Tribunals have a reasonably wide discretion in awarding unfair dismissal compensation. However, they still have to work within a fairly fixed set of rules. The general rule for awarding unfair dismissal compensation is found in Section 123(1) of the Employment Rights Act 1996. This states that compensation should be ‘such amount as the tribunal considers just and equitable in all the circumstances’. Even though this seems to give a wide discretion employment tribunals still have to calculate unfair dismissal compensation in a specific way. One particular feature is that employees are placed under an obligation to mitigate their losses.

For a full explanation of how employment tribunals calculate unfair dismissal compensation please follow this link

This article deals with one particular aspect of unfair dismissal compensation. It concerns what happens if an employer doesn’t pay notice pay and the employee, having found another job in the meantime, claims the notice pay from the former employer.

The case on this subject is called Norton Tool v Tewson (1972). Normally employees have to give credit for money earned elsewhere after an unfair dismissal. However, Norton Tool created an exception to this general rule and held that an employee, who has been summarily dismissed and/or unfairly dismissed, is entitled to be compensated fully in respect of their notice period even if they have obtained alternative employment during that time. This principle is now commonly referred to as the ‘Norton Tool principle’ and has led many employees to be awarded notice money for a period during which they had obtained other employment. Employers argue that this means that employees get double pay for that period but that is the rule and there is a good reason for it.

The Norton Tool principle has since been approved by the Court of Appeal who held in Langley and Carter v Burlo (2007) that the Norton Tool principle should remain a ‘narrow principle’ and said it could not be extended to create a wider principle. The Court of Appeal went further as to say that it would be appropriate for tribunals to take into account aspects of good employment practice when assessing the compensatory award.

In a recent case the Court of Appeal has considered the application of the Norton Tool principle to instances of constructive dismissal. In Stuart Peters Limited v Bell (2009) the Court of Appeal held that, when calculating the amount of the compensatory award due to a constructively dismissed employee, tribunals must offset earnings from alternative employment during the notice period.

The decision means that the principle in Norton Tool (that it is good industrial practice for an employer who has unfairly dismissed an employee summarily without notice, to compensate them fully in respect of their notice period without reduction for alternative earnings) only applies to actual, and not to constructive dismissals.

This principle will be welcomed by employers as if the Bell case hadn’t been decided that way employees might have been able to bring their employment to an end in response to a repudiatory breach by the employer and having obtained alternative employment during the notice period could still have been awarded money in respect of that period. It is still the case that those employees directly dismissal can receive both notice money from their old employer (if the Tribunal orders it) and wages from the new job for the same period.

A reminder that the order of deductions matter: we had a barrister on the other side once who didn’t understand the order of deductions in a tribunal - clear negligence. He unforgivably thought that the statutory cap was 52 weeks’ net pay and not gross and unforgivably thought that the statutory cap came before the contributory fault deduction. In other words, he incorrectly started from the wrong (low) figure then reduced the claim to the statutory cap then went down by 30%. What he should have done was started from a higher figure, then applied the 30% reduction then applied the statutory cap.

As a reminder the order of adjustments for tribunal compensation, as set out in Digital Equipment Co Ltd v Clements (No 2) [1998] ICR 258, is as follows:

1 calculate the total losses;

2 deduct any amounts received from employer such as PILON, Holiday pay;

3 deduct earnings which have mitigated the claimant’s losses;

4 Polkey if any;

5 accelerated receipt;

6 ACAS uplift;

7 whistleblowing reduction if not made in good faith;

8 s38 written particulars;

9 percentage reduction for contributory conduct;

10 deduction for any enhanced redundancy payment over basic award;

11 interest on past losses;

12 grossing up;

13 application of the statutory cap;

Get the order of adjustments wrong and you can seriously damage your client’s wealth! We can help if required.