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Facts

In the case of Edwards v Chesterfield Royal Hospital NHS Foundation Trust, Mr Edwards, a consultant Trauma and Orthopaedic Surgeon, is claiming that the Trust failed to follow its own contractually binding disciplinary procedure before dismissing him. He alleges that if the proper procedure had been followed he would not have been dismissed. Mr Edwards is claiming more than £4 million compensation to reflect the past and future earnings he says he has lost as a result of the breach of the disciplinary procedure. In particular, he claims that the resulting dismissal on grounds of alleged personal and professional misconduct resulted in him being unable to find comparable employment in the NHS. The Trust argued in the Court of Appeal that, even if it had failed to follow the correct procedure (which the Trust denies), long established legal principles mean that damages should be capped at the amount he would have earned during his three-month notice period.

Court of Appeal decision

It is important to note in respect of today's judgment, that the Court was simply asked to decide the correct legal approach to be applied to Mr Edwards' claim, not whether his claim should be upheld. The merits of his claim will now go forward to a new court hearing, including the size of any compensation should he be successful.

The Court decided that where an employer breaches the contract of employment by failing to comply with a contractual disciplinary procedure, the employee is entitled to obtain any remedy available to him under the general law, including damages. This could have also included Mr Edwards obtaining an injunction to stop the alleged breach of the disciplinary procedure at the time of the disciplinary proceedings.

The Court found that ordinarily such procedures will not be contractual, but where an employer makes a contractual commitment to follow a disciplinary procedure and fails to do so, this will breach the employment contract and damages, including compensation, may result.

Distinguishing previous case law upon which the Trust relied to cast doubt on Mr Edwards' claim, the Court of Appeal confirmed that a different approach is needed for breaches of a contractual disciplinary procedure. Employees are able to pursue any damages that might be available on normal contractual principles to put them in the financial position in which they would have been, had the employer followed the correct procedure. Working as a professional in the health sector, as Mr Edwards did, allegations of serious misconduct can have career-ending consequences for the employee and therefore have the potential to result in huge losses of earnings.

The Court did point out, however, that just because an employee is entitled in law to claim damages for a breach of contract, Mr Edwards will still have to prove a breach of his contract and that his loss was caused by his employer's alleged failure to comply with the disciplinary procedure.

Comment

Although an employment tribunal can award compensation for unfair dismissal, the amount available is currently capped at £65,300. In the case of highly paid employees this often falls far short of their actual lost earnings. In addition, it limits the recompense for employees who have lost their careers due to nature of their dismissal, for example, in professional or personal misconduct situations.

Some employees, like Mr Edwards, try to get around the restriction by making a separate claim for damages for breach of contract. Although it is well established that such damages will usually be limited to the amount the employee would have earned during their notice period, the courts can also award compensation if the employer has a contractually binding disciplinary process which it has failed to follow. But past cases have limited that compensation to lost earnings over the time it would have taken the employer to go through the procedure properly, which could add just a few days or weeks worth of pay to the overall claim. Mr Edwards challenged this approach, claiming that the level of damages for breach of contract should not be limited in this way, and, for example, should reflect the wider damage to his professional status suffered as a result of the alleged breach of disciplinary procedure.

Given the Court of Appeal's decision, employers with contractually binding disciplinary procedures need to be especially cautious when handling disciplinary processes, particularly those involving high earners. This need for caution is reinforced by a case decided by the Court of Appeal recently, Mezey v South West London & St George's Mental Health NHS Trust, which demonstrates that, if an employee moves quickly enough, he or she might be able to obtain an injunction to prevent disciplinary action being taken if there are good grounds for alleging that the employer has failed to follow a contractually binding disciplinary procedure.

In some sectors disciplinary procedures tend to be explicitly incorporated into employees' terms and conditions. In other industries this practice is less common and whether such a process is contractually binding will not always be clear. Employers need to take real care when drafting contracts and staff handbooks to avoid inadvertently conferring contractual status on disciplinary policies.