Addison v Babcock F.A.T.A. Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date05 Mar 1987
Judgment citation (vLex)[1987] EWCA Civ J0305-9
Docket Number87/0218

[1987] EWCA Civ J0305-9





Royal Courts of Justice.


The Master of the Rolls (Sir John Donaldson)

Lord Justice Ralph Gibson


Lord Justice Bingham


Babcock Fata Limited
Malcolm Richard Addison

MR. DAVID PANNICK (instructed by T.R. Johnson, Esq., Solicitor, Engineering Employers Federation) appeared on behalf of the Appellant.

MR. ANDREW HOGARTH (instructed by Messrs. L. Bingham & Co.) appeared on behalf of the Respondent.


This is an appeal by Babcock Fata, the employers, from a decision of the Employment Appeal Tribunal given on the 7th July, 1986 whereby they increased a compensatory award made by the industrial tribunal upon a claim by Mr. Addison based upon unfair dismissal. The amount in issue is not large but the points of principle which have been discussed are of importance. They concern the proper treatment in the calculation of a compensatory award of sums paid or payable by employers "in lieu of notice".


Mr. Addison was dismissed in July 1984 on the grounds of redundancy. It was later determined that his dismissal was unfair. The industrial tribunal had to assess the proper compensatory award. Mr. Addison had been paid the sums calculated to be due by the employers who, in dealing with the grave misfortune of redundancy, were both generous and careful in following good industrial practice. The sums paid to Mr. Addison (rounding out the figures) were as follows:

Redundancy payment: 5 weeks at £140.79


Payment in lieu of notice: 5 weeks at £140.79


Ex gratia payment: 6 weeks at £140.79



The £845 was described as company severance pay.


Before the industrial tribunal and at both stages of appeal the facts have been to a large extent not in issue. It was common ground that if he had not been dismissed on the 20th July, 1984 Mr. Addison would have been dismissed on the grounds of redundancy on the 30th September, 1985 when the employers made the entire workforce redundant. The task of the industrial tribunal was therefore to calculate, pursuant to section 74 of the 1978 Act, "such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal"; and that loss would include the earnings and benefits which he would have been paid and which he might reasonably be expected to have received but for the dismissal in 1984.


The award of the industrial tribunal was made up as follows:

(i) Basic award: after deduction of the redundancy payment already made nothing was due.

(ii) Total loss of earnings from 20th July, 1984 to 19th August, 1985, the date of the hearing. Mr. Addison obtained new employment on the 7th January, 1985. On the same date the wages which he would have been earning with Babcock Fata were increased. For the period from 20th July, 1984 to 7th January, 1985 the loss was 24 weeks at £125.23, a total of £3,005. From 7th January, 1985 to 19th August, 1985 the loss was 32 weeks at £132.74, a total of £4,247. From that total gross loss of £7,252 the industrial tribunal deducted the actual earnings of Mr. Addison after the 7th January, 1985 in the total sum of £2,969, leaving a net loss of £4,283. In addition the industrial tribunal deducted £704, the amount paid to Mr. Addison as five weeks' pay in lieu of notice calculated from the 20th July, 1984. After deducting that sum the award for loss of earnings was £3,579.

(iii) For future loss for the six weeks from the 19th August, 1985 to the 30th September, 1985, when Mr. Addison would in any event have been made redundant, the industrial tribunal awarded £240, being six weeks at the net loss, or the difference between the earnings he would have been receiving from Babcock Fata and his actual earnings in his new job.

(iv) The industrial tribunal calculated sums for loss of BUPA cover, £233; loss of statutory industrial rights, £50; and loss of pension rights, £200: a sum of £483 in all.

(v) The industrial tribunal then deducted from the total award the sum of £845 which had been paid to Mr. Addison as "company severance pay", by way of ex gratia payment, as set out above. The reason for making that deduction given by the industrial tribunal was that there could be no claim to an ex gratia payment and the receipt of it by Mr. Addison in September 1985 was speculative.


