House of Lords judgement:  UKHL 13
In Johnson v Unisys  UKHL 13, the House of Lords founded what is today known as the ‘Johnson exclusion zone.’ This means there can be no claim for breach of the implied term of mutual trust and confidence in the period of dismissal. An employee’s only option is to bring a claim under Part X Employment Rights Act 1996 for unfair dismissal. While the exclusion zone has extended to cover express terms, this case note will consider its application to implied terms in Johnson v Unisys.
After 20 years of employment, Mr. Johnson was summarily dismissed by Unisys (his employer) following allegations of misconduct. He was dismissed without a fair hearing and in breach of Unisys’ (non-contractual) disciplinary procedure. As a result of the manner and fact of dismissal, Mr. Johnson suffered from major psychiatric illness, which led to time spent in hospital and a substantial period out of work in the fast-developing industry of IT. Mr. Johnson had a history of psychological fragility and Unisys was aware of his special psychiatric needs.
Although Mr. Johnson’s complaint of unfair dismissal was successful, he argued the industrial tribunal’s award of £11,000 (the statutory maximum under Part X ERA 1996) did not reflect the true extent of his loss of earnings (£400,000), as he had subsequently struggled to secure alternative employment. Mr. Johnson therefore instituted additional proceedings at common law in the hope of obtaining further compensation. He focused on the manner of his dismissal, alleging Unisys’ conduct had damaged the relationship of trust and confidence between the parties. The core issue was whether the implied term of mutual trust and confidence could be applied to the manner of dismissal.
The House of Lords
Legislative constraint and parliamentary intention
The House of Lords held the implied term of mutual trust and confidence did not apply to the manner of dismissal. The majority (Lords Hoffmann, Bingham, Nicholls and Millett) argued allowing a claim at common law would be inconsistent with the statutory unfair dismissal regime and thus circumvent the intentions of Parliament. As Lord Nicholls noted at , the statutory regime imposes strict restrictions on “the classes of employees who have the benefit of the statutory right, the amount of compensation payable and the … time limits for making claims.” The common law could not allow such limitations to be circumvented. For example, on these facts, the amount of compensation sought by Mr. Johnson was nearly forty times the upper statutory limit.
Furthermore, in developing the regime under Part X ERA 1996, Parliament struck a careful balance between the individual dignity of employees and the general economic interest. The question of whether the term of mutual trust and confidence should apply to dismissal would require a judicial assessment of identical policy considerations. Reaching a different conclusion would be improper as it would undermine democratic decision-making (Lord Hoffmann at ).
Difficulties of causation and harmful employer practices
Whilst it was the legislative constraint argument which dominated the majority’s reasoning, Lord Hoffmann considered the issue to be “finely balanced” () even in the absence of statutory intervention. Firstly, claims for the financial consequences of psychiatric damage “notoriously [give] rise at the best of times to extremely difficult questions of causation” (). Lord Steyn made a similar point at , highlighting that there may also be difficulties in determining whether an employee’s “psychiatric condition was caused by the manner of his dismissal rather than the fact of his dismissal.”
Secondly, Lord Hoffmann considered that liability may be grossly disproportionate to fault and lead employers to adopt harmful practices (). Considering the facts of this case: purely because Mr. Johnson’s psychological vulnerability was made known to Unisys, it was foreseeable that failure to comply with disciplinary procedures would result in an injury that would prevent Mr. Johnson from ever securing alternative employment. Such situations, Lord Hoffmann suggested, might fuel a reluctance to hire psychologically vulnerable employees.
Lord Steyn and remoteness of damage
Unlike the majority, Lord Steyn believed Mr. Johnson had a reasonable cause of action based on breach of the implied term of mutual trust and confidence. However, he dismissed the claim on the basis that there was a “formidable difficulty” with the remoteness of damage (). While the employers were aware of Mr. Johnson’s psychological vulnerability, this was limited to knowledge that he was under extreme work-related stress in 1985 and required counselling pending redundancy in 1987. As Mr. Johnson was dismissed in 1994, Lord Steyn considered the extent of the employer’s knowledge, coupled with the lapse of time, indicated there was no “realistic prospect” that the obstacle of remoteness could be overcome.
The majority in Johnson treated the statutory unfair dismissal regime under Part X ERA 1996 as a ceiling rather than a floor of rights. In practical terms, this means claims relating to the manner of dismissal can only be brought by an employee (s 94(1) ERA) with 2 years qualifying service (s 108(1) ERA) who brings the claim in time and at the correct forum (the Employment Tribunal). Johnson also ensures there can be no claim in excess of the statutory cap and non-pecuniary loss cannot be recovered (following Dunnachie v Kingston-Upon-Hull City Council  UKHL 36).
Whilst Johnson considerably restricted the scope of remedies available, the legislative constraint argument advanced by the majority has much to commend to it. The term of mutual trust and confidence is implied in law, meaning that the policy considerations requiring judicial assessment overlap with those considered by Parliament. In contrast, where the term breached was an express term (such as a contractual disciplinary procedure), the legislative constraint argument would be stripped of logical force. This is because the right in question would be a product of the contracting parties’ intentions, rather than a judicial re-assessment of legislative policy (a fact overlooked by the majority in Edwards v Chesterfield  UKSC 58).
It should also be emphasised that Johnson v Unisys only applies to the breach of the implied term of mutual trust and confidence in the dismissal period (this primarily encompasses claims relating to the manner of dismissal). However, Eastwood v Magnox  UKHL 35 clarifies that employees can claim for pre-dismissal breaches of this same implied term, such as pre-dismissal unfair treatment and claims arising from the manner of suspension. This has led to the dangerous situation where it is now preferable for an employer to dismiss than suspend – thus, while Johnson may have prevented some harmful employer practices, others have resulted. Nevertheless, Eastwood represents an important means of circumventing the apparent harshness of Johnson.
Overall, Johnson v Unisys is a difficult decision: although it severely curtails the scope of dismissal remedies, the conclusion reached by the majority properly accounts for the democratic and institutional competence of the judiciary. The correct avenue for extending the scope of dismissal remedies and inhibiting the development of harmful employer practices is legislative reform of the statutory unfair dismissal regime.