NETWORK RAIL INFRASTRUCTURE LTD v MS L BOOTH [2006] UKEAT 0071_06_2206

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2006] UKEAT 0071_06_2206

Case No Appeal No. UKEAT/0071/06

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

NETWORK RAIL INFRASTRUCTURE LTDAPPELLANT

MS L BOOTHRESPONDENT

Before

Mr Justice Elias

Date 22 June 2006

[1]APPEARANCES For the Appellant MISS J McNEILL QC (of Counsel) Instructed by: Messrs Kennedys Solicitors Longbow House 14-20 Chiswell Street London EC1Y 4TW For the Respondent Mr S PLAUT (of Counsel) Instructed by: Messrs Morrish & Co Solicitors First Floor Oxford House Oxford Row Leeds LS1 3BE SUMMARY Compensation for sex discrimination. Tribunal assessed future pension loss using the substantial loss method but without giving any credit in the overall loss assessment for pension benefits likely to be acquired in future employment. In addition there was a challenge to the loss referable to loss of private health insurance. Was the Tribunal entitled to use the method it did, and did it err in failing to give credit to future benefits? The EAT answered both questions in the affirmative. THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT) The Appellant in this appeal was found to have unfairly dismissed the Respondent and to have committed acts of sex discrimination. There was no appeal against those substantive findings. She was a 36 year old engineer who had worked with the Respondent for some 14 years and had acquired senior managerial skills.

[2]The Tribunal held a remedy hearing on 2 November 2005. They awarded compensation for unfair dismissal in the sum of £4,200.00, against which there is no appeal, and for sex discrimination they awarded £217,960.93. The latter payment was made up of a number of different heads of compensation.

[3]A very substantial element was the Tribunal's assessment of pension loss, which they calculated to be £149,325.00. The principal ground of appeal here is directed towards that finding by the Tribunal. It is submitted that they erred in law in various ways in assessing that head of loss and in particular failed to give credit for pension benefits which would be secured in any new employment.

[4]A much more modest sum was awarded by the Tribunal for the loss of the benefit of private health insurance. The Tribunal valued this as worth £900.00 per annum and gave an allowance for a period of five years, with a 25% discount for accelerated payments.

[5]There was also an appeal against the figure adopted by the Tribunal as the appropriate week's pay, but that has fortunately been resolved and we need say no more about it.

[6]It is submitted that, again, the Tribunal erred in the way it reached this conclusion, and in particular on the grounds that there was no proper basis in the evidence for it attributing that loss as being one that would continue for five years. The background

[7]It is not necessary to go into the substantial issues which led the Tribunal to find unfair dismissal and sex discrimination. Suffice it to say that these wrongful actions occurred in the context of a re-organisation implemented by the Employer. 8. The Tribunal then heard the same Counsel at the remedies hearing as had conducted the substantive appeals. In a reserved judgment the Tribunal set out the basis of their calculation of loss. We will set out their findings, both in relation to the pension loss and then the private health insurance. The pension loss. 9. As to the former, the Tribunal's analysis is set out at paragraphs 18 and 19 of its decision. That however has to be read against the Tribunal's findings as to the employee's likely career pattern, which was summarised as follows:

"We think, in the real world, that it is highly unlikely that the Claimant will be able to obtain employment at the same salary level (just under £40,000.00 per annum) as she enjoyed with the Respondent in the first employment she new takes. We consider that a stepped approach is necessary. Doing the best we can, we consider that the Claimant should obtain some employment within the next 26 weeks and that we can properly compensate her, and at the same time ensure that the Respondent only pays a proper sum by way of compensation, by assuming that she will earn the equivalent of £25,000.00 per year gross for a period of twelve months from commencing that employment, and a figure of £32,000.00 per year for a further year. At the end of that year, that is, at the end of two and a half years from now, we consider that the Claimant should be able to obtain employment at a salary level comparable with that she enjoyed with the Respondent. It follows that we have calculated the claim for loss of future earnings by reference to full loss of earnings for each of the first and second years in any potential new employment."

