Caspar Glyn

PREVIOUS SPEAKERS:

Caspar Glyn

ILS, London, 13 November 2003

Title:

"A Lawyer With His Briefcase can Steal More Than a Hundred Men with Guns."

Don Corleone, The Godfather.

"Show Me the Money!"

Rod Tidwell, Jerry Maguire.

"Maximising Compensation for Claimants.
Forum / Cause of Action Selection, Heads of Loss, Expert Evidence and Tax Avoidance Strategies"

Introduction

This paper is practical. It is focussed on maximising, properly, compensation for the wronged Claimant. The loss of employment has catastrophic financial consequences on employees. Many employees are under compensated: full heads of losses are not presented, underestimation is made of the length of the loss, the necessary evidence is not gathered to support the claim and exposure to taxation is not minimised.

There are 4 distinct parts to making the most of the Claimant’s case. They are:

Forum / Cause of Action selection

Heads of Loss

Expert Evidence.

Tax Mitigation.

FORUM SELECTION

The overlap between the jurisdiction of the ETs and the Common Law Courts has steadily increased as a result of the limited parallel contractual jurisdiction since 1994 and the confirmation in Sherriff v Smith Klyne Tugs [IRLR] 1999 481 that the ET had jurisdiction to award damages in respect of personal injury as a result of the statutory tort of discrimination.

Bringing the claim in the correct forum is important for two reasons. Firstly there are some advantages to each forum depending on the type of case. Secondly, once litigated in one venue it is unlikely that a court will allow a second action as in Sheriff.

Maintaining Employment – The Disability Discrimination Act

Obtaining compensation is in many respects the second best option. Given the choice most clients would prefer to maintain employment and earnings. Before considering the question of money it is worth noting the House of Lords purposive interpretation of the DDA in Archibald v Fife Council [2004] IRLR 651. They decided that the duty of reasonable adjustment still applies where the disabled person is unable to do their job: this may involve transfer to another job. This can be a powerful weapon in a representative’s arsenal to ensure that the employment relationship continues.

Forseeability

Yassim Essa experienced petty acts of humiliation before being subjected, by a foreman, to a foul racial insult. A majority of the Court of Appeal held in Essa v Laing Limited [2004] IRLR 313 that reasonable foreseeability was not required when recovering damages for breach of the statutory tort of race discrimination. The Claimant merely had to establish breach, causation and damage.

This arguably removes one of the most significant hurdles (or rather the 17 particular hurdles) that lies in the way of recovery of damages for psychiatric injury as set out by Hale LJ as she then was in Sutherland v Hatton [2002] IRLR 263. In her leading judgment Baroness Hale said:

"Unless he knows of some particular problem or vulnerability, an employer is usually entitled to assume that the employee can withstand normal pressures of the job and he is generally entitled to take what he is told by or on behalf of the employee at face value…. To trigger the duty on an employer to take steps to safeguard an employee from impending harm to health arising from stress at work, the indications must be plain enough for any reasonable employer to realise that he should do something about it.

The appellate common law courts continue to take a hard line towards forseeability and stress.

In Pratley v Surrey County Council [2003] IRLR 794 the Court of Appeal drew a distinction between the risk of psychiatric harm arising in the future as a result of too much work and a risk of collapse in the very short term. The Court found, in contradistinction to Essa, that although the breakdown was caused by the breach the immediacy of the damage was not foreseeable and therefore the claimant failed. This unwillingness to recognise employee’s claims and place the burden on business can be seen again in Bonser v RJB Mining (UK) Ltd [2004] IRLR 164. The claim failed because although the Defendants may have known that the claimant had become vulnerable to the stress of overwork she was not vulnerable to a psychiatric breakdown.

In my view Barber v Somerset 2004 UKHL 13 has left the 17 or so Sutherland principles relatively unscathed.

As a result it is our advice as employment/personal injury practitioners to suggest that employees who have suffered a psychiatric injury, if they have a claim under one of the statutory torts such as race, sex or disability discrimination, pursue an action in the tribunal.

Management of Health and Safety At Work

However, the Management of Health and Safety at Work and Fire Precautions (Work Place) (Amendment) Regulations 2003 may have changed the position. The Management of Health and Safety at Work Regulations 1992 and 1999 set out a clear proactive series of risk assessments and steps that employers have to take to safeguard the health of their workforce. However, by Regulation 22 civil liability was excluded.

This exclusion has, very quietly, been lifted since 27^th October 2003. Arguably therefore, Baroness Hale’s exclusions to liability are no longer strictly applicable. Further, as the Health & Safety Executive’s Code of Practice and Guidance in respect of preventing stress in the workplace become not only more widespread but also more onerous it may be that Hatton becomes to be seen as the product of a case at a certain time rather than as setting out prospectively the appropriate tests for courts to apply in 2004 and beyond. Pragmatically though, one only has to look at the recent appellate decisions to see that the Appellate Courts like the Sutherland restrictions and are unwilling to open the floodgates yet by removing them.

I would suggest however, that move them they will have to. The anticipated significance of the withdrawal of the civil liability exclusion is that where there is a breach of statutory duty there should not be, as set out in Essa, a need to prove forseeability if there is a breach of the Regulations. The Claimant lawyer would argue that the psychiatric injury has come about by a failure to assess the Claimants work and the requirements of forseeability is no longer relevant: the duty is clear and the loss flows from the breach, what more does one need?

By examining the Appellate Court’s approach to similar domestic legislation enacted as a result of the Framework Health and Safety Directive the prognosis for removal of the Sutherland hurdles is for Claimants, at best, guarded. It seems to me that the Court of Appeal is looking for ways to restrict the ambit of the regulations that now apply to the workplace. There seems to be an unfamiliarity or, at least, a degree of discomfort by the senior judiciary with the new breed of Statutory Instruments. Most of the Court of Appeal will have been used to practising with Statutory Instruments that are the product of domestic legislation and built within them some type of reasonableness requirement. The new (well, 15 years old now but new in legal terms) Health and Safety legislation required by the 1989 Directives changed the balancing act and imposed more rigorous duties upon employers. The European Lawyer would understand that the duties are absolute and that common law principles of foreseeability or reasonableness are less relevant and becoming more redundant.

