When employees are dismissed, there are two main types of claim they can pursue.

Firstly, they can say the dismissal breached their contract (the most common scenario being where the employer fails to give the required contractual notice – ‘wrongful dismissal’).


This claim may be brought in the civil courts, where there is no limit on the compensation recoverable but it can be brought in an Employment Tribunal, subject to a £25,000 limit.


Secondly, employees can bring a claim for unfair dismissal in the tribunal on the basis that the employer either had no valid reason for the termination (for example, misconduct, capability or redundancy) or acted unreasonably. In most cases, employees need to have at least one year’s service to bring an unfair dismissal claim and the maximum compensatory award is £55,000.


It has long been established that wrongful dismissal is confined to pure financial loss such as notice pay. No damages for distress, humiliation or even psychiatric injury arising from the way in which an employee was dismissed are recoverable.


For more than three decades, since the unfair dismissal legislation was introduced in the early 1970s, tribunals adopted a similar approach. Compensation for unfair dismissal was restricted to economic losses such as lost earnings. But earlier this year the Court of Appeal dropped a bombshell by deciding that tribunals could compensate employees for ‘real injury to self respect’, arising from the way in which they were sacked.


This meant the applicant in the case, Christopher Dunnachie, was entitled to compensation for the despair and illness he suffered as a result of a campaign of bullying by his line manager that led to him losing his job with Hull City Council.



However the House of Lords on 15 July 2004 restored the status quo (Dunnachie v Kingston-upon-Hull City Council [2004] UKHL 36). The judgment unequivocally confirms that the unfair dismissal legislation only permits recovery of financial losses.



The practical effect will be to prevent claimants seeking to top up their compensation with the type of ‘injury to feelings’ awards that are commonplace in discrimination cases.



But that is not quite the end of the story. A judgment that was given on the same day by the House of Lords in two other appeals may provide some claimants with an alternative line of attack (Eastwood v Magnox Electric plc; McCabe v Cornwall County Council [2004] UKHL 35). Both these cases involved breach of contract claims rather than unfair dismissal.



The Lords said that, while employees in such cases cannot get damages for the manner of their dismissal itself in contract or under unfair dismissal, they can do so for breach of contract in respect of events prior to dismissal.


Say, for example, an employee is suspended pending disciplinary proceedings and suffers psychiatric injury as a result. The fact that he is ultimately dismissed will not preclude him from claiming damages on the basis that the employer’s poor treatment in suspending him amounted to a pre-dismissal breach of contract.


As the law now stands, employees may pursue not only unfair dismissal and breach of contract claims relating to notice (’wrongful dismissal’) but also breach of contract claims that focus on the events leading up to the dismissal so as to boost their awards.



Gareth Brahams is a partner in the Employment and Incentives Department at Lewis Silkin