The specific analysis of pension loss is summarised thus in paragraphs 18 and 19 of the decision: "18. Finally, we come to the claim for loss of pension rights. Both parties accept there are two potential approaches, namely the simplified approach and the substantial loss approach. In reaching our decision on this point, we have of course referred to the guidance booklet. As is frequently the case, the circumstances of a particular Claimant do not fit exactly within the criteria which are helpfully set out for the benefit of the Tribunals. Having said that, it seems to us that the circumstances of this Claimant are very similar to those to which reference is made at paragraph 4.13 of the booklet. Clearly, this Claimant had been in the Respondent's employment for a considerable time. Her employment was of a stable nature. We consider that it was unlikely to be affected by the economic cycle. The Claimant's evidence was that she would have stayed in that employment indefinitely and, since she has demonstrated to us a progressive career within the railway industry, we believe that she would have remained there for some time. Our only hesitation in adopting the substantial loss approach is that the Claimant may well, in due course, obtain new employment with the benefit of a pension scheme. If, however, the Claimant works outside the public sector (as seems likely) that is more likely to be a money purchase scheme than a final salary scheme. 19. On balance, doing the best we can, we consider that the simplified loss approach would not be just and equitable, in that it would produce a loss of pension benefit figure which is substantially smaller than we consider to be the Claimant's real loss. Having made that choice, we have then adopted Mr Plaut's calculation, which, albeit the Respondent did not accept that method, it did not of itself challenge. Our calculation is set out in Appendix VII. As can be seen from that calculation, we have simply calculated the value of the pension that the Claimant would have received had she gone to retirement age. In that connection, we have adopted the fraction of 40/ 60 ths rather than 37 / 60 ths or 38 / 60 ths, on the basis that we are satisfied the Claimant was purchasing AVC's which would have enabled her to earn a full pension. We have then deducted the B factor, namely the value of the pension earned to date and applied the factors set out in the guidance booklet. We have not made any deduction in respect of the C factor for the reasons set out in the booklet, namely that it is not appropriate where we find that the Claimant will obtain the benefit of a money purchase scheme only. Applying those factors to our calculation produces, as can be seen, a total loss of £149,324.00." 10. The reference to the guidance booklet is a reference to the booklet headed 'Compensation for loss of pension rights' and which contains guidelines prepared by a committee of Chairmen of Employment Tribunals, the Government Actuary, and a member of his Department. This is an extremely valuable booklet, used widely by Employment Tribunals. It was the Third Edition which was relied upon by the Tribunal here, updated in 2003. Because the Tribunal's analysis draws heavily from this publication, it is necessary to set out certain key passages from it.

[11]In Chapter 4, the authors distinguish between what they call the 'simplified approach' and the 'substantial loss approach' to assessing pension loss. In paragraph 4.11 to 4.13 they say this:

"4.11 The simplified approach is set out in Chapters 5, 6 and 7. It involves three stages –(a) in the case of a final salary scheme, the loss of the enhancement to the pension already accrued because of the increase of salary which would have occurred had the applicant not been dismissed, (b) in all cases, the loss of rights accruing up to the hearing and (c) the loss of future pension rights. These last two elements re calculated on the assumption that the contribution made by the employer to the fund during the period will equate to the value of the pension (attributable to the employer) that would have accrued. In the case of a final salary scheme, it may be necessary to make an adjustment to the employer's contribution as discussed in section 6.5. No such adjustment is necessary in the case of a money purchase scheme because the scheme is personal to the employee. 4.12 The substantial loss approach , by contrast, uses actuarial tables comparable to the Ogden Tables to assess the current capitalised value of the pension rights which would have accrued up to retirement. There may be cases where the tribunal decides that a person will return to a job at a comparable salary, but will never get a comparable pension see Bentwood Bros. (Manchester) Ltd. –v- Shepherd [2003] IRLR364. In such cases the substantial loss approach may be needed even where the future loss of earnings is for a short period. But it must be remembered that loss of pension rights is the loss of a fringe benefit and may be compensated by an increase in salary in new employment. 4.13 Experience suggests that the simplified approach will be most appropriate in most cases. Tribunals have been reluctant to embark on assessment of whole career loss because of the uncertainties of employment in modern economic conditions. In general terms the substantial loss approach may be chosen in cases where the person dismissed has been in the respondent's employment for a considerable time, where the employment was of a stable nature and unlikely to be affected by the economic cycle and where the person dismissed has reached an age where he is less likely to be looking for new pastures. The decision will, however, always depend on the particular facts of the case."