However, the Court of Appeal continues to approach this legislation in a very English way. Take, for example Fytche v Wincanton Logistics Plc [2003] EWCA Civ 874 and 2004 UKHL 31. The claimant suffered frostbite in his toes when collecting milk from farms. He had been provided with a pair of steel capped boots to guard against containers hurting his feet. The appellate courts held in terms that the boots were suitable for the work of carrying urns. It was simply not foreseeable that the boots would not be suitable to guard against the risk of frostbite.

The House of Lords was split 3 to 2 and, in Baroness Hale’s dissenting speech she notes, correctly in my view, that the regulations create an absolute duty upon the employer to keep the boots free from defects whatever the risks. Her speech might be vital in litigating stress as the Claimant can argue that her judgment in Sutherland would have followed the absolute approach she sets out in Fytche if the Management of Health and Safety Regulations had been in force.

The continuing unwillingness of the senior judiciary to understand the full scope of the domestic legislation enacting the 1989 European Directives can, most recently be seen, at the end of last year in Yorkshire Traction v Searby [2003] EWCA Civ 1856. The Court of Appeal misinterpret the Regulations and state that they do not require complete and absolute protection. They hold that a court in considering the question of liability is allowed to consider the degree of risk rather than merely showing that it was reasonable foreseeable that the absence of a screen could expose drivers to injury. Therefore the Court allowed the appeal from the County Court that the failure to provide a screen rendered the bus unsuitable within the Provision and Use of Work Equipment Regulations 1992.

Therefore although the outlook is sunnier for Claimants launching stress at work claims in the Common Law Courts the ET still offers the better forum where discrimination has caused such an illness.

But Caution!

The Court of Appeal Judgment is narrower than that of the EAT in Essa. Theirs was a majority decision and Pill LJ restricted his comments to racial harassment. There is a powerful argument to suggest, therefore, that the requirement of no forseeability might only extend even in cases involving statutory torts such as discrimination to acts which have the character of harassment. If your case involves acts that do not have this character then the common law courts may offer you a better forum and you have to weight up the other factors set out below.

Vicarious Liability

Where actions of employees actions have been such that they might not have been in the course of employment it has traditionally been, since Jones v Tower Boot Co Ltd [1997] IRLR 168, our firm advice that the ET offers the better forum. The teleological interpretation of vicarious liability in the ET was much stronger than the limited course of employment test and the standard defence of "frolic of his own" that was deployed by Defendants often defeated claims where the characterisation of the behaviour was close to harassment or assault.

The common law courts are catching up and any advantage is narrowing since the House of Lords’ decision in Lister v Hesley Hall Limited [2001] IRLR 472. The evolving common law test set out in Dubai Aluminium [2003] IRLR 608 now appears to be

is the action so closely connected with the acts that the employee was authorised to do that the conduct may fairly and properly be regarded as done by the employee while acting in the ordinary course of employment.

The new dynamism of the Hesley test away from the old "course of employment" test has reached what some may think must be its apogee in the Court of Appeal’s decision in Mattis v Pollock [2003] IRLR 603. A doorman had sought to eject an acquaintance of Mr. Mattis from a club. The doorman attacked several others. Eventually the doorman himself was attacked. The doorman left the club and was pursued by a number of customers including Mr. Mattis. The doorman went home and collected a knife. He returned and some distance away from the club stabbed Mr. Mattis. The defendant had been convicted of employing an unregistered doorman. The Court of Appeal held that the doorman’s attack was so closely connected with what the defendant authorised or expected him to do in performance of his employment as a doorman it would be fair and just to impose liability.

The Court of Appeal held that vicarious liability could arise even if the act of the employee was an independent act in itself and, where an employee was expected to use violence while carrying out his duties, the likelihood of establishing that an act of violence fell within the broad scope of his employment was greater than it would be than if he were not. The court found that the defendant had encouraged the doorman to perform his duties in an aggressive and intimidatory manner. Similar reasoning can be seen in Fennelly v Connex South Eastern Limited [2001] IRLR 39 where an employer was held liable for the actions of a ticket inspector who assaulted a customer when he failed to stop to have his ticket checked.

However, the advantages of the Employment Tribunal can still be seen when one compares it to some decisions of the civil court such as Horton v Taplin Contracts Limited [2002] EWCA Civ 1604. Here the Court of Appeal held that where a scaffolding tower had been deliberately pushed over by one worker causing injury to a colleague it could not be said that the employer was in breach of his statutory duties to provide suitably stable work equipment and a safe place to work. The Court of Appeal found that even if there were breaches of statutory duty and a failure to supply outriggers to the tower, these could not be seen as being causative due to the extraneous deliberate behaviour of the colleague who pushed the tower over which constituted a new intervening act such as to breach the chain of causation. It may be that if Horton was argued now the result would be different due to the fact that at first instance a different test would be applied in respect of vicarious liability. Nevertheless, in such a case as Horton if the claimant had had the ability to pursue a statutory tort in the Employment Tribunal, the continuing purpose of construction of vicarious liability would favour issuing in the Tribunal.

Disability Discrimination

Where a claimant can qualify under the Disability Discrimination Act it is rare that the advantages of litigating in the Employment Tribunal can be matched by the advantages of litigating in the common law courts. This is particularly true where a client is diagnosed with a psychiatric injury and is being treated by anti-depressants. Under the "deduced" affect provisions in Schedule 1, it is comparatively easy to get a psychiatrist to say that someone who is diagnosed with depression and is taking anti-depressants would have significant difficulties probably amounting to disability within Schedule 1 were that medication to be withdrawn. The deduced provisions allied to Archibald and the changes that come into force this October such as the reversal of the burden of proof and the restrictions on justification mean that a practitioner’s invariable advice will be that a claimant is better off taking his action in the Employment Tribunal.

Anecdotal experience shows that many PI lawyers are missing the advantages that the DDA would offer their clients. Employment practitioners who work in firms or with colleagues who do personal injury work but may not be aware of the scope of the Disability Discrimination Act bear a responsibility, particularly from this October, to ensure that PI practitioners are aware of the real advantages of the Act.

Personal Injury

We now know that Section 123 of the ERA limits ET in awarding damages for financial loss only. In addition in Magnox and McCabe [2004] UKHL 35 their Lordships decided that if an action accrues before an unfair dismissal it can be pursued. The fact that an employee may be owed a duty of care in respect of his suspension and not his dismissal is a continuing anomaly. The injured employee who does not have access to one of the discrimination torts should pursue his action in the common law courts. By necessary implication Dunnachie confirms that whilst there may be an overlap in compensation an injured employee can bring his injury claim in the Common Law Courts and his unfair dismissal claim in the ET.

