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In this conjoined appeal (with Botham v. Ministry of Defence), the Supreme Court considered whether an employee could claim damages at common law for breach of a contractual disciplinary procedure leading to dismissal.

The central issue was the extent to which the statutory unfair dismissal regime displaced such a common law cause of action. By a majority, the Court found that it did and allowed both appeals. However, their Lordships clearly found the matter far from straightforward. Indeed, between them, the seven Supreme Court Justices came to three different conclusions as to how the appeals should be determined, and adopted four differed paths to reach their decisions.

In both Edwards and Botham, the claimants had been dismissed for gross misconduct following disciplinary procedures incorporated into their contracts of employment. Both cases proceeded on the basis that the disciplinary procedures had not been properly followed and that these breaches had caused the reputational damage claimed.

In reaching their decision, the Court revisited a trio of earlier House of Lords decisions which prevented recovery of damages at common law for the manner of a dismissal. The restriction on such a claim was first set out in Addis v Gramophone. This was then reconsidered in Johnson v Unisys in the light of the development of the implied term of trust and confidence. In Johnson, the claimant had argued that the implied term was breached by the employer following an unfair disciplinary procedure and that this gave rise to a contractual claim for damages.

The majority (Lord Steyn dissenting) refused to overrule Addis on the basis that such a cause of action would conflict with the statutory unfair dismissal regime enacted by Parliament. Their Lordships noted the special features of the statutory regime, such as short time limits for bringing claims, the cap on compensation and a requirement for claims to be dealt with in specialist tribunals where the ordinary costs rules do not apply.

Finally, in Eastwood v Magnox, the House of Lords considered the demarcation between a non-actionable breach of the implied term that was within the Johnson ‘exclusion area’, and an actionable breach existing prior to and independently of the dismissal.

Both Johnson and Eastwood concerned alleged breaches of the implied term of trust and confidence. In Edwards, the Supreme Court was faced for the first time with a claim for breach of an express contractual disciplinary procedure.

With the exception of Lady Hale, all members of the Court agreed that the Johnson exclusion area should extend to claims arising out of a breach of an express term.

As in Johnson, the reasoning of the majority emphasises the importance of ensuring that the special features of the statutory regime are not undermined by allowing a common law claim that trespasses upon the same ground. Lord Dyson (with whom Lord Walker and Lord Mance agreed) noted that Parliament had made express provision under the statutory regime for the failure to follow a fair disciplinary procedure.

The majority held that it is necessary to infer from the statutory background, that unless otherwise agreed, breach of a contractual disciplinary procedure will not give rise to a claim for common law damages. However, a defendant who acts in breach of such terms would still be in breach of contract; and a claimant would still be entitled to seek an injunction to restrain the breach. Such a remedy is acceptable as it would not cut across the statutory limits on compensation for unfair dismissal.

Although Lord Phillips reached the same decision and appears to have agreed with much of the reasoning, he held that the case really turned on the issue of remoteness and that, following Addis, damages for breach of a contractual disciplinary procedure were too remote.

The dissenting judgment of Lord Kerr, with whom Lord Wilson agreed, distinguished between the cases of Edwards and Botham. His Lordship held that, on the assumed facts, Mr Edwards’ reputational damage flowed from the findings of the disciplinary panel rather than from the dismissal itself and that as such, his claim fell outside the Johnson exclusion area. By contrast, Mr Botham’s losses flowed from the dismissal and therefore fell within it.

Lord Mance challenged this distinction, stating that it was impossible to separate the reasons for the dismissal from the dismissal itself, they were all part and parcel of the same decision and that such an enquiry was speculative and unreal.

In her dissenting judgment, Lady Hale argued that, in enacting the unfair dismissal regime, Parliament had intended to enlarge the rights of employees rather than restrict them. On this basis, there was no justification for holding that an employee’s common law rights should be displaced by the statutory regime. In her view, the ratio in Johnson should be restricted to claims brought on the basis of the implied term of trust and confidence.

Lady Hale also makes the rather cutting observation at the start of her judgment, that she was the only member of the Court to have spent the majority of her working life as an employee rather than as a self-employed barrister or tenured office holder.

Notwithstanding the variety of approaches and conclusions adopted by their Lordships the final result is essentially a return to the orthodoxy. Damages at common law remain unavailable for the manner of dismissal and this is so whether the employer is in breach of an implied or express contractual provision.

The difficult issues regarding the demarcation of those acts falling within the Johnson exclusion area and those that fall outside it will therefore remain. However, the integrity of the unfair dismissal regime is preserved. So too is the ability of an employee to seek an injunction to restrain the breach of a contractual disciplinary procedure. It had been muted in argument that allowing damages at common law for a breach of a disciplinary procedure may have undermined the availability of such a remedy. The outcome in the case will ensure this does not occur.

Those employees most likely to be adversely affected by the outcome are high earners whose loss of earnings very quickly exceeds the statutory cap and those professionals working in monopoly employers such as the NHS where dismissal for gross misconduct may well make it difficult to continue practising in that profession altogether. No doubt other groups of employees would also have sought to take advantage of the lack of qualifying periods (particularly given the planned increase in from one to two years), and longer limitation period in respect of such contractual claims.

A further consequence of the Court’s judgment is that the reasoning in Gunton v Richmond-upon-Thames, where damages were awarded for the reasonable period it would have taken for a contractual disciplinary procedure to be completed, must now be very much open to challenge.

In the Court of Appeal in Edwards, Moore-Bick LJ had relied on Gunton as establishing a common law right of action for losses which flowed from breach of an agreed disciplinary procedure before dismissal. In the Supreme Court, their Lordships declined to overrule Gunton (holding that it was unnecessary to do so to resolve the issues before them) but Lord Mance noted the difficulty of reconciling this aspect of the Court of Appeal’s decision with the reasoning in Johnson. No doubt, this issue will be the subject of further challenge at a later date.

It must be said that the divided judgment of the Court does not leave the law in this area in a particularly satisfactory state and one can well see further issues arising in the future relating to the issue of demarcation and the Johnson exclusion area. The decision highlights the difficulties that can arise when statute and common law remedies come into conflict.

The decision also brings into sharp focus the inadequacy of the financial remedies available to particular categories of employees. The view of the minority, forcefully conveyed in Lady Hale’s opening remarks, is that damage to professional reputation should attract a remedy at common law given the constraints of the statutory regime.

In this respect, it is noteworthy that Lord Phillips intimates that a fundamental review of this area of the law may be required. However, given the current belt tightening that is taking place in terms of the statutory remedy, it seems unlikely that there will be much political enthusiasm for this to be pursued.

Mark Sutton QC successfully represented Chesterfield Royal Hospital NHS Foundation Trust in Edwards.

Mary O’Rourke QC represented the Respondent at the Supreme Court in Edwards

Case Summary written by Mark Sutton QC and Lance Harris, Old Square Chambers