[12]Having adopted, as they did in this case, the substantial loss approach, the method whereby that has to be applied is set out in Chapter 8 of the book. The basic approach is summarised in paragraphs 8.3 to 8.4 as follows:

"8.3 The calculation required is: Loss of future pension rights = A minus B minus C where: A = value of prospective final salary pension rights up to normal retirement age in former employment (if he or she had not been dismissed) B = value of accrued final salary pension rights to date of dismissal from former employment C = value of prospective final salary pension rights to normal retirement age in new employment C will of course be zero if it is found that the applicant will probably not obtain further pensionable employment or if he or she has joined a money purchase scheme in the new employment. In that case see 8.11 below. 8.4 Once these figures have been calculated, the tribunal has a further decision to make as to the amounts of any withdrawal factors. The Tables work on the basis that the applicant would have remained in his previous employment until retirement, subject to the usual risks of mortality and disability. However, it is recognised that people leave even the most stable employment for a variety of reasons. As with the Ogden Tables, no Tables are available to assist the tribunal in making this deduction. It will vary with the age, status, work record and health of the applicant and with the perceived future viability of the respondent's business."

Paragraphs 8.5 to 8.7 then set out in some detail how the various elements A, B and C are calculated.

[13]Paragraph 8.11 deals expressly with the situation where a person moves from a final salary scheme to a money purchase scheme. It suggests that the pension benefit in the new employment should not be treated as though it should be set off against the pension loss from the old employment, but rather that the Employer's contribution to the money purchase scheme should be considered part of the salary in the new employment. The summary is as follows:

"8.11 If the applicant loses a job with a final salary pension scheme and obtains one with a money purchase scheme or signs up to a stakeholder pension, the loss is calculated as in 8.3 but only A minus B. There is no need to worry about any loss of employer pension contributions in the new job because those contributions have already been factored into the A minus B calculation. When assessing loss of earnings, however, it will be appropriate to take account of any employer contributions in the new job in order to ascertain whether there is a continuing loss of earnings or not. Thus the comparison will be the difference between net earnings in the old job (ignoring employer payroll contributions) and net earnings plus any employer pension contributions in the new."

[14]We interpose here certain observations on these paragraphs. Ms McNeill says that they are somewhat confusing. It is, she submits, unhelpful for the guidance to suggest that the potential benefits from a new pension scheme should not be taken into consideration so as to reduce the overall pension loss, unless the Employee is to be employed in a final salary scheme in the new employment, and should instead be considered as an aspect of future earnings loss. She says that it would be far more desirable if the pension benefits accruing from the new employment, even in a money purchase scheme, were specifically to be set off against the pension loss resulting from the act of discrimination, rather than being treated as an aspect of salary as the paragraph suggests. It is appropriate to treat like with like, and all aspects of pension remuneration should be considered together in the calculation of pension loss. Where that is not done, there is a risk that tribunals will not give proper credit for those benefits.

[15]We have sympathy for that view. It seems to us that it ought not to matter whether the benefit of a money purchase scheme is taken into consideration so as to reduce pension loss or to reduce future earnings loss, although it might more naturally be considered as an aspect of pensions. But one particular difficulty with the latter approach - and indeed it is highlighted in the argument of the Employee in this case - is that paragraph 8.11 suggests that the Tribunal should only take into account the value of the Employer's contribution in a money purchase scheme in the new job where there is a continuing loss of earnings. Where, as in this case, the Tribunal finds that the future earnings will be commensurate with the earnings in the former employment, not taking into consideration the value of the employer's contribution in the new employment, then there is a risk that a Tribunal will say that since there is no loss of earnings, then no credit will be given for the future pension benefit at all. For reasons we set out below, that may have been what the Tribunal did here. Such an approach cannot possibly right, and would be inconsistent with the basic objective of compensating the Employee for the loss suffered. It would be allowing the employee to benefit from a windfall. Private health insurance. 16. The Tribunal's conclusion in relation to the private health insurance loss is set out at paragraph 14 in relatively brief terms (but again to be read in the context of paragraph 12 the material parts of which have been set out above):

