Harini Iyengar comments on the latest Court of Appeal case on the calculation of damages for a lost career
Summary
The Court of Appeal has conducted an interesting analysis of the proper approach towards calculating damages for a lost career, namely the assessment of future loss of earnings and of pension loss in a final salary scheme, in Griffin v Plymouth Hospital NHS Trust [2014] EWCA Civ 1240. It rejected the challenge to the period of time for which future loss of earnings was compensated, but held that the failure to apply the substantial loss method of calculating pension losses had been an error of law in the circumstances of the case.
The Claimant was a specialist clinical technician in bone densitometry who had fallen ill with systemic lupus erythematosus in 2007 and had resigned in 2009 claiming that Plymouth Hospital NHS Trust had failed to make reasonable adjustments to facilitate her return to work. She won her claims of constructive unfair dismissal and disability discrimination. The Claimant’s salary had been £32,753 and, on the basis that she would now work a 25-hour week because of her disease, she was awarded compensation of £105,643.01, which increased on remission to £166,595, and which she appealed again. The Claimant had very specialist skills for which the NHS provided the only real market in her local area. Underhill LJ urged HMCTS and / or the Judicial College to give priority to producing an updated version of the 2003 Guidance “Compensation for Loss of Pension Rights – Employment Tribunals” (“the Pensions Guidance”) on the assessment of pension loss in the Employment Tribunal, to take account of important changes in pension law and practice.
The Appeals
The Claimant appealed to the Employment Appeal Tribunal arguing that the award of compensation by the Employment Tribunal (“the Tribunal”) was too low. Supperstone J remitted the case to the Tribunal to make further findings and then reconsider its award. The Tribunal increased the award on remission. Again, the Claimant appealed that the compensation was too low. HHJ McMullen dismissed that appeal.
Two findings of fact were critical to the Tribunal’s first assessment of financial loss: (1) with reasonable adjustments, Ms Griffin would have continued her employment indefinitely on a 25-hour week; (2) in the events which happened, her return to Plymouth Hospital was now impossible but she could find no other work because no other local employer needed her specialist skills.
The award of the entirety of her past loss of earnings until the date of the hearing on the basis of a 25-hour week was uncontroversial. Future loss of earnings was more complex. The original remedy judgment held that the Claimant was “likely” to obtain suitable alternative employment at 25 hours a week in a year’s time, and so awarded her £15,201.48. It was just an estimate based on an assumption that she would continue to make reasonable efforts to mitigate her loss, and using a mid-point of the probabilities in accordance with Elias LJ’s remarks in Wardle v Credit Agricole Corporate and Investment Bank. Nevertheless, the Tribunal was silent as to what sort of job it expected the Claimant to obtain and at what level of remuneration. Supperstone J considered that that had been an error of law and remitted the case to the Tribunal to review its decision on continuing loss of earnings.
On remission, the Tribunal heard no further evidence but relied on the evidence and submissions which had been presented at the first hearing, supplemented by further written and oral submissions. It noted that the Claimant had applied for positions with pro-rata salaries of £11,000-£22,000 and was satisfied that there were no other positions outside that range which were suitable for her. She had transferable skills of administrative and clerical natures. It went on to find that, despite the lack of any evidence as to how she could obtain promotion in an administrative role, she would impress a future employer with her intelligence, capability and determination, she would have obtained a job at £18,000 pro rata, but have progressed to management and earned £25,000 pro rata after five years and £30,000 pro rata after another five years, and after a further two years she would have achieved parity with her job for the Respondent. This gave a total of £43,196.51 in loss of future earnings.
As for pension loss, the Claimant had been a member of the final salary NHS pension scheme. At the first remedy hearing, both parties had relied on the Pensions Guidance although – as typically happens – the Claimant had contended for the substantial loss approach and the Respondent for the simplified approach. Using the simplified approach, the Tribunal assessed pension loss at £32,827.69, based on a finding that the Claimant would be able to join a final salary pension scheme again after four years. On remission, the Tribunal again decided to adopt the simplified loss approach.
