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 RECENT CASES

NOTES

[Inview of the special interest and intersecting nature of the issues raised by the trio of recent House of
Lords decisions inthe Barber, Dunnachie, and Eastwood cases or groups of cases, we publish two pieces
each of which looks at one or more of those decisions from adifferent perspective. MRF, SFD.J

Employers' Liability for Stress at the Work Place: Neither Tort

nor Breach of Contract?
Barber vSomerset County Council
13;
[2004] UKHL 475 (HL; 12004] ICR
[2004] IRLR 457
Dunnachie vKingston-upon-Hull City Council
[2004] UKHL
36; [2004] IRLR
727 (HL[; 1052
[2004] ICR
Eastwood vMagnox Electric plc, McCabe vSomerset County Council
35; 12004]
[2004] UKHL 733 (HL[;
IRLR 1064
[2004] ICR

INTRODUCTION
1,
It is not clear that work is more stressful today than in former times: it is clear that aware-
ness of its stressfulness has increased and society is no longer willing to tolerate high levels
of work-related illness. It is not therefore surprising that while the Health and Safety
Executive strives to find ways to identify and prevent this type of occupational injury, the
victims are seeking compensation.
HSE's statistics show that, between 2000 and 2002, 33 million working days were lost
due to work-related ill health and stress is the second biggest cause of work-related ill-
ness. It says 'around half a million people in the UK have experienced work-related
stress'. After more than a decade of investigation it now has a better idea of the circum-
stances in which work can cause stress, and will shortly publish management standards
(www.hse.gov.uk).
The difficulties experienced by HSE and the courts concern distinguishing between
stress that is caused by work and stress that manifests itself at the workplace but may be
caused either by other aspects of the victim's life (eg an unhappy domestic life) or the
peculiar sensitivity of the victim to normal working life.
Arguably, regulatory standards apart, the employer should only be liable if it has
asked the employee to endure more than contractual terms require. To a limited extent

IndustrialLaw Journal, Vol. 33, No. 4, December2004 © Industrial Law Society; all rights reserved.
Industrial Law Journal Volume 33

the courts have taken this view, as least where the complainant has been appointed to a
senior position. In Levy v Allied Dunbar Assurance plc [2000] WL33148711 the judge
found: 'The claimant was given a demanding and stressful job ... But he was a senior
manager and was paid accordingly.' Generally the courts have shown more sympathy but
the law has become complex and a claimant can have little confidence of securing
compensation.
Until recently claims for work-related psychiatric injury were litigated by employees in
tort in the same way as claims for physical injury. Recently reliance has been placed on
breach of contract and claims have been pursued either in the common law courts or
employment tribunals. There is as yet no history of claims by workers other than employees.
This commentary will examine the options open to an employee seeking compensation
for psychiatric injury caused by stress at work.

2.TORTIOUS CLAIMS FOR DAMAGES FOR WORK-RELATED STRESS

The history of employer's liability for psychiatric injury caused by stress (as opposed to
,nervous shock') is short. The reported cases are relatively few and the seminal ones have
been noted in this journal, so need only be mentioned briefly. The first significant case
was Walker v Northumberland County Council [1995] IRLR 35. Colman J there held the
employer liable in negligence to a claimant who suffered a second nervous breakdown,
the employer having failed to reduce his workload following an initial breakdown caused
by an excessive workload. The judge dismissed the employer's argument that policy
decisions concerning the allocation of scarce resources prevented it from reducing the
claimant's workload. Media reports following this decision suggested it led to a flood of
claims, but relatively few decisions were fully reported.
In Walker it was accepted without argument that the employer's duty of care extended
to protection against psychiatric injury. However, in a long and thorough judgment given
in the Outer House in the Scottish case of Cross v Highlands and Islands Enterprise[2001]
IRLR 336, Lord Macfadyen noted that it had never been established that the employer's
duty extended beyond liability for physical injury to embrace psychiatric injury caused by
stress.
The hearing, in Sutherland v Hatton [2002] IRLR 263, by the Court of Appeal of
four appeals, enabled that court, through Hale LJ, to set out sixteen 'practical propo-
sitions' to guide courts hearing claims for work-related stress. The first was that there
are no special control mechanisms: the ordinary principles of employer's liability
apply. This confirmed that the duty to take reasonable care extends to psychiatric
injury. The majority of the remaining propositions, starting from the issue of whether
this kind of harm was reasonably foreseeable to the particular employee, relate to the
circumstances in which the employer's conduct may be deemed negligent. Applying
these propositions the Court upheld the award by the county court in only one of the
four cases before it.
This decision left the impression that it would be very hard for a claimant to adduce
conclusive evidence that the employer's negligent conduct had caused psychiatric injury.
December 2004 Recent Cases

