Awards for injury to feelings can now be made in unfair dismissal cases

The Court of Appeal's judgment on 11th February in Dunnachie v Kingston-upon-Hull City Council makes significant changes to the scope of compensation in unfair dismissal claims.

The Court of Appeal has stated that compensation for unfair dismissal is no longer limited to pure financial loss but can include non economic loss. This means that Applicants can now claim compensation for distress, humiliation, damage to reputation or family life and psychiatric injury resulting from an unfair dismissal.

S 123 (1) of the Employment Rights Act 1996 states that "the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."

In 1972 the National Industrial Relations Court decided (in the case of Norton Tool Co Ltd v Tewson) that this formula only included quantifiable pecuniary loss. This has remained almost unquestioned orthodoxy until the House of Lords case of Johnson v Unisys in which Lord Hoffman made a statement suggesting that non pecuniary loss should also be included.

The Dunnachie case concludes that the Norton Tool case was wrongly decided and should no longer be followed. Although not every unfair dismissal will attract a compensatory award for non economic loss, tribunals can now make awards for injury to feelings etc where there is real injury.

This case will be worrying for employers and it is expected that the case will be appealed to the House of Lords. Until then applicants will be able to make claims for injury to feelings in unfair dismissal cases and are likely to do so. Settling unfair dismissal claims is likely to be more complex although the Court of Appeal's guidance on injury to feelings awards in discrimination cases is likely to be the benchmark for calculating the amount of compensation.

If you would like further information or advice on how this decision could impact on your business please contact either Simon Jeffreys at simon.jeffreys@cms-cmck.com or on +44(0) 20 7367 3421 or Anthony Fincham at anthony.fincham@cms-cmck.com or on +44(0)20 7367 2783.