Burden of Proof / Difficulty of Proof

The reversal of the burden gives Claimants real advantages in ETs. However many ETs remain relatively conservative in making findings of discrimination. Anecdotal experience suggests that more easily proveable breaches (e.g. contractual) are more likely to lead to compensation in the Civil Courts. The considerations under this heading are almost entirely fact sensitive.

Without Prejudice

In BNP Parebas –v- Mezzotero [2004] IRLR 508 Cox J upheld a tribunal’s decision that a Claimant was allowed to refer to a grievance meeting in her evidence. The employers had asserted that as they had said that the meeting was without prejudice and then raised the possibility of a termination package for the Claimant that the rule applied and, therefore, the Claimant could not refer to any of this in evidence. Cox J held that as there was no extant dispute between the parties as to termination which the employer’s remarks were a genuine attempt to compromise, as the Claimant was in an unequal position and as the grievance would continue whether or not the Claimant was terminated, the without prejudice rule did not apply. Further, the doctrine of unambiguous impropriety where an employer might seek to use the veil of without prejudice discussions to suppress relevant evidence was particularly apposite in discrimination proceedings and, therefore, the employer’s conduct in these circumstances were regarded as an exception to the without prejudice rule within the abuse principal.

One of the central reasons given for the piercing of the without prejudice veil in Parebas was the fact that it was a discrimination case with the normal concomitant difficulties of proof. The authority may be used by a well advised Claimant who pursues a grievance but does not create a dispute over the termination of their employment in order to gather real evidence as to the attitude of the employer towards him or her which might assist the ET to draw an inference of discrimination.

I am in no way suggesting that one should abuse or set up the employer to create a Parebas indiscretion. It seems to me, however, that it is wholly right that an Claimant can be advised to pursue a grievance as a result of which the employer may do something which has a real evidential bearing on whether or not that employer has discriminated or would discriminate against the Claimant. It is important in such circumstances for the lawyer not to participate or to be involved in any way with correspondence with the employer directly. The evidence of lawyers acting for the Claimant in respect of negotiations with the employer would, it seems to me, give rise to a true and proper claim under the without prejudice rule as any such suggestions are much more likely in that situation to be seen as falling properly within the without prejudice rule.

Given her reasoning it is fair to assume that an ET will be more amenable to an argument in which the claimant attempts to pierce the without prejudice veil.

Costs

Even with the new regulations this is an area where the common law courts offer real advantages to a claimant with a strong case as the Employment Tribunal does with an Claimant with a weak one. Costs in pursuing serious discrimination cases, particularly where employment consultants and/or medical advisers are used and which require a number of days to prove, can represent a very large percentage of an Claimant’s award or can cost a funding trade union or legal expenses insurer a significant part of their budget. The fact that costs follow the event in the civil courts is always a consideration, particularly in the more straightforward cases where for instance a client may be disabled but then liability for the act is so clear that it is simpler and better to pursue consequential losses in the civil courts where the claimant will effectively be indemnified against the costs of their proceedings.

Time Limits

The 6 and 3 years limitation period for contract personal injury respectively often render the common law courts the only possible forum for an action where a period greater than 3 months has elapsed. Further advantages offered by a common law personal injury action are the further periods given by Sections 11 and 14 of the Limitation Act in respect of date of knowledge.

On the other hand, the liberalisation of continuing act in Hendrix v Commissioner of Police for the Metropolis [2003] IRLR 96 allows many more Claimants to argue that they were subject to a state of affairs and thereby confer jurisdiction on the Employment Tribunal for their cases to be heard. Danger lurks as a result of Sheriff in starting an action in the ET with the hope of extending time limits or arguing that time runs later as a result of Hendricks and relying on the fact that one could always issue in the Common Law Courts if the ruling is adverse to the Claimant: the Respondent would have a respectable argument that the second action is an abuse.

Large Claims

In our experience tribunals are less likely to look upon large claims where the loss extends over a longer period favourably except, perhaps, in the disability discrimination field where the arguments for continuing loss are easier to make or where there is good evidence that the treatment has caused or exacerbated a condition with a guarded prognosis which hinders or prevents work. Clearly ETs have not hesitated in making very substantial awards but the majority of these are concerned with bonuses where the individual bonus was very substantial rather than a loss extending over a longer period.

The hestitation of ETs approaching large claims can be seen in Burton J’s comments in Kingston Upon Hill City Council v Dunnachie [2003] IRLR 843 in which he noted that the use of the Ogden Tables in calculating unfair dismissal compensation for future loss of earnings should be rare. They should only be relied upon where there is a prima facie career long loss.

HEADS OF LOSS / EVIDENCE

This section of the paper is, in parts, very basic. I hope it will be useful as a vade mecum when considering remedies, particularly in larger cases. It seeks, comprehensively, to set out the preparation required to maximize a claim against a Respondent. Further this section is informed by the fact that most substantial claims do settle. One the central tenets of representing an Claimant is to put the Respondent at risk: the greatest risk is created by properly ensuring that all recoverable damages are set out so that the Respondent can understand how much the case might be worth if all goes badly for them.

The Principles

Unfair dismissal compensation is qualified by the words just and equitable in section 123. This can lead to anomalies compared to the tortious approach used by the Common Law Courts and the ET in approaching discrimination compensation.

MOD v Cannock [1994] IRLR 509 establishes that the ET should treat what would have happened but for a discrimination dismissal as the evaluation of a loss of a chance. This loss is to be established in a broad and sensible manner. The evaluation of such chances in any case might include:

When would and/or will A retire?

What would A have earned and what would his career path have been but for the discrimination and victimisation?

To what extent is the assumption justified that A would have remained in the employment of R, or in some commensurately paid employment by another employer?

What were the prospects that A would have received a promotion, pay increase, or would have been headhunted by another employer, so as to receive more than (b)(i)?

The effect of other contingencies such as disability preventing work before retirement etc.

When assessing compensation the ET should keep a sense of due proportion which involves looking all the individual components of the award and then looking at the total to ensure that it is sensible and a just reflection of the chances which have been assessed.

Earnings

Parts of this most basic constituent are frequently missed. The Respondents should be asked for

Any changes in rates of pay or hours of work;

The Claimant’s P60 and/or P45.

