The recent Court of Appeal case of Wardle v Credit Agricole Corporate and Investment Bank1 raises a number of issues concerning the calculation of compensation by an employment tribunal. The claimant, Mr Wardle, was found to have been unfairly dismissed, the dismissal being an act of victimisation by his employer, Credit Agricole Corporate and Investment Bank (“Calyon”), because he had brought proceedings for discrimination on the grounds of nationality. In addition, Mr Wardle was refused promotion prior to his dismissal by reason of his nationality. The question for the Court of Appeal was whether the Employment Tribunal (the “Tribunal”), and subsequently the Employment Appeal Tribunal (“EAT”), properly addressed the calculation of compensation in respect of career-long loss and any reduction to reflect the likelihood of Mr Wardle obtaining equivalent employment in the future.

The background

Mr Wardle was employed by Calyon as Global Head of Exotic Interest Rate Derivatives Risk Management. He applied to be promoted to Head of Risks Management, but the post was given to a French national. The new job would have taken effect from January 2008. The rejection of his application for promotion was held to be an act of discrimination on the grounds of nationality under the Race Relations Act 1976 (the “RRA”). Mr Wardle was subsequently dismissed in July 2008, and his dismissal was held to be both unfair and an act of victimisation under the RRA because the reason for his dismissal was that he had commenced discrimination proceedings relating to his promotion application.

The Employment Tribunal decision

In assessing compensation, the Tribunal made the following findings:

  1. If Mr Wardle had been promoted, his salary would have increased from £104,000 to £120,000, and he would have received a bonus of 70% of his salary in the new job in each of the years 2009 and 2010.
  2. Mr Wardle obtained alternative employment with the Financial Services Authority (“FSA”) from November 2008 at a salary of £105,000 with a bonus of 20%. The FSA job paid Mr Wardle significantly less than both his actual and potential earnings at Calyon, but the Tribunal found that it qualified him well for a return to banking.
  3. There was an 80% likelihood that Mr Wardle would in any event have left Calyon by April 2010.
  4. There was a 70% likelihood that Mr Wardle would leave the FSA by the end of 2011 and return to banking at the same salary level as the new job.

The Tribunal then assessed compensation by considering the losses suffered by Mr Wardle from January 2008 by reference to the pay he would have received if he had been promoted to the new job. In particular, the Tribunal took into account losses for the following chronological periods:

  1. April 2010 – December 2011. The Tribunal compared his actual pay at the FSA for this period with the pay he would have received if he had been promoted at Calyon, but reduced that loss by 80% to reflect the 80% chance of him having left Calyon in any event by April 2010.
  2. January 2012 – end December 2024. The Tribunal compared his actual pay at the FSA for the remainder of his career up to his retirement with the pay he would have received if he had been promoted at Calyon, but reduced that loss by 80% to reflect the 80% chance of him having left Calyon in any event by April 2010 and by a further 70% to reflect the 70% chance that he would obtain an equivalent banking job by the end of 2011. The consequence was that only 6% of the total difference in pay throughout that period was awarded..

The EAT disagreed with the application of the 80% reduction to reflect the 80% chance of Mr Wardle having left Calyon in any event by April 2010, as it considered that this was an irrelevant finding in that it did not identify Mr Wardle’s loss. The EAT accepted that the Tribunal was entitled to make predictions about Mr Wardle’s future and make an award for career-long loss, but it concluded that the compensation should have been reduced by 70% for the years 2011 to 2015, by 85% for the years 2015 to 2019 and by 92.5% for the years 2020 to 2024 to reflect the improving chances that Mr Wardle would obtain an equivalent banking job with each passing year.

The Court of Appeal decision

Lord Justice Elias, giving the leading judgement, disagreed with the approach of the Tribunal and the EAT towards career-long loss. The Tribunal’s error was to assume that it must award damages until the point at which it could be sure that Mr Wardle would find an equivalent job, rather than taking the usual approach of assessing loss up to the point at which he would be likely to get an equivalent job. Lord Justice Elias accepted that this usual approach requires a prediction which is speculative and will rarely be accurate, consequently giving an employee more compensation than his actual loss if he finds an equivalent job earlier than predicted but less compensation than his actual loss if he finds an equivalent job later than predicted, but stated that it was the best solution which the law can provide. It will only be in exceptional circumstances that an employment tribunal will be entitled to take the view that there is no real prospect of the employee ever obtaining an equivalent job, for example where the employee can show that he has been permanently stigmatised in the eyes of other employers as a result of the manner of his dismissal.

Lord Justice Elias held that the Tribunal should have assessed Mr Wardle’s compensation only in respect of the period up to June 2011, by which time the prospects of him obtaining an equivalent job to the role of Head of Risks Management at Calyon would have been greater than 50%. There was therefore no need to consider whether the EAT’s approach to the increased likelihood that Mr Wardle would obtain an equivalent banking job with each passing year from January 2012 was correct.

Upholding the EAT’s decision that the Tribunal was wrong to apply an 80% reduction to reflect an 80% chance that Mr Wardle would have left Calyon in April 2010, Lord Justice Elias made the distinction between predicting what would have happened to Mr Wardle’s employment had there been no discrimination as opposed to the Tribunal’s task of putting him in the position he would have been in had there been no discrimination. Whilst this distinction is quite subtle, factors which could impact upon the career path of an employee following a discriminatory dismissal include his re-entry onto the labour market at a time and in circumstances which are not of his choosing, the fact that he would no longer be in a position to obtain new employment direct from his original employment and stigma as a result of taking legal proceedings.

Furthermore, it was an impermissible reading of the Tribunal’s conclusion that Mr Wardle would have voluntarily left Calyon by April 2010 whatever the circumstances and even if his new job had been at lower pay, nor was there any evidence to suggest that Mr Wardle would have been lawfully dismissed before that date. However, Lord Justice Elias did agree that, in an exceptional case of career-long loss, some reduction should be made for the possibility of a fair dismissal or a voluntary resignation some time in the future.  

Conclusion

This case helpfully confirms the correct approach to determining future loss in discrimination dismissal cases and assessing the likelihood of the employee obtaining equivalent employment. Both the Tribunal and EAT adopted a percentage likelihood test up to the point when they believed Mr Wardle was sure to obtain equivalent employment to the position he had applied to be promoted to at Calyon, but the Court of Appeal confirmed that they should have simply identified the point at which Mr Wardle had a “better than evens” chance of obtaining an equivalent job as that would be the cut off point for compensation for future loss. Nevertheless, what the employee would have done had there been no discrimination is not relevant, unless there is clear evidence that the employee would have been lawfully dismissed (e.g. evidence of gross misconduct or that his workplace was about to close which would have resulted in his inevitable redundancy) or would have left his employment voluntarily whatever the circumstances and even for a job at lower pay (e.g. evidence that he was preparing for a career change in any event).

This decision may lead critics of the Government’s recent proposal to review the unlimited penalties currently applied in discrimination cases to argue that the employment tribunals are better placed to make assessments on compensation using the correct approach than the Government is to set arbitrary limits using a “one size fits all” approach.