Tooled up

Stuart Peters Ltd v Bell

It is well established that employees are entitled to compensation for their notice period if they are dismissed, even if they find new paid employment during that time. In Stuart Peters Ltd v Bell, however, the Court of Appeal said that this exception to the “double recovery” rule only applies to employees who are dismissed by their employer and not to employees who claim constructive dismissal.

Basic facts

Having found that Ms Bell had been constructively and unfairly dismissed, a tribunal held that she was entitled to a six-month contractual notice period as part of her compensatory award.

Her old employer then argued that as she had found temporary work for a different employer for three months during the notice period, the tribunal should take that income into consideration when assessing her loss.

Principle in Norton Tool

In 1972 the National Industrial Relations Court (NIRC) held in Norton Tool Company Limited v Tewson that tribunals can award compensation covering the notice period, even if the dismissed employee had found other paid employment during that period. This is known as the Norton principle.

This principle seemed to be undermined, however, by a decision of the House of Lords in 2004, when their Lordships held in Dunnachie v Kingston upon Hull County Council that a claim for injury to feelings could not be included in the compensatory award, as it must be limited to losses actually suffered by employees.

This decision did not sit well with Norton Tool which allowed “double recovery” if an employee found new employment during the notice period which meant there was no actual loss.

Relevant law

Section 123(1) of the Employment Rights Act 1996 (ERA) states that the compensatory award should be "just and equitable in all the circumstances". Section 123(4) states that employees are under the same obligation to mitigate losses as anyone making a claim for damages under the common law.

Tribunal and EAT decisions

The tribunal found in favour of Ms Bell, holding that the employer’s argument would be inconsistent with the principle established in Norton Tool, and affirmed by the Court of Appeal in 2007 in Langley v Burso.

The Employment Appeal Tribunal agreed, holding that their decision did not expand the scope of the Norton Tool principle, but simply applied it to a different type of dismissal. It took the view that “there was no legitimate basis for distinguishing between a termination by the employer and a constructive dismissal. Both are equally dismissals within the meaning of ... the ERA”

Decision of Court of Appeal

The Court of Appeal disagreed with both the tribunal and the EAT.

It pointed out that, in accordance with section 123 of the ERA, an unfairly dismissed employee should only be compensated for any loss they had actually suffered. It said that the principle in Norton Tool constituted a limited exception to that rule which only applied to an actual, as opposed to a constructive dismissal.

The judge said that:"I appreciate that this does lead to differences in compensation between those constructively dismissed and those whose contracts are terminated by the employer. But that is a consequence of the nature and scope of the Norton principle; it is not that section 123 is being differently interpreted. The Norton principle is not designed to give full compensation during what would have been the notice period had the contract been terminated on notice. Rather it is to uphold expectations that will result from the application of good industrial relations practice where the employer has chosen to terminate the contract with no (or inadequate) notice, even where he genuinely believes that he is entitled to do so".