"14. In addition to her earnings, the Claimant enjoyed two substantial benefits. The first, relatively normal for a person at her level, was private health insurance. The Claimant claimed £1,200.00 per annum for that benefit. We consider that a more appropriate figure is one of £900.00 per annum. The claim was made for a period of five years and allowed for a 25% discount for accelerated receipt. We adopt both of those contentions. It follows that the gross claim of $4,500.00 (5 x £900) is reduced to £3,375.00, which is awarded under that head of claim."

The Law

[17]There are certain basic principles which are not, as we understand it, in dispute here.(1) First, in assessing loss for sex discrimination, the Tribunal must assess compensation in the same way as the Court would do in determining liability in tort: see Sections 65(1)(b) and 66 of the Sex Discrimination Act 1975.

(2) Adopting that approach, the appropriate measure of compensation is that which will put the Claimant in the position which she would have been in, had the discrimination not occurred.

(3) When it comes to assessing future losses, including future pension loss, the Court must in assessing the loss analyse the chances that future events may or not have occurred. It cannot simply determine on the balance of probabilities whether they would, and treat any fact established to that standard as though it were definitely going to occur. The fundamental principal here is set out in the judgment of Lord Diplock in Mallett v McMonagle

[1970] AC 166

(HL) at page 176 F – G: "The role of the court in making an assessment of damages which depends upon its view as to what will be and what would have been is to be contrasted with its ordinary function in civil actions of determining what was. In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards." (These principles were held to be the appropriate ones to adopt in sex discrimination cases by the EAT in Ministry of Defence v Cannock

[1994] IRLR 509

paragraph 130.)

(4) Having calculated the loss under various heads, the Tribunal should stand back and make sure that the overall figure is a just reflection of the loss likely to be suffered.

[18]Tribunals may properly have regard to the Guidance, although of course it is not wholly writ and there is no duty to follow it: see Bingham v Hobourn Engineering Co

[1992] IRLR 298

. But where a Tribunal has applied to the guidelines sensibly, it is unlikely to go wrong in law, at least unless in so doing it has failed to give full regard to the evidence adduced and the submissions of the parties: Port of Tilbury (London) Ltd v Birch

[2005] IRLR 92

. Grounds of Appeal

[19]There are distinct grounds of appeal relating to pension loss, and the private health insurance. We will deal with the pension loss first. Pension loss

[20]The basic contention here is that the Tribunal made an award which is patently in excess of any loss the employee might suffer under this head. Two particular errors are identified. Did the Tribunal adopt the right approach?

[21]First, it is said that the Tribunal were wrong to adopt the substantial loss approach. It is submitted that the simple approach would have been appropriate here, as the Appellant was urging on the Tribunal below. Ms McNeill submits that there was nothing sufficiently unusual or different in this case to warrant a departure from the usual rule that the simple approach will suffice. There would be no long term loss of career and only a relatively short period of unemployment. In particular, she draws attention to the age of the Employee at the date of termination of her employment, namely 36, and she submits that if one looks at paragraph 4.13 of the Guidance, to which the Tribunal made reference and which we have set out above, she had not reached an age where she would be less likely to be looking for new pastures. In addition, she submits that the Tribunal were wrong to have regard to the fact that future employment would be in a money purchase scheme. That was a factor which plainly influenced the Tribunal in adopting the substantial loss approach. She says it ought not to have done so, not least because it is impossible to predict whether a final salary or money purchase scheme will be more beneficial over a lengthy period of time.

[22]Mr Plaut contends that if one looks carefully at the Tribunal's decision, there is evident justification for adopting the substantial loss