Any additional overtime payments.

Any additional bonus payments.

Any additional profit related pay.

Any additional holiday pay.

Promotional opportunities.

Pension details.

Benefits In Kind

Benefits in kind are often still not claimed for in full:

loss of use of the company car (factors such as the type, engine size, how often renewed should be considered);

free fuel, servicing, insurance, etc;

cheap loans;

clothing allowance;

education allowance for children;

club membership;

family health schemes;

expense accounts;

bonuses;

tips;

holiday pay;

attendance bonuses;

Christmas bonuses;

Free goods;

subsidised meals;

share incentive schemes;

travel concessions;

free accommodation (e.g. service tied accommodation (police etc) note that such benefit may also include household bills);

Increased Earnings?

The Claimant will be assumed by the court to earn the same salary unless it can be shown that his wage has increased. Care should therefore be taken to ensure that evidence is obtained from the Claimant’s employer of any increase in rates of pay post injury but prior to settlement/judgment. The schedule should include any such increases, or they cannot be recovered. If the earnings figures have not been obtained, it is however worth claiming an annual increased income equal to the increase in the average earnings index for the year in question.

Proof of Other Losses

I have set out below the type of documents I would expect a client to be asked for in a substantial employment claim which involves some element of injury or disability:

Past medical treatment.
Past medical tests and investigations including X-rays, MRI scans and CT scans.
Past medication and prescription costs.

Much less likely in an employment claim but worth considering, particularly if the discrimination may have exacerbated other conditions or led to a complete breakdown are:

Past aids and equipment.
Past travel costs.
Past D.I.Y., decorating and gardening costs.
Past care costs.
Past domestic assistance costs.

Further there should be estimates for:

Proposed medical tests and investigations.
Proposed medical treatment and/or surgery.
Any other item set out above that may stretch into the future.

Utilities

As a result of dismissal or staying off work for extended periods the Claimant often spends more time at home. A claim for the increased heating, lighting and telephone bills that are likely to result. In order to support such a claim it is necessary to obtain copy bills in the months preceding the accident to calculate the increase in bills caused by the accident.

Cost of Debt

Many Claimants quickly fall into debt if they are unable to work following an accident. They should be asked to keep details in relation to any of the following:

Overdraft interest.
Credit card interest.
Loan interest.
Interest on arrears of mortgage or rent.
Interest on debts to creditors or suppliers.
Court and solicitor fees arising out of third party debt recovery.

Bank and credit card statements may provide a useful alternative to receipts and invoices. The statement will usually show the date and place where a particular item was bought and its cost (including any foreign exchange rate).

Comparator

Often the easiest, cheapest and best way to prove loss is by a comparator. If the client has a workmate who has continued in employment that can be the most powerful evidence of what her earnings would otherwise have been.

Future Loss Claims

I think it wrong to try to extend Burton J’s comments in Dunnachie beyond the field of capped awards in the unfair dismissal arena to the more substantial and uncapped claims that we see in the discrimination field. On the other hand Claimant lawyers should be aware that ET’s are more resistant to the multiplier / multiplicand approach.

It is for this reason that I often recommend the use of a good employment consultant who can lend weight to the contention that Future loss of earnings or care needs are assessed on a multiplier / multiplicand basis. The multiplicand is the annual loss that is suffered. One then multiplies that figure by the multiplier that takes into account the chance of the Claimant dying in the period of loss, unemployment and other contingencies including the fact that the Claimant will get a lump sum now rather than annual sums later.

Actuarial Tables

As a result of Section 10 of the Civil Evidence Act 1995 Actuarial tables are now admissible before the courts and, therefore, direct reference to the Ogden tables can be made. In the ET notice should be given of their use and the practitioner must be prepared to take the Tribunal through matters more slowly and in more detail than one would in the common law jurisdiction.

The Multiplier

The real battle in ETs is in persuading them to apply the Ogden tables at all. Once the ET accepts the theory of applying them the Ogden tables have an established formula of discounting based upon the economic activity in the area (+0.03 to –0.05) and occupation (+0.03 to –0.05). Variations can be greater than this depending on the individual but there should be good reasons for moving outside of these brackets. Burton J suggests that other greater discounts might be allowed in Dunnachie but as he rightly observes if the discounts are much larger it must be considered whether or not the multiplier / multiplicand approach is the correct one. The assumptions of the discounts in the Ogden tables is predicated on the basis that the Claimant’s loss extends to retirement or into the future and it is here where expert evidence is so important.

Pension Loss

The best approach is to follow the simple guidance set out in Auty v NCB 1985 1WLR 78. The particularly useful Weekly Law Reports summary sets out how a calculation of pension loss is performed in tabular form and can be easily recreated for a Schedule of Loss. One needs a current estimate of the Claimant’s pension against an estimate of what it would have been had he stayed in employment for the period of time which the Claimant asserts. The current annual estimate is then deducted from the projected estimate which is multiplied by the appropriate pension multiplier which is derived from the Ogden tables which allows for accelerated receipt and mortality but not contingencies other than mortality. The increase in the lump sum is allocated between the periods and credit given for any early receipt which is discounted again in the Ogden tables.

Mitigation

Norton Tool Co Ltd v Tewson [1972] IRLR 86 decided as a principle of unfair dismissal compensation that that the Claimant did not have to mitigate losses in respect of compensation awarded for the period of notice which he or she should have had due to "good industrial practice". This was approved by the Court of Appeal in Babcock FATA Ltd v Addison [1987] IRLR 173. Burton J takes the view in Hardy v Polk [2004] IRLR 420 that it would be irrational for the consequences of or the duty to mitigate to be ignored and, therefore, the principle should not be followed. Claimant’s should still argue this point on the grounds that unfair dismissal compensation is slightly different from the normal rules as a result of the duty placed on the Tribunal to award compensation that is just and equitable rather than that which would be awarded by the common law courts in respect of statutory torts as in the SDA or RRA.

Handicap on the Labour Market

Also called a Smith v Manchester [Corporation] (1974) 17 KIR 1 claim after the first case of its type. Mrs Smith slipped and fell over injuring her shoulder so that she had difficulty with normal day to day tasks. She was a part-time domestic worker. The Defendant gave the court an undertaking that it would employ the Claimant for as long as they could properly do so. However, it was argued that should she find herself on the labour market she would be very much less competitive as a result of the injury which she had suffered. A very strong Court of Appeal (including Edmund-Davies and Scarman LJJ) found that there was a real risk of the Claimant being put on the open labour market - in Smith the Defendant had even given an undertaken to continue employing the Claimant but the Court found that a real risk existed.