Mr. Addison appealed to the Employment Appeal Tribunal. He contended that it was wrong in law to deduct the £704 which had been paid to him in lieu of notice, and wrong to deduct the £845 which he had received as an ex gratia payment. He also complained that the industrial tribunal had failed to increase the awards for redundancy and for wages in lieu of notice by reference to the extra year of work which Mr. Addison would have achieved with the employers if he had been allowed to stay in their employment until the 30th September, 1985. The sums would have been increased by one week's earnings. It is to be noted that Mr. Addison did not claim that he should receive both the £704 which the industrial tribunal had deducted and the £844 which he contended he would have received as wages in lieu of notice on the 30th September, 1985 if he had still been in the employment of Babcock Fata.


Before the EAT the area of dispute concerned two parts of the award. It is convenient to deal first with the deduction of £845 which the industrial tribunal made from the sum calculated as the net loss of earnings between the 20th July, 1984 and the 30th September, 1985 in respect of the £845 paid to Mr. Addison as an ex gratia payment under the company's severance pay scheme. Mr. Pannick submitted that the deduction could be justified, but the EAT rejected that submission and held that the £845 should not have been deducted. The employers have not appealed against that part of the order of the EAT and, in my view, they were right not to pursue the point.


Babcock Fata had acknowledged that if Mr. Addison had remained in their employment he would have been paid the sum of £845 as an ex gratia payment under the company's severance pay scheme precisely as the remaining staff were going to receive the appropriate sum under that scheme on the 30th September, 1985. That sum was accordingly a "benefit which he might reasonably be expected to have had but for" the unfair dismissal in July 1984 and it mattered not, on the facts of this case, that there was no enforceable legal obligation to pay under the scheme. He was paid the sum of £845 in July 1984. He would have received at least that sum in September 1985 under the same scheme. Therefore there was no reason to deduct £845 from his net loss of earnings.


There was in issue a sum of £210 by which Mr. Addison claimed that his ex gratia payment would have been increased under the company's severance pay scheme if he had stayed to the 30th September, 1985. The EAT held that in principle he was entitled to the amount claimed subject (in default of agreement) to proof of the figure; and they directed that, if need be, the case be remitted to the industrial tribunal for the issue of amount to be resolved. There has been no attempt to disturb that part of the order of the EAT.


The other area of dispute before the EAT was the proper handling of the sums paid or payable to Mr. Addison "in lieu of notice". That has been the live issue in this court. Before coming to the judgment of the EAT, it should be noted that the phrase "wages in lieu of notice" is a convenient and well understood phrase but it is commonly applied to a variety of circumstances. In fact in this case notice was given and wages were paid over the period of notice: by letter of the 19th July, 1984 Mr. Addison was told that his "official date for calculation purposes" would be the 24th August, 1984, that is to say, after expiry of the five weeks' notice. He was also told that he would not be required to work after the 20th July, 1984. He was paid in advance for the period of notice. Throughout this case the parties have been content to treat the employment as terminating on the 20th July, 1984. Nothing turns on that point in the circumstances of this case.


It was contended for the employers that the deduction of £704 paid for wages in lieu of notice was correct because the industrial tribunal had calculated the loss of wages from the 20th July and not from the 24th August when the five weeks' period of notice expired. The compensatory award was required by section 74 to be based on the loss sustained and Mr. Addison could not recover for the loss of wages which he had been paid in full. The right way to deal with the benefit of wages in lieu of notice which, as the employers conceded, Mr. Addison could reasonably be expected to have received on the 30th September, 1985 was to allow a sum of six weeks instead of five weeks (by reason of the notional further year's employment) and to deduct from that sum what he was in fact at that time then earning so as to leave a claim of six times £40 or £240 in all. The EAT rejected that argument and ruled that there should be added to the award calculated by the industrial tribunal the sum of £844, representing the £704 which had been deducted and an additional £140 for the extra week.


It seems to me that there is some risk of confusion in the process of correcting deductions by adding back. In order that we may receive the assistance of counsel in ensuring that the ultimate order of this court is correct, I will set out what I understand the full award would be...

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