Two years later the House of Lords endorsed Hale LJ's practical propositions when in
Barber v Somerset County Council [2004] IRLR 475 it considered the appeal from the
Sutherland ruling of one of the three claimants for whom the county court judgment had
been reversed. But it nevertheless found for the appellant on the grounds that the propo-
sitions had in his case been wrongly applied to the evidence before the county court. It
also approved a statement made in the Cross case (at para 86) that a claimant had to
'establish that objectively the job was the problem'.
The difficulties of litigating claims for psychiatric injury in the tort of negligence
may well account for recent attempts to litigate for breach of an implied contractual
term.

3.LITIGATING INCONTRACT

Employer's liability was founded on a supposed implied contractual duty of reasonable

care owed by the employer to the employee (eg Smith v Baker [1891] AC325 per Lord
Watson at p 353). In Matthews v Kuwait Bechtel Corporation[1959] 2 QB 57 the Court of
Appeal allowed, in an interlocutory hearing, that a claim for physical injury might be set
down in contract rather than tort (see also dicta in Davie v New Merton Board Mills Ltd
[1959] 2 WLR 331 and Lister v Romford Ice and Cold Storage Co Ltd [1957] 2 WLR 158).
Sellers LJ remarked, however:

It may be that that will have a somewhat limiting effect on his rights against the employer as
compared with his more extensive right at common law if he sues in tort....

It is not recorded that the case went to trial. Similarly the more recent case of Johnstone v
Bloomsbury Health Authority [1991] IRLR 118 went no further than a preliminary
hearing on whether the claim could be set down in contract. It did however raise the inter-
esting question of whether, contrary to general contractual rules, the implied duty of care
could take precedence over an express term-at that time lawful-requiring long working
hours.
By the end of the twentieth century employment tribunals had, in the context of unfair
dismissal claims, formulated a new implied contractual term; namely a duty of mutual
trust and confidence. The existence of this term was acknowledged by the House of Lords
in Mahmud v Bank of Credit and Commerce InternationalSA [1998] AC 20.
In Johnson v Unisys Ltd [2001] UKHL 13, the appellant, having already obtained statu-
tory compensation for unfair dismissal, relied on this newly recognised duty to claim
damages at common law for psychiatric injury caused by the stressful manner in which his
erstwhile employer had conducted his dismissal. His claim failed. Their Lordships affirmed
Addis v Gramophone Co Ltd [1909] AC 488, decreeing that at common law damages for
wrongful termination of a contract of employment were confined to economic loss caused
by the fact of dismissal, and no award could be made for personal injury caused by the
manner of the dismissal. In other words all that could be claimed for wrongful termination
of contract was the salary which should have been paid during the period of notice.
Industrial Law Journal Volume 33

Moreover, the House noted (per Lord Steyn at para 10) that when Lord Woolf
had ruled on the case in the Court of Appeal he had concluded that in Mahmud the
House had merely distinguished Addis and had not departed from it, so that the duty of
trust and confidence was applicable to a breach anterior to but not applicable to one
associated with the actual termination of contract. Thus the term might be relied on if an
employee responded to the employer's breach by initiating a claim for constructive
dismissal.
In his speech Lord Hoffmann considered the policy implications of extending common
law remedies when Parliament had set up a statutory scheme for compensating employees
who suffered unfair dismissal (para 55 et seq). He considered that all the matters of which
Mr Johnson complained were within the statutory jurisdiction of the employment tribunal.
He noted that in that scheme:

The emphasis is upon the tribunal awarding such compensation as it thinks just and equitable.
So I see no reason why in an appropriate case it should not include compensation for distress,
humiliation, damage to reputation in the community or to family life.

Mr Johnson lost his appeal but the opinions of their Lordships offered hope to future
claimants under both the common law and statutory regimes.