Therefore, the issues for the Court of Appeal were: (1) the lawfulness of the Tribunal’s decision to limit her period of future loss to 12 years; and (2) the use of the simplified approach to the assessment of pension loss.
The Period of Loss
The first issue pertaining to the period of loss was whether the Tribunal had been right, on remission, to exclude evidence of subsequent developments. The second issue was the lawfulness of the finding that she would regain her previous level of earnings after 12 years.
By the date of the remitted remedy hearing, several months had passed since the date on which the first remedy hearing had found that the Claimant would have found work, but she had not. Instead, she had accepted advice from the Job Centre to take a National Vocational Qualification in Business Administration, which required a work or voluntary placement, and so she had begun a voluntary year-long placement. She had been refused permission to present documentary evidence to establish these facts.
Before the Court of Appeal, the Claimant relied on Curwen v James and NCP Services Ltd v Topliss to argue that it had been an error of law for the Tribunal to speculate about that which it already knows. The Respondent contended that Supperstone J had remitted only the issue of what level of earnings the Claimant should expect from the date at which she obtained paid employment, and not the settled finding as to when that date would be.
Admission of New Evidence as to Period of Loss
Underhill LJ distinguished between the situation in which a court or tribunal at first instance is conducting its primary assessment of compensation and the situation in which an appellate court is asked to admit evidence of events occurring subsequent to the primary assessment of compensation. He said that the principle in Bwalfa and Merthyr Dare Steam Collieries (1891) v Pontypridd Waterworks Co – that in assessing compensation the decision maker must avail himself of all the information at hand, not listen to conjecture on a matter which has become established fact, and not guess when he can calculate – must apply just as much when a tribunal is reconsidering damages as a result of remittal. The second situation was essentially different, however, as the appellate court approached a case in which a valid final award had been made. The general approach is that because of the important interest in the finality of litigation, neither party should be able to re-open a final award simply because things had turned out differently from what had been expected. Nevertheless, Underhill LJ pointed out, that approach was not applied with absolute rigour. He said the best guidance was that provided by Lord Wilberforce in Mitchell v Mulholland, that “the matter is one of discretion and degree”. New evidence was likely to be admissible where basic assumptions had been falsified by subsequent events, or where a refusal would affront common sense or a sense of justice, or on other grounds which “must be left to the Court of Appeal”.
The Finding as to the Date on which the Claimant would Obtain New Employment
The Court considered that it was clear from Supperstone J’s judgment that the remitted question pertained to the Claimant’s rate of remuneration in the employment which the Tribunal had found that she would obtain after a year, and that there had been no challenge before Supperstone J as to the date on which she would obtain it. Whether the Claimant should be allowed to take advantage of the adventitious opportunity of the appeal to adduce fresh evidence was a matter for the discretion of the Tribunal in accordance with the guidance given in Mitchell v Mulholland. Underhill LJ considered that the documents about the Claimant’s NVQ placement added nothing of significance in regard to the level of job she might in due course hope to obtain or her rate of pay, and the Tribunal had already had a wealth of information from the first hearing about the type of work she might do. Further, the Claimant had never in fact tried to rely on the documents to challenge the finding as to the date on which she would obtain employment. The Court of Appeal made clear, however, that even if the Claimant had sought to have the new evidence admitted in order to try and change the finding as to the date on which she would obtain new employment, the question of the date which had been found at the original remedy hearing was a good example of the type of matter falling within a field of uncertainty in which the trial judge’s estimate had been made, which should not be tampered afterwards, in the interests of finality.