This is an underused method of compensating the Claimant which can dramatically increase an award to a Claimant but also, vitally, appeals in my experience to the ET. This is especially so when the evidence to suggest a multiplier / multiplicand approach is, shall we say, a bit thin. A Smith award is particularly apposite in discrimination / psychiatric damage claims for the following reasons which always have to be justified by expert evidence:

Many employees discriminate against applicants who have a psychiatric history. The very fact of having a psychiatric history often renders it more difficult for the Claimant to get other work.

Many psychiatric injuries can recur disabling the Claimant from work and earnings for a period.

The fact that a psychiatric injury has occurred can render the Claimant more vulnerable to not being able to weather traumas in the future that the Claimant was able to prior to their injury.

The result of many work related psychiatric injuries is that the Claimant is left with a situational phobia which restricts them from working for a particular type of employer or a particular employer which would restrict their opportunities should they be made redundant from their new job. Take the hypothetical example of a telephone engineer who suffers an injury when working for BT but gets another job paying the same with a competitor. Should he need to move or be made redundant he would still be unable to work for BT and, therefore, he is likely to be out of work for a longer period of time.

In any of these examples the Claimant has suffered a loss and it needs to be claimed.

When approaching a Smith award Lord Scarman observed the following:

It is clearly inappropriate, when assessing this element of loss, to attempt to calculate any annual sum or to apply to any annual sum so many years’ purchase. The court has to look at the weakness so to speak "in the round," take a note of the various contingencies, and do its best to reach an assessment which will do justice to the Claimant.

Further judicial caution as to the difficulty of assessing a Handicap award comes form Woolf LJ as he then was who commented in Page v Enfield & Haringey Area Health Authority that

Each case has to be looked at on its own particular facts... The variety of facts which can be taken into account mean that it is very difficult to get any guidance in relation to a particular case from the citation of authorities dealing with other cases.

In Smith Edmund-Davies LJ compared the task of assessment to seeing "through a glass, darkly"

A claim for handicap on the labour market depends solely upon the evidence that is prepared. If extensive and thorough preparation is undertaken substantial awards can be achieved or the Defendant put under a real risk and a higher settlement can be achieved. The evidence comes in 3 main parts - the employment consultant, the physician / surgeon and the Claimant.

I have set out below the standard list of questions that I might ask in order to obtain the appropriate information as to handicap on the labour market from the Claimant:

What were the Claimant's intentions in so far as his career was concerned before the dismissal / injury?

Are his prospects different as a result of the fact of the dismissal or the injury?

In what way?

Has the accident affected the Claimant's overtime or any other type of payments?

Has the accident affected his prospects? If so, with what financial affect?

Exactly what functions in his present job would the Claimant be unable to perform?

Exactly what functions in any job (including all jobs which he might want to do) would the Claimant be unable to perform?

Would the Claimant be restricted in the job applications that he would be able to make?

How and in what way?

How secure is his current and or his intended employment?

Can anyone in the workplace be contacted if they are not the Defendants?

What is the chance of him losing his job?

When might that Occur?

If he could get employment but is restricted in his choice of jobs will that also effect his earning capacity when in work?

By how much per week or per month?

What is the Claimant’s full working history?

What qualifications and or skills does he have?

What is the state of the labour market in which he competes?

Loss of Congenial Employment

As a Claimant lawyer one is fighting to separate out the following awards: personal injury, injury to feelings, aggravated damages and loss of congenial employment. As a Respondent lawyer the trick is to persuade the Tribunal to aggregate them: the former approach nearly always leads to more and the latter approach to a lower award.
Congenial employment is, in my view, underclaimed for. One should remember that "The joy of the craftsman in his craft was beyond price" per Edmund Davies LJ, (1968) 112 SJ 32. Otton J said in Hale v London Underground Ltd[1993] PIQR 30 that

It is now well recognised that [this head of loss] is a separate head of damage

The editors of the Personal Injury Handbook suggest by illustration with the case of Hale v London Underground [1993] PIQR Q30 that £5,000 appears to be more or less the tariff for such awards.

One note of caution should be sounded under this head of loss - most of the cases that one sees reported or where damages sound involve what I might term as "lifestyle jobs". It is a claim that is made particularly by those in the armed services, emergency services and other jobs where courts are easily persuaded of special enjoyment or satisfaction that attaches to such a profession (e.g. acting / dancing - being a Judge etc). The best way in which to assess this matter properly is by using the table prepared by Mr Dismore.

Injury To Feelings

The cap has, we are told, been set at £25,000 by Vento v Chief Constable West Yorkshire Police [2003] IRLR 102. In bad cases Claimant lawyers should seek to distinguish Vento in that that award was considered appropriate and dissuasive in a case where the discrimination spanned a period of 18 months. It can be argued that any award should reflect the period of time during which the Claimant was discriminated against. ETs may not necessarily be receptive but, again, such arguments should put the Respondent at risk of a greater award and should lead to enhanced settlements for clients.

Mitigation

When representing an Claimant one must always remember that the burden of failing of showing that the employee has failed to mitigate her loss is on the employer. The most advantageous expression of the doctrine to the Claimant can be found in the conjoined MOD cases Hunt v MOD [1996] ICR 554.

Recoupment

Most practitioners will be aware that the prescribed element (pre trial losses relating to earnings) are subject to recoupment as a result of an unfair dismissal award. The Regulations are easily avoided merely be settlement whereby the benefit can be shared between the parites.

Recoupment under the Social Security Recovery of Benefits Act 1997

In PI actions the Defendant must account to the Compensation Recovery Unit in respect of recoverable benefits when a compensation payment is made. The regulations apply to all compensation payments including settlements. As a result of Sheriff there is no reason why the CRU should not apply to damages in the ET where a PI claim is made. Section 1 of the Act applies the regime wherever a payment is made in consequence of any accident, injury or disease suffered by the other.

The following effects of the Act are particularly important:

The new act stops the recoupment biting on general damages and almost definitely on injury to feelings awards;

Damages are recouped from 1 of 3 heads of claim - namely loss of earnings, care and mobility;

No recoupment is taken from future losses and there is a cut off of 5 years from the date of the accident;

The lower limit of £2,500 is abolished and the act applies to any settlement;

The most important factor from the Claimant’s position, however, is that the burden rests on the defendants to make the payment.

