Chapter 16Employing labourby the period of notice set out in the contract. If no
such period is expressed in the contract, the court will
imply a ‘reasonable’ period or the minimum period
laid down in s 86 of the Employment Rights Act 1996,
whichever is the longer; or
■if the employee was employed under a fixed-term
contract, the damages period will in general be the
unexpired remainder of the fixed term, unless the
employer could terminate the contract by notice before
the fixed term expired, in which case the damages
period will be the period of that notice.
Case law has laid down ‘reasonable’ periods of notice
in the absence of specific provision in the contract. These
vary from three months for a company director (James
v Kent & Co Ltd(1950)) to one week for a hairdresser’s
assistant (Marulsensv Leon(1919)) – though, according
to length of service, the ERA 1996 periods, which may be
longer in the latter case, could apply.
Heads of damage
No damages can be recovered for the manner of dis-
missal – e.g. for hurt feelings – nor for the fact that the
dismissal may make it more difficult to get another job.
However, a claim may be made for loss of pension
rights, share option rights and other fringe benefits such
as a company car, but only to the extent that it was made
available for private use.
Mitigation of loss
The ex-employee must take reasonable steps to find
other suitable employment or become self-employed,
otherwise damages will be reduced by the sum that
could reasonably have been earned from new employ-
ment or self-employment during the damages period.
The court will take into account the nature of any refer-
ence given to the employee and the difficulty a dismissed
employee may have in finding other suitable work.
Where there is a contractual provision that allows the
employer to summarily dismiss the employee on mak-
ing a payment in lieu of notice but he fails to pay it, that
sum, when claimed, is in the nature of liquidated (or
agreed) damages and is not subject to mitigation. It
is payable, therefore, without deduction even where the
ex-employee goes straight into another job (see Cerberus
Software Ltdv Rowley(1999)).
Damages are compensatory
If the employee had worked during the damages period,
he would have received net, not gross, pay. Thus, under
the common law rule set out in BTCv Gourley(1955)
the court will deduct from the gross award a notional sum
to represent income tax. Under the Income Tax (Earn-
ings and Pensions) Act 2003 the first £30,000 of the net
award is tax-free. If the net award exceeds that sum, the
balance will be taxed again in the ex-employee’s hands.
Therefore, the court will add a sum to the non-exempt
balance to ensure that after payment of tax on the sum
awarded, the ex-employee is left with an appropriate net
sum (see Shovev Downs Surgical plc(1984)).563
Example
Fred, a managing director on a gross salary of £120,000
a year and with a contract giving him the right to receive
six months’ notice, is dismissed without notice. His net
pay is calculated at £80,000 so he is awarded £40,000
for failure to give him notice. The first £30,000 of this
sum is tax free but £10,000 will be taxed again as
income for the year in which the damages are received,
at his highest rate (currently 40 per cent). If Fred’s tax
liability on the £10,000 is estimated to be £4,000, the
award will be £44,000, so that, after payment of that tax,
Fred ends up with £40,000.The equitable remedy of specific
performance and injunction
A decree of specific performance is, as we have seen, an
order of the court and constitutes an express instruction
to a party to a contract to perform the actual obligations
which he undertook under its terms. If the person who
is subject to the order fails to comply with it, he is in
contempt of court and potentially liable to be fined or
imprisoned until he complies with the order and thus
purges his contempt. For all practical purposes the re-
medy is not given to enforce performance of a contract
of service, largely because the court cannot supervise
that its order is being carried out. A judge would have to
attend the place of work on a regular basis to see that the
parties were implementing the contract.
An injunction is, as we have seen, an order of the
court whereby an individual is required to refrain from
the further doing of the act complained of. Again, a per-
son who is subject to such an order and fails to comply
with it is in contempt of court and the consequences set
out above follow from the contempt. An injunction may
be used to prevent many wrongful acts, e.g. the torts of