 14 months from dismissal to hearing, so paying no heed to the ready availability of better paid employment positions over that time. On the other, it expressly noted that same availability when limiting Lindsey’s compensation for future losses to the next 3 months only. So had he failed to take the necessary steps to mitigate his losses arising from the dismissal or not? What are those steps?
The EAT rehearsed the decided cases on the point and arrived at a series of principles, none of which are terribly good news for employers:
The burden of proof of failure is on the employer. Therefore if no evidence of any failure to take reasonable steps to find another source of income is brought by the employer, the Tribunal is under no obligation to (and generally will not) take lost opportunities to mitigate into account against the employee.
The often-quoted formula that the employee must take “all reasonable steps” to mitigate is wrong – delete the “all”, since otherwise a single inadvertent failure among many other efforts would still count as a breach of that duty.
The employee must be shown to have acted unreasonably. That is a different test from his showing that what he did was reasonable. Since there may be a number of reasonable responses to a particular set of circumstances, runs the argument, the employee will not be at fault if he pursues one rather than others, even if it turns out to be a duff choice and is to his own cost.
Ultimately it is the Tribunal’s view of what is unreasonable which matters, though that will take into account the views and wishes of the employee (as here – Lindsey had lengthy prior experience of being self-employed and had had a sufficiently rough time as employee at Coopers that he had no wish to repeat it with another employer elsewhere).
“The Tribunal is not to apply too demanding a standard to the victim; after all, he is the victim of a wrong. He is not to be put on trial as if other losses were his fault“. Similarly, said the EAT, “where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment, the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency”. In other words, employers, you come to the mitigation debate from no moral high ground in most cases. The barrel you are staring down is therefore now not a rifle but a sawn-off shotgun, sorry.
Here the EAT took the view that even though there were decent reasons why Lindsey should have reduced his claimed losses by taking up an employed position immediately after his dismissal, that did not mean in all the circumstances that he had acted unreasonably by not doing so. This was not a case where he had set his heart on some unrealistic or theoretical next career move – he had his reasons for preferring self-employment and they were not unarguable. Therefore, there was no failure to mitigate. The capping of the future losses to 3 months did not suggest to the contrary. Instead, that was the Judge’s way of telling Lindsey that the self-employed model he had chosen was indeed his to choose but that it nonetheless had a cost to it, and that it would not be just and equitable for Section 123 purposes to make the Respondent pay for that indefinitely.