So far as I know the Compensation Recovery Unit has not enforced its presence in the employment field as yet and, therefore, it would appear that many discrimination cases which involve personal injury which settle result in (a) overcompensation to the Claimant, (b) a lesser burden on the Respondent and (c) a nil payment to the exchequer in breach of the legislation.

If practitioners do start advising their clients in personal injury type claims of the need to repay benefits to the CRU then there will be further arguments over the division of any settlement which involves personal injury between the PI & injury to feelings award and to compensation for loss of earnings on the other.

As can be seen from Schedule 2 such arguments in the employment context are most likely to center around compensation for earnings lost during the relevant period:

Compensation

Benefit

1. Compensation for earnings lost during the relevant period.

Disability working allowance

Disability pension payable under section 103 of the 1992 Act

Incapacity Benefit

Income support

Invalidity pension and allowance

Jobseeker's allowance

Severe disablement allowance

Sickness benefit

Statutory sick pay

Unemployability supplement

Unemployment benefit

2. Compensation for cost of care incurred during the relevant period¹.

Attendance allowance

Care component of disability living allowance

Disablement pension increase payable under section 104 or 105 of the 1992 Act

3. Compensation for loss of mobility during the relevant period

Mobility allowance

Mobility component of disability living allowance.

EXPERT EVIDENCE

The Importance of Medical Evidence

Although a psychologist may well be the best person to treat a person suffering a work related phobia they are not the best person to diagnose a clinical injury and prescribe a course of treatment: a psychiatrist is. There are few cases where a Tribunal will not prefer the evidence of a psychiatrist with their clinical medical training to that of a psychologist.

Proof of Disability

The medical reports should specify with precision that which the Claimant is able and unable to do and what the Claimant is less able to do. Woodrup v London Borough of Southwark [2003] IRLR 52 cautions Claimants who attempt to invoke the deduced disability doctrine should be able to prove their disability with some particularity. Therefore, say, in the case of depression the expert should be asked to set out the consequences of a failure to take antidepressant medication on appropriate activities such as concentration.

These are the minimum requirements for a reliable report:

Prepared by a consultant;

The Consultant should be clinically qualified in the area and be currently practicing. I favour a consultant with a current NHS job as this adds weight to their views and can often lead to useful illustrations taken from contemporaneous clinical practice;

The expert MUST be supplied with all the medical notes. This is so very important particularly in psychiatric cases where causation is nearly always contested. Respondent Consultants will tear an Claimant’s report apart if it can be seen that a week or so before the breakdown the Claimant suffered a traumatic life event set out in the notes or that there have been prior breakdowns which the Claimant does not tell their expert;

The report should condescend to the detail and particularly whether the Claimant is capable of doing work in the future, the specific work that he or she is capable (or incapable) of doing must be identified.

If any adjustments are needed to be made to accommodate for the Claimant’s disabilities in the normal workplace these should be identified.

It is only once this evidence has been obtained that the opinion of an employment consultant may be usefully sought as regards the Claimant’s residual earning capacity in particular following any period of retraining or requalification.

Employment Consultants

Employment experts are expensive. For the right case, however, they can be invaluable. In Dunnachie Burton J expects Claimants, within 14 days of the filing of the originating application, to set out a schedule which provides the earnings from the old job and the earnings to be expected from the new job. In arriving at this task the voice of an independent expert can be invaluable.
Consultants do need to be held on a tight lead and carefully controlled. They must remember, for instance, May J’s comments in Larby v Thurgood (1993) PIQR P218 that the issue of the willingness of the Claimant to seek better paid employment and his ability to obtain such are matters of fact that the judge can evaluate. This is similar to the process when a medical expert evaluates disability under the DDA: the questions in the schedule are not for him to answer but merely for him to express an opinion on which may or may not guide the ET. It is important that Consultant reports are not seen by the ET as usurping their function but merely providing assistance (hopefully authoritatively so). The use of an employment consultant can persuade a Court of the real difficulties of mitigation faced by a particular client and their now low comparative expectation, or such evidence can act to extend a period of loss or, where the Respondents are not conceding prospects of promotion expose the flaws in their position. My experience is that they are particularly effective not in total loss cases but where the loss of a job or change of career will lead to a continuing reduced earning capacity.
It is a matter of individual opinion as to when an employment consultant should be used but they are most helpful in the following situations:

Where the Claimant has an undefined residual earning capacity which might involve retraining or re-qualifying.

The Claimant had an unusual or unique job for which there are no average earnings statistics.

The Claimant had a professional job with a set hierarchy and pay structure, for example an army officer, a civil servant or a teacher.

Where A had clear opportunities for promotion, but there is limited information to show what level the Claimant would have eventually attained and how long it would have taken to get there.

The Claimant had a job which provided remuneration far in excess of the national average for that type of work. For example a chef working in a prestigious London Hotel might have earnings way above the New Earnings Survey category in respect of cooks/chefs.

There is a real risk that the Claimant will lose their secondary job in the foreseeable future by reason of their injuries and it is unclear what alternative work they would be able to do in the local area and how long it would take them to find such work.

When considering whether or not to instruct an employment consultant, the following checklist may provide a useful guide. The more questions to which the answer is ‘yes’ the less likely it is that the instruction of an employment consultant is indicated.

Are you able to predict:

loss of earnings up to time of the hearing;

future career earnings (with promotion, advancement and redundancy)?

Are you able to comment upon the possible effects of:

the local labour market and

the vicissitudes of the relevant industrial sector?

Does the Claimant’s disability now exclude him or her from the labour market?

Are you able to assess the Claimant’s

job search period

training options

future earnings?

Are you sure of other factors such as the planned changes in sheltered employment provision etc. are not going to affect the Claimant’s future employability?

Employment Consultant as Advisor

In many cases an employment consultant can just provide some statistical data in order to help calculate the loss of earnings claim. In these cases the relevant material might be in the public domain but it would take the layman a disproportionate amount of time to find the sources. The employment consultant thus takes on the role of advisor and does not provide a full report or give evidence to the court. In an advisory capacity, the employment consultant may also offer assistance with a number of other matters including identification of the central issues in a case, consideration of any offers and seeking to persuade the Tribunal why a full employment assessment might be necessary.