4.LITIGATING FOR BREACH OF ACONTRACTUAL TERM

Prior to their Lordships hearing Johnson v Unisys the Court of Appeal had, in Gogay v
HertfordshireCounty Council [2000] IRLR 703, reviewed the High Court ruling in favour
of a claimant who relied on the duty of trust and confidence to found a common law claim
for damages for psychiatric injury. Julie Gogay, who was a care worker, was suspended
while her employer's investigated statements made about her by a child at the home
where she worked. The investigation exonerated her but by this time she was so clinically
depressed that she was unable to return to work. The Court of Appeal held that as the
suspension had not been warranted it was in breach of the implied duty of trust and
confidence. It held that the case was distinguishable from Addis because it was about
suspension rather than dismissal.
The possibility of distinguishing a termination of contract (governed by the rule in
Addis) and a breach (to which the more favourable Mahmud principle can apply) has now
been recognised by the House of Lords in Eastwood and Another v Magnox Electric plc.
McCabe v Cornwall County Council and Others [2004] UKHL 35. The House had to
consider whether employees who had claimed, or were entitled to claim, statutory
compensation for unfair dismissal were barred from claiming common law damages for
stress-related personal injury caused by breach of contract prior to and distinct from their
dismissal. In both cases the claimants alleged that they had suffered stress related illness
as a result of protracted and procedurally faulted investigations preceding dismissal. In
McCabe Auld LJ had, in the Court of Appeal, identified the question as one of determin-
ing where on the facts of any particular case the line should be drawn between dismissal,
caught by the unfair dismissal legislation, and conduct prior to that causing injury
December 2004 Recent Cases

compensatable in damages at common law. In the House Lord Nicholls (at para 29) noted
the two situations of financial loss flowing from suspension and financial loss from illness
caused by pre-dismissal unfair treatment.-In his view:

In such cases the employee has a common law cause of action which precedes, and is inde-
pendent of, his subsequent dismissal.

His Lordship noted that distinguishing between damage caused by events preceding, and
damage caused by the dismissal itself:

may give rise to difficult questions of causation in cases such as those now before the House,
where financial loss is claimed as the consequence of psychiatric illness said to have been
brought on by the employer's conduct before the employee was dismissed. Judges and tribu-
nals, faced perhaps with conflicting medical evidence, may have to decide whether the fact of
dismissal was really the last straw which proved too much for the employee, or whether the
onset of the illness occurred even before he was dismissed... An employer may be better off
dismissing an employee than suspending him. A statutory claim for unfair dismissal would be
subject to the statutory cap, a common law claim for unfair suspension would not.

Their Lordships concluded that on the assumed facts the claimants had reasonable causes
of action which could proceed to trial.

5.JURISDICTION OF EMPLOYMENT TRIBUNALS

In Sheriff v Klyne Tugs (Lowestoft) Ltd [1999] IRLR 482 the Court of Appeal held a
county court judge had correctly struck out as an abuse of process the appellant's claim
for damages for psychiatric injury caused by racial harassment during the course of
employment. The appellant had already brought before an employment tribunal a claim
for race discrimination couched in almost identical terms to the common law claim he
sought to pursue. The Court of Appeal pronounced that an employment tribunal has
jurisdiction under the Race Relations Act 1976 section 56(1) to award compensation for
personal injury caused by the statutory tort of unlawful racial discrimination.
Without reference to this case, Lord Hoffmann, in Johnson v Unisys, expressed the
opinion that employment tribunals had similar powers when hearing claims for unfair
dismissal brought under the Employment Rights Act 1996, casting doubt on the practice
that had existed since Norton Tool Co Ltd v Tewson [1973] ICR 454 of restricting their
jurisdiction to compensating for financial loss (para 55). It was not clear whether this
statement of opinion formed part of the ratio of his Lordship's speech.
Dunnachie v Kingston-upon-Hull City Council required the House to clarify whether
the statutory provision (currently s 123(1)) empowering tribunals dealing with unfair
dismissals to award such compensation as 'just and equitable' was sufficiently broad in
intent to cover psychiatric injury. In a speech, with which all their Lordships expressed
agreement, Lord Steyn, declared that the observation by Lord Hoffmann in Johnson (at
para 55) was an obiter dictum (para 13). He endorsed Norton Tool, and concluded section
123(1) does not allow for the recovery of non-pecuniary loss (para 28).
Industrial Law Journal Volume 33

6.CONCLUSION

From this brief overview of case law it is apparent that the victim of stress faces no easy
task if intending to claim compensation from an employer for psychiatric injury. In
summary the position, apart from litigating for negligence, appears to be:

