Ps had been dismissed following false allegations (even though disciplinary committee had acquitted them pursuant to the contractual disciplinary procedure). Ps won/settled their unfair dismissal claims, and then sued for breach of the common law duty of mutual trust and confidence, claiming damages for psychological injuries sustained as a result of the allegations. HL held that they were entitled to bring such claims and that the ‘exclusion area’ created by the HL in Johnson didn’t apply here.
Lord Nicholls: The statutory code lists remedies for unfair dismissal, so that a dismissal itself cannot constitute a breach of mutual trust etc lest this undermine the statute, whereas a breach of contractual term (mutual trust) that arises before dismissal is a valid cause of action even after dismissal. Ordinarily this means that failure to act fairly in steps leading up to dismissal (i.e. disciplinary procedure etc) cannot be a breach of mutual trust obligation because financial loss is not caused by the disciplinary proceedings but by the sacking itself (apart from suspensions). However this is not the case where the disciplinary proceedings/steps leading to dismissal do cause financial loss, such as through causing psychiatric illness that reduces earning potential/ability to work. While normally it is only employment tribunals who can hear claims relating to unfair dismissal (statutory claim), whereas courts can hear wrongful dismissal i.e. contractual disputes (common law claim), there is no need to refuse the court’s jurisdiction to hear claims on loss from psychiatric injury through an unfair dismissal process: (1) it is the whole process of disciplinary procedure and dismissal that causes the illness, so it’s artificial to separate the two into different jurisdictions; (2) to separate jurisdiction would require both court and tribunal to hear the same evidence on the illness, which is a waste of time/money; (3) to refuse to hear claims for psychiatric illness from dismissal procedure would mean an employer is better off sacking someone than suspending him, since unfair dismissal has a statutory upper limit on compensation, whereas breach of the common law duty does not i.e. so long as the illness caused by dismissal Is within the common law duty, there is no extra benefit in dismissing over suspending someone. It is v hard in light of this to draw the line between losses caused by the employer during the employment (common law remedy) and losses caused by the dismissal (statutory remedy). This decision creates a grey area of losses caused by the dismissal procedure, where it is uncertain whether something will fall on one side of the other. Also it may be hard to determine which damages were caused by the employer’s conduct during the employment and which were caused by the dismissal. Lord Steyn here acknowledges that the decision in Johnson creates an incentive to sack rather than suspend, and, even if done wrongfully, in practice employees will have little choice but to accept the repudiation. However this case does appear to narrow the Johnson scope since loss caused during the disciplinary process, rather than through the sacking itself, does appear to be compensable.