Size of dismissal compensation payouts could soar if Edwards wins case against Chesterfield Royal Hospital Trust

An era of multi-million pound payouts for unfair dismissals could be about to begin, according to legal experts.

The Court of Appeal is set to hear a case that could lead to a substantial increase in compensation payouts for dismissed employees when an employer has failed to follow their own disciplinary procedure.

In the case of Edwards vs Chesterfield Royal Hospital NHS Foundation Trust, which begins today, a hospital consultant has claimed his trust did not follow contractually- binding disciplinary procedures before it dismissed him.

According to law firm Eversheds, Edwards claims if the proper procedure had been followed he would not have been dismissed. Edwards is claiming more than £4 million in compensation to reflect the earnings he says he has lost since being dismissed.

The trust denies it failed to follow the correct procedure and argues that even if it did, long-established legal principles mean that damages should be capped at the amount he would have earned during his three-month notice period.

If Edwards' appeal succeeds, employers with contractually-binding disciplinary procedures will need to be especially cautious when handling disciplinary processes, particularly those involving high earners. 

 Martin Warren, partner at Eversheds, said: "Although an employment tribunal can award compensation for unfair dismissal, the amount available is currently capped at £65,300. In the case of highly paid employees this often falls far short of their actual lost earnings. Some employees, like Edwards, try to get around the restriction by making a separate claim for damages for breach of contract. 

"Although it is well-established that such damages will usually be limited to the amount the employee would have earned during their notice period, the courts can also award compensation if the employer has a contractually-binding disciplinary process which it has failed to follow. But past cases have limited that compensation to lost earnings over the time it would have taken the employer to go through the procedure properly, which could add just a few days' or weeks' worth of pay to the overall claim.  Edwards is challenging this approach, claiming that the level of damages for breach of contract should reflect the chance that the proceedings would have been decided in his favour and he would not have lost his job at all had the correct procedure been followed.

"The need to take care is reinforced by a case decided by the Court of Appeal last month, Mezey vs South West London & St George's Mental Health NHS Trust, which demonstrates that, if an employee moves quickly enough, he or she might be able to obtain an injunction to prevent a disciplinary action being taken if there are good grounds for alleging that the employer has failed to follow a contractually binding disciplinary procedure."

"In some sectors disciplinary procedures tend to be explicitly incorporated into employees' terms and conditions.  In other industries this practice is less common and whether such a process is contractually binding will not always be clear.  Employers need to take real care when drafting contracts and staff handbooks to avoid inadvertently conferring contractual status on disciplinary policies."