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Legislation update: Unfair dismissal compensation


LegislationIn a recent case, a tribunal found that the claimant’s resignation from her job with the employer amounted to an unfair constructive dismissal. However, when assessing compensation, the tribunal did not reduce the amount by what the claimant had earned from other sources during her notice period. Richard White considers this case further.

Stuart Peters Limited v Bell

The tribunal found that Ms Bell had been unfairly constructively dismissed by Stuart Peters Limited (‘Stuart Peters’) on 10 April 2007. They found that Ms Bell was entitled to a six-month contractual notice period and that she had been dismissed by Stuart Peters without notice.

The tribunal awarded her what they described as six-month notice pay, less credit for money actually paid by Stuart Peters for the first week of that period. They found that, had Ms Bell acted reasonably to mitigate her loss, she would have found suitable employment by the end of the six-month period. The tribunal therefore awarded Ms Bell no compensation in respect of any period after the six months had expired, except for any loss of pension entitlement.

“When new employment starts, the lost earnings flowing from the unfair dismissal will cease or diminish.”

The tribunal also awarded Ms Bell uncontroversial sums in respect of a basic award and for loss of statutory rights. During the six-month notice period, Ms Bell had found temporary work for a different employer. It lasted for three months, from 1 June 2007 to 31 August 2007. However, the tribunal decided that Ms Bell was entitled to compensation for the whole six-month notice period. No credit had to be given for the wages earned from the temporary work.

The tribunal decided it was bound to take that approach by the decisions of the National Industrial Relations Court in Norton Tool Company Ltd v Tewson [1972] and of the Court of Appeal in Langley v Burlo [2007].


An unfair dismissal compensatory award will 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” (section 123, ERA 1996).

When calculating an employee’s lost earnings for the purposes of unfair dismissal compensation, the tribunal will determine when the employee found (or might be expected to find) another job. When new employment starts, the lost earnings flowing from the unfair dismissal will cease or diminish. It is often assumed that unfair dismissal compensation will be insignificant where the employee gets a new job shortly after the dismissal.

However, for many years tribunals have applied the rule known as the ‘Norton Tool’ principle. This means that where no notice or payment in lieu of notice is made at the time of dismissal, a tribunal assessing compensation for unfair dismissal may award full pay for the notice period, without deducting income that the employee may have earned from another employer during that period.

“Employers should not assume that because the employee has found new employment fairly quickly, the value of the claim will always be minimal.”

When assessing what is “just and equitable” in respect of unfair dismissal compensation, a tribunal should assume that the employer would act in accordance with not just its contractual duties, but also good industrial relations practice. Therefore, employees can benefit from a double recovery, particularly when they have long notice periods.

In the Stuart Peters v Bell case above, while accepting the Norton Tool rule, the employer argued before the Employment Appeal Tribunal (EAT) that this rule only applies where the employee is actually dismissed and does not apply to constructive dismissals.

However, the EAT disagreed and held that the same principle applies to constructive dismissals as well as to ‘normal’ dismissals. The EAT said it hopes the House of Lords has a chance to consider the ‘continuing controversy’ of the Norton Tool principle, although it is unlikely in this case due to the relatively small amount involved and the cost implications of such an appeal.

Employers should take note of the Norton Tool principle in cases of unfair dismissal or constructive dismissal. Employers should not assume that because the employee has found new employment fairly quickly, the value of the claim will always be minimal.

For further advice on this topic, please contact Richard White, specialist employment solicitor at Withy King, on 01865 792 300 or email [email protected].

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