(i) the claimant who invokes statutory provisions relating to unfair dismissal cannot
rely on the Employment Rights Act 1996 to obtain such compensation, but may do
so if the claim can be founded on the Race Relations Act, because unlawful
discrimination is a statutory tort. Possibly (though this has yet to be tested) other
discrimination legislation may provide a similar opportunity. It is noteworthy that
compensation for discrimination is uncapped.
(ii) following the House of Lords' decision in Eastwood v Magnox Electric plc reliance
can only be placed on breach of the implied contractual term of trust and confid-
ence when the breach can be clearly distinguished from wrongful termination of
contract. The occasions on which breach does not amount to termination must be
rare. The most likely situations in which this term may be relied are where (as in
Gogay) the psychiatric injury has been caused by unjustifiable suspension or (as in
Eastwood) the events leading up to dismissal are extremely protracted and proce-
durally faulted. This, as Lord Nicholls suggested, is likely to impose upon the
courts difficult problems of determining causation of injury, and the distinction is
difficult to justify since the employer's wrongdoing and the employee's injury are
the same in either situation.
(iii) the value of the employer's implied duty to take reasonable care in litigation for
breach of contract has yet to be tested, but in Eastwood Lord Nicholls, while con-
sidering the "'trust and confidence" term' opined that it would be 'equally wrong
to achieve the same result by imposing a duty of care' (at para 10). He went on to
say 'development of the common law along these lines cannot co-exist satisfactorily
with the statutory code regarding unfair dismissal'.
It is apparent that the House of Lords remains of the same mind as it was nearly fifty
years ago, when Lord Simons commented:

The same act or omission by an employer may support an action in tort or for breach of an
implied term of the contract of employment, but it can only lead to confusion, if, when the
action is in tort, the court embarks on the controversial subject of implied contractual terms.
(Davie v New Merton BoardMills Ltd [1959] 2 WLR 331)

However, in the twenty-first century, the House is able to support its views on this policy
issue by reliance on Parliament's intentions regarding compensation for unfair dismissal.
If, therefore, the claimant is thrust back on the tort of negligence what are the prospects
of success for claims determined using the Sutherland propositions? Barber signals that
those propositions must be fairly applied to the evidence. Nevertheless the heavy reliance
in negligence litigation on selection, presentation and evaluation of evidence, leaves doubt
as to whether objective decisions and uniform standards will ever be achievable in the tort
of negligence. Already it is arguable that Colman J's disregard, In Walker, for the financial
resources of the large organisation is difficult to reconcile with Hale LJ's proposition, in
Sutherland, that in small organisations lack of resources may be relevant to liability.
December 2004 Recent Cases

The principal ground for hope is that when HSE finalises its management standards
employers and employees may have a clearer idea of what an employer and employee are
entitled to expect in performance of the contract of employment. The draft standards
cover circumstances, such as demands made on the worker (eg workload), already spelt
out as causative of stress in the HSE publication Tackling Work-Related Stress: A Man-
ager's Guide to Improving and MaintainingEmployee Health and Well-Being.
It is implicit that once the standards are published, the employer will have to address
them as part of the risk assessment required by the Management of Health and Safety at
Work Regulations 1999. The employee who suffers stress related illness where the
employer has failed to carry out and respond to an appropriate risk assessment may then
use these regulations to found a civil action for breach of statutory duty, thus avoiding the
complexities of both contract and tort.
Nevertheless, there may not be a happy ending to the story. Recent straws in the wind,
such as Lane Group plc, North Somerset Council v Farmiloe [2004] PIQR P22 and Coxall
v Goodyear [2002] IRLR 742 indicate there may be situations in which an employer
is under a duty to terminate the employment of an employee whose personal charac-
teristics render him especially vulnerable to work-related injury. This is another way of say-
ing that the employer can avoid liability for the continuing effects of stress by ending the
employment.

BRENDA BARRETT
Middlesex University Business School

Protecting Dignity inthe Workplace: The Vitality

of Mutual Trust and Confidence
Eastwood v Magnox Electric plc
733 (H[); [20041 ICR
[20041 IHLR 1064
Dunnachie v Kingston-upon.Hull City Council
727 (HL);
[2004] RLR 1052
[2004] ICR

1.INTRODUCTION

In Johnson v Unisys ([2003] 1 AC 518) the House of Lords held that the employer's capa-
city to dismiss is not restrained by the implied obligation of mutual trust and confidence.
A decision for the plaintiff in that case would have created inappropriate duplication with
the statutory remedy of unfair dismissal. Johnson left a number of questions unanswered.
In particular, given that dismissal will often represent the culmination of a sequence
of events, to what extent did it embrace other elements of the disciplinary process? In