The Finding that the Loss would End after Twelve Years
Before the Court of Appeal, the Claimant criticised the Tribunal’s approach to her medical evidence, in particular that it had found she would eventually take on a management role despite the greater stress which that would involve. Underhill LJ, however, firmly stated that in fact there was nothing in any of the medical evidence which would justify a conclusion that the stress of a management role might mean that the Claimant was incapable of fulfilling such a role. He accepted a criticism that the Tribunal, whilst refusing the Claimant permission to adduce documentary evidence, had commented on her submission that she was doing a voluntary placement which it inferred was in a stressful environment, but held that this error did not vitiate the Tribunal’s second remedy judgment as a whole. The Court rejected a submission that the finding of a twelve-year period was perverse and /or inadequately reasoned, because the exercise was inherently based on speculation about the Claimant’s attitude and abilities and the local job market. Underhill LJ condemned as “hopeless” a submission that the Tribunal had erred in placing too much reliance on the Claimant’s performance as a witness and as an advocate when assessing her abilities and attitudes. Likewise, a point that the Tribunal had erred by failing to take account of the possibility that the Claimant might have been promoted had she remained at the Respondent failed because she had made no submission on those lines to the Tribunal.
Finally, the Court of Appeal rejected an argument that the Tribunal had erred in law by omitting to use the Ogden Tables to calculate the Claimant’s future loss of earnings. The point did not arise for determination, because the Court had already held that the Tribunal had lawfully found that she had not suffered a career-long loss.
Whilst expressing sympathy for the Claimant’s serious long-term debilitating disease, Underhill LJ said that the Tribunal was under no obligation to take a pessimistic if not indeed rather demeaning view that her disease prevented her, as a woman of ability and determination, from ever again undertaking a job with some degree of responsibility, particularly once she was freed from the toils of litigation.
Pension Loss
As to pension loss, the Court of Appeal was careful to state that the only issue for them was whether it had been an error of law to use the simplified approach to pension loss instead of the substantial loss approach, and that the judgment should not be treated as an attempt at a comprehensive summary of the Pensions Guidance nor used as a short-cut where different issues arise. Underhill LJ then reminded himself that in a final salary scheme the employee’s entitlement is simply to the benefits and there is no entitlement to the employer’s pension contributions. The loss takes the form of loss of enhancement to accrued pension rights and loss of acquisition of future rights. For loss of enhancement, actuarial tables are provided in the Pensions Guidance. Only the latter head of loss should be affected by the choice between the simplified and substantial loss approaches. The essential difference between the two approaches is that when assessing pension losses arising in the period after termination of employment, the simplified approach measures loss by reference to the employer’s pension contributions, regardless of the fact that it was a final salary pension scheme. The substantial loss approach requires the use of actuarial tables comparable to the Ogden Tables. After using the tables, the Tribunal generally has to apply withdrawal factors to reflect the probability that the particular employee before it would have left employment before retirement age other than for the usual risks of mortality and disability.
Underhill LJ noted in passing that he respectfully agreed with Elias P’s criticism of the Pensions Guidance in Network Rail Infrastructure Ltd v Booth, that, where an employee had lost employment with a final salary pension scheme but obtained new employment with a money purchase pension scheme, it was unnatural to take account of the new employer’s pension contributions when assessing loss of earnings, but to disregard them when calculating pension loss, as the Pensions Guidance required.
For Underhill LJ, the tendency of the Pensions Guidance to limit the use of the substantial loss approach to cases, in which the employment had continued for a long time, the employment was very stable, and the employee had reached a certain age where she was less likely to move on, was explained by the fact that those three factors increased the likelihood of the employee still being an active member of the pension scheme at retirement – which would justify an assumption of “whole-career loss”. Such an employee was to be contrasted with an employee who probably would have changed jobs anyway after a couple of years.
Pragmatically, the Court of Appeal pointed out that if the substantial loss approach were taken and then a massive, intuitive, withdrawal factor had to be applied, the level of uncertainty would beg the question whether there had been any point in attempting to assess whole-career loss in the first place.
Underhill LJ confessed to finding that section of the Pensions Guidance “a little opaque” but considered it clear that the substantial loss approach was recommended only where there was a sufficiently firm basis for the necessary assumptions, eg where the employee had already found new employment, or it had been determined that the employee would never find new employment, or a date had been found by which the employee would have found new employment.
