In a landmark ruling, the Court of Appeal has handed down its decision on compensation in discrimination matters, widening the scope for employees to seek high compensation based on career loss due to: stigma and the difficulty of finding employment whilst unemployed.

Background facts

Mr Chagger is of Indian origin and was employed by Abbey National as a trading risk controller.  He was dismissed, ostensibly on the grounds of redundancy and was selected from a pool of two.  Mr Chagger brought claims of unfair dismissal and race discrimination against Abbey and succeeded at the employment Tribunal in both claims, resulting in an award in excess of £2.7 million.

Appeals

Abbey appealed to the Employment Appeals Tribunal (“EAT”) against the substantive finding and the calculation of compensation and Mr Chagger cross appealed arguing that the Tribunal was wrong to order an increase in compensation of only 2% for the failure to comply with statutory dismissal procedures. The EAT overturned the Tribunal decision ruling that Abbey should not be held responsible for victimisation by third parties as a result of the stigma of Mr Chagger bringing proceedings. Mr Chagger appealed to the Court of Appeal.

The Court of Appeal had to decide: 1) whether compensation awarded should be limited to the period during which the employee would have remained in employment with the employer; 2) whether employees could recover compensation to reflect stigma caused by bringing proceedings for discrimination; 3) whether the compensation should have been reduced to reflect the chance that the employee would have been dismissed legitimately; and 4) whether the 2% uplift in compensation was consistent with the statutory obligation to uplift compensation where the statutory dismissal procedures are infringed.

Court of Appeal decision

The Court of appeal held:

•    Compensation should not be limited to the period of time during which it was assessed that Mr Chagger would have remained with Abbey.  The Court made a finding of fact that it was highly unlikely that Mr Chagger would have left Abbey’s employ for anything other than a role on more favourable terms.  The Court of Appeal highlighted that the compensation to be awarded should reflect that Mr Chagger would have found it easier to obtain alternative employment from the point of existing employment, rather than being unemployed.

•    That the compensation awarded should reflect that the stigma attached to Mr Chagger having brought proceedings against Abbey meant that he would be unable to re-establish his career in the financial services industry.  The Court held that therefore Mr Chagger’s efforts to mitigate in taking up employment as a teacher, on a considerably lower salary were reasonable. 

•    That the compensation awarded must be reduced to reflect the chance that Mr Chagger would have been made redundant from the pool of two on legitimate grounds. 

•    That the Tribunal was right not to award a minimum of a 10% increase in the compensation awarded due to Abbey failing to carry out the statutory dismissal procedures on the basis that the size of the award constituted “an exceptional circumstance”.

Somewhat unhelpfully the Court of Appeal noted both that employees should not be criticised for being reluctant or unwilling to bring proceedings against prospective employers who have victimised them, and in the same breath said that where employees are not willing to bring such proceedings he cannot expect the Tribunal to put much weight “on what is little more than conjecture.”  Mr Chagger had not brought victimisation proceedings, although he had gone to great lengths to obtain employment since being dismissed in that he had applied for 111 roles, had used 26 recruitment agencies and had applied for roles at a lower status than his position at Abbey, all unsuccessfully.  Therefore the Court found that his taking a job as a teacher was a reasonable way of mitigating his loss.  What the Court of Appeal seems to be saying is that if an employee is not willing to bring victimisation proceedings he or she will have to provide substantial evidence of their unsuccessful attempts to mitigate for the Tribunal to reflect any loss caused by stigma in the compensation.  We can expect further cases to be brought by employees to test the level of evidence required to convince a Tribunal to award compensation on the basis of stigma. 

Loss on the basis of stigma need not be pursued as a distinct head of loss.  The Court of Appeal did state that it would be possible for the stigma loss to be the only loss, where the employee would have been dismissed legitimately in any event but in circumstances in which they would not have brought discrimination proceedings and therefore would not have been stigmatised.  However, the Court seemed reluctant to opine on exactly how compensation would be calculated in such a case.

The case has been remitted back to the Tribunal to reassess the compensation awarded to Mr Chagger, on the basis of the principles laid down in the Court of Appeal decision.

Comment

Despite the Court’s efforts to restrict the remit of this ruling so as only to attach to cases concerning: extensive unsuccessful mitigation efforts and industries which are more likely than most to stigmatise employees in this way than most, the ruling gives employees another valuable string to their bow.

Employees will clearly need to show: a) the industry in which they work is particularly susceptible to the impact of stigma for bringing proceedings against an employer; b) that they have made extensive efforts unsuccessful efforts to obtain employment; and c) that there is no other plausible reason for their being unsuccessful in their efforts to obtain employment.  Cases will turn on the evidence that the previous employee can bring to the table.  Nonetheless we will being seeing cases testing the waters and seeking to extend the parameters of this decision outside of the financial services industry.

Practical tips

This case highlights the value at stake in carrying out dismissals correctly and ensuring management are properly trained in diversity and how to approach issues of discrimination so as to minimise the prospect of a finding of discrimination which could be extremely expensive.  In addition, organisations on the wrong end of such a claim will need to:

•    critically analyse the extent of the employee’s attempts to mitigate;
•    consider whether there is any evidence to show that attempts to mitigate have been unsuccessful for reasons other than stigma;
•    seek disclosure of the circumstances in which the employee informed recruiters or prospective employers of the tribunal proceedings so as consider running an argument that the employee has contributed to the stigma in volunteering information about the proceedings; and
•    consider whether expert evidence is necessary or helpful to show that the industry in question does not particularly harbour prejudice against employees who have brought claims.

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