Expert Evidence / Handicap Claims: The Physician or Surgeon

If, on the information received from the Claimant as a result of the questions that I have set out above there would appear to be a significant claim for handicap upon the labour market, a loss of earnings claim and or a reduced earnings claim then one should return to the medical expert. They should comment as to whether the problems that the Claimant has enumerated
1. Exist and are not exaggerated and
2. Have been caused by the injury.
The Employment Consultant
Once those matters are confirmed then the expensive step of instructing an employment consultant is justified if the claim is going to be large. That expert should consider this type of question:

Between now and the Claimant's retiring age how many times is he likely to have to look for work upon the open labour market?

What has the effect of the insult or of losing his job been upon his ability to compete in the labour market?

How much longer will he be looking for a job as compared to the position he would have been in had the injury not happened and the position that he is in due to the injury?

What other work is he likely to get? Has he been rendered unemployable as a result of the accident?

If not, what type of work could he do should he be looking on the labour market?

How much will it pay?

Will there be a reduced earning capacity as compared to his position before the injury if he was on the labour market?

The simplest and intellectually most appealing way in which to put a Handicap claim is then in periods of months or weeks. Using experience and judgment one sets out in a schedule whether the claim should be 6, 12, 24 or more months of lost earnings to compensate the Claimant for their loss of competitiveness. Reported cases in the personal injury field are helpful. The key to assessment is using a wide bracket on the basis of your own evidence and understanding that this is a peculiarly difficult claim to predict with any great accuracy.

TAX AVOIDANCE STRATEGIES

Employer and employee share a community of interest in mitigating the effect of taxation. The Revenue may charge the employee on their tax return for the year concerned or more normally pursue the Employee under the PAYE Regulations.

The obligation to deduct continues after the end of the employment and, therefore, the obligation to deduct still applies on judgment or settlement of a claim. If the employee can make any settlement more tax efficient he is more able to persuade the Employer to pay more or at least maximize the damages that have been so hard won. Most importantly if an advisor does not ensure that the employee is not protected against the incidence of tax her client is under compensated and the advisor is exposed to a potential action.

The Charging Provisions

The Income Tax (Earnings and Pension) Act 2003 came into force on 6^th April 2003 substantially re-enacting ICTA 1988. As before there is a general charging section (S.6) which subjects all general earnings and specific employment income to tax. These two phrases replace Schedule E and the concept of emoluments from employment. Employment income is defined by Section 62 and includes all earnings in relation to employment.

Chapter 3 of Part 6 of the Act replaces the old S.148 ICTA. It is crucial, for an understanding of tax avoidance, to remember that this part of the Act is a charging provision and not an exemption provision. Anything which is general earnings or employment income falls to be taxed under Section 6 and PAYE and NIC are payable. Chapter 3 merely extends the tax regine to sums received in consequence on termination of employment. However Chapter 3 does exempt the first £30,000 of any payment from the incidence of tax.
Simply the position is this:

Income is taxed as earnings from employment under Section 6 and 62;
If the payment is for a restrictive covenant it is taxable under Section 225;
If the payment does not fall under any of these sections but is made in connection with a termination then Chapter 3 applies.

Simple Tax Avoidance

The simplest way of reducing the marginal rate of tax is to stagger or delay the payments under the agreement. This is particularly effective if the Claimant is not expected to earn much in the following year or when the date of termination is close to the end of the tax year.

Tax Treatment of PILON

EMI Group Electronics v Coldicott [1999] IRLR 630 held that payments under a PILON clause are chargeable under the new Section 6 and do not fall within the Chapter 3 charging provisions.
Further in Richardson v Delaney [2001] IRLR 663 the revenue won a victory that could have allowed them to launch a wholesale assault on payments under compromise agreements entered into and even negotiated before termination of employment. However the Revenue have taken a narrow view of the case and have clearly expressed their view that the Charging provisions of Section 6 only apply where there is an express PILON, implied PILON or customary / automatic PILON.
The express and implied PILON give the employment adviser no real difficulties. However it is the customary PILON where difficulties sometimes arise. The Revenue will argue that Section 6 applies to some PILONs where, for instance they are always made although in fact the payment does not amount to a contractual obligation. In advancing this contention the Revenues seeks to rely upon cases where automatic payments or the expectation of such a payment have made the income taxable under Section 6 as employment income. Examples are Corbett v Duff 23 TC 763 (where footballers expected benefits monies which were non contractual but because they were always paid were an incidence of employment) and Laidler v Perry 42 TC 351 (Christmas gift voucher was taxable). However it is at least the Revenue’s view that they would need good evidence from documents or other sources to show that there was a customary PILON rendering the payment taxable as employment income in the absence of an express or implied contractual obligation.
Not to pay tax on a PILON is clearly evasion. However, there are avoidance methods in respect of implied or discretionary PILONS detailed consideration of which is beyond this lecture. Essentially, however, they amount to payment of compensation after termination, not reaching a concluded agreement before termination, making it clear that a breach of contract claim is being compromised, ensuring that the payment is not similar in sum to a PILON entitlement and ensuring that the employer does not give an automatic payment but gives each payment separate and individual consideration as to whether it should be made.
However, it will be the facts surrounding the dismissal which are important and a client would not be advised to manufacture avoidance where none properly exists.

The Limitations of Section 6 and 62

Coldicott and Richardson are so important because they show the limits that the courts and the Revenue put on the charging provisions under Section 6. As a result of these decisions and the revenue’s statements we know that other payments such as Tribunal awards or damages for breach of contract or in respect of statutory torts do not fall within Section 6 but under Chapter 3.

Unfair Dismissal Payments

The recent case of Wilson (Inspector of Taxes) v Clayton [2004] IRLR 611 confirmed that a payment received as a result of a compromise agreement following a finding of unfair dismissal is not taxable as employment income but as a termination payment.

Miscellaneous Tax Free Payments

Outplacement, Counseling, Re-Training and Travel Expenses

Outplacement, counseling, re-training and association travelling expenses with certain conditions can be paid entirely tax free under Section 310. This might be particularly beneficial to the more senior employee or where the employee has to re-train. This can be very tax efficient and where a client might embark on a course to retrain then the advisor should try and ensure that any settlement sets up a direct allocation to any of these heads which is paid by the employer to mitigate the effect of taxation.