Underhill LJ criticised the Tribunal for rejecting the substantial loss approach solely on the basis that, when considering whether the Claimant had been in the Respondent’s employment “for a considerable time” it said that that factor did not apply where the Claimant, aged 34, was still a long way from retirement. The Tribunal had failed to address the question of how likely the Claimant had been to stay in that employment until retirement. On the facts of the particular case, he pointed out, the Claimant was an employee with a specialist skill for which the principal, if not indeed the only, market was in the NHS, so she was likely to remain in the NHS for her entire career despite being 34. Furthermore, her medical condition made her cautious about embarking on a major career change.
Noting that the Tribunal had applied a withdrawal factor of 20% to the calculation of loss of enhancement, the Court of Appeal said that that finding, even though made for a different purpose, was inconsistent with the finding that the uncertainties of the Claimant’s continued NHS employment were so great as to rule out the substantial loss approach to loss of future pension rights. Underhill LJ relied on the Network Rail case to back up his views.
The Court of Appeal further criticised the Tribunal for assessing the likelihood of the Claimant eventually regaining her pre-dismissal earnings after 12 years instead of doing its proper task of calculating her pension losses.
Underhill LJ observed that the Tribunal had found that the Claimant would have obtained employment with the benefit of a final salary pension scheme after four years, but had not relied on that factor when rejecting the substantial loss approach. The Court of Appeal considered that the Tribunal had had no proper basis for rejecting the expert’s unchallenged evidence that it had been unlikely that any future employer would offer a final salary scheme as most of these are closed to new entrants.
The Court of Appeal held that the Tribunal misdirected itself in the reasons it gave for applying the simplified loss approach and that in the particular circumstances of the case and in the light of other findings, the only correct conclusion was to apply the substantial loss approach.
The Pensions Guidance
In conclusion, Underhill LJ pointed out that although the Pensions Guidance was extremely valuable, it had no statutory force and its recommendations are “not gospel”. Further, there have been several important changes in pension law since 2003, other changes are forthcoming, and the current Pensions Guidance is out of date. He urged HMCTS and the Judicial College to review and update the Pensions Guidance as a priority.
Commentary
As fewer and fewer new employees are able to join final salary pension schemes, public sector employees are becoming more and more aware of the very valuable pension rights which they enjoy, which they simply cannot replicate elsewhere. Therefore, there are many incentives for public sector employees to litigate aggressively on pensions issues.
The current cap on compensation for unfair dismissal is £76,574, although, for dismissals after 29 July 2013, a Tribunal may not award a successful Claimant more than one year’s gross earnings. This case, involving disability discrimination, illustrates the increasing discrepancy between compensation for unfair dismissal claims and compensation for discrimination or whistleblowing claims.
Nevertheless, in practice, the cap on unfair dismissal compensation has created a dangerous tendency for parties in employment litigation to start with a rough and ready, and rather short-term, approach towards the analysis of the future losses caused by a statutory tort. Given the current high rate of settlement in employment disputes, it is unsurprising that parties are slow to expend time and costs on a very detailed schedule of loss at an early stage in proceedings. Likewise, given the fact that many cases do settle in the period between the liability and the remedy hearing, parties, for good reasons, often dally in preparing and sharing their rigorous calculations of loss of future earnings and pension loss.
The assessment of future loss of earnings and of pension loss is a complicated and time-consuming matter, which requires the careful collection of relevant evidence, its analysis, an attempt to speculate about the future in a logical and rational manner, and a series of precise mathematical calculations. It is refreshing to the see the Court of Appeal grappling with the outdated and awkward Pensions Guidance, which practitioners have found so difficult to apply in practice over the years. As Underhill LJ points out, an updated version of the Pensions Guidance is overdue and will be very helpful to the Employment Tribunals, employers, employees, and their advisers.
As with any interesting appellate judgment, the implications of this case are limited by its specific facts, and other questions remain unanswered – in particular whether it would be an error of law not to use the Ogden Tables when assessing compensation in a case of lifetime career loss.