Solicitors Costs

In Revenue Interpretation 61 of November 1993 payments which are made direct to the employee’s solicitor, in discharge of costs incurred in the termination dispute which are paid under a term of the settlement agreement are exempt from tax.

Pension Payments

The incidence of taxation can be further reduced by using Section 308 which exempts taxation on payments to approved personal pension schemes and, if part of a termination payment Section 408 also exempts such a payment from any charge under Chapter 3.

Termination Payments Taxed Under Chapter 3

Statutory Redundancy Payments

Section 309 of ITEPA maintains exemption for statutory redundancy payments and IR Statement of Practice SP 1/94 maintains non-statutory redundancy payments exemption under Section 6 but, of course, these are termination payments and fall to be charged to tax in so far as they exceed £30,000.

£30,000 Exemption

Contained within Part 6 of Chapter 3 are two important benefits for the Claimant. First there is the fact that only sums above £30,000 are taxed (only Income Tax and not National Insurance).

Anti-Avoidance

Chapter 3 contains a number of anti avoidance measures so that the £30,000 exemption applies to payments made by associated employers, payments made in different tax years and payments made to the order of the employee (say to a 3^rd party to try and avoid tax).

Personal Injury / Disability

Section 406 of ITEPA re-enacts Part of ICTA 1988 Schedule 11 exemptions for payments on account of injury to or disability of an employee.
The reason why we (that is employment law advisers in general) consider that injury to feelings are tax free is because such an award probably falls within this section and are therefore exempt from taxation. It should be noted that where employment has not been terminated it is clear that an injury to feelings award is not within Section 6 and 62 and is not caught by Chapter 3.
In Vince-Cain v Orthet UK EAT 801/03 HHJ McMullen QC recently decided that an award for injury to feelings was not taxable because of the following factors:

Vento did not mention taxation;

The appellate courts have considered this head of damages analogous to damages for "pain and suffering, disability and loss of amenity";

Essa noted the overlap between "injury to health or personal injury" and "injury to feelings;

JSB guidelines are used;

Injury under Section 66(4) SDA carries the same meaning as injury in the exemption;

The advice of the EOC, published on its website www.eoc.org.uk, is that an award of this nature is arguably not taxable and for injury to feelings per-employment should not be taxable.

The Revenue accepted that such an award was not taxable in Walker -v- Amanda Adams (HMI Taxes) SPC 344;

Nevertheless the position has not finally been determined. The EAT’s judgment is not binding on the revenue for, as the EAT recognized only the General Commissioners, pursuant to sections 31(1) and 31B of the Taxes Management Act 1970 can determine such matters. Therefore the Claimant would be advised to seek an indemnity to protect against any uncertainty should the Revenue’s view change in the future and such awards were to become taxable.
Further, it is clear and of increasing importance in the Tribunal that damages on account of injury are exempt from taxation. The exemption can, in my view, be applied more widely than merely to the injury award in discrimination claims. If pecuniary damages consequent upon the injury then they too are exempt from taxation. For instance if, in a race discrimination case one can show that the Claimant is suffering from a psychiatric injury that has pecuniary consequences (inability to work for a year or so or alternatively lesser ability to work for a period of time) then all those damages are arguably tax free and should not be charged by Chapter 3 of Part 6.

Disability

In respect of Disability it appears that the Revenue assert that this exemption is not available for DDA compensation. I believe that such a stance is open to attack. Indeed the consequences for Disability litigation are potentially even more advantageous particularly to the Respondent as if the exemption applies to it must do so to all payments made as a result of a DDA claim.
Under IR Statement of Practice 10/1981 the Revenue expresses the view that if a payment is made as a result of incapacity to fulfill the duties of employment as a result of either a sudden affliction or the culmination of a process of deterioration then the payment should qualify. In my view DDA compensation should fall within that statement.
Hasted v Horner 67TC439 considered the disability exception under ICTA and established three tests that must be satisfied for the disability exception to apply.

there must be an identified medical condition that disables or prevents the employee from carrying out the duties of the employment. There must, therefore, be medical evidence confirming the precise nature of the disability and
it must be clear that the nature of the disability prevented the employee carrying out the specific duties of the employment and
the payment must be made on account of that disability and on account of nothing else.

It seems to me that the first and and third part of the test is relatively simple to meet. The second part is more troublesome.
The reason that compensation is being paid in a DDA case is because the Claimant could still be employed if the Respondent had complied with its duties and or had not acted unlawfully. Therefore the Revenue could argue that this criteria has not been fulfilled. There are two strong counter arguments: Firstly that the Claimant concedes that the duties of the job could not be done without reasonable adjustment and, therefore the section is satisfied because it is directed at the job without its adjustments and, therefore arguably a different job and secondly the reason why the payment is being made is because the employer as a matter of fact dismissed the Claimant because he was unable to do all the duties of his job.

Indemnity

It would still be my advice that for the Claimant the simplest way in which to deal with tax, and often the most advantageous to the Respondent is merely to assess all compensation net of tax and then seek a tax indemnity from the Respondent. The advantages to the Respondent are twofold: firstly they do not have to pay out the grossed up sum immediately but can wait until the Claimant makes their tax return and, secondly, the Respondent can often argue with the Revenue about the incidence of tax on items such as share options, benefits in kind or the applicability of the Section 406 exemption. Otherwise grossing up is a relatively blunt instrument and can leave the Respondent with paying more than it needs to.
Where the Respondent refuses to give an indemnity and such an offer should be made in front of the Tribunal. This is because Respondents then often attempt to argue that certain items need not be grossed up because they are probably not taxable. The decision of the ET is not binding on the Revenue and the Respondent is now allocating the risk to the Claimant who may then be undercompensated. The ET are likely to be less sympathetic to this type of tactic when they know that the Applicant has made an open offer that would, apart from anything else, prevent them from having to deal with the intricacies of tax and the complex mathematical grossing up calculations!

Grossing Up

Essentially as all the damages are likely to be received in one tax year this claiming all the sums net and then grossing up by the appropriate percentages. These alter up until one reaches the 40% marginal rate. By way of example, in order to gross up a net payment that falls within the 40% bracket one needs to multiply by 1.66 and to gross up a net payment in the 22% bracket one multiplies by 1.282. One should remember that £100,000 net translates to £166,666.66 gross at a marginal rate of 40%.

1, PUMP COURT, 20^th August 2004

TEMPLE cg@cloisters.com

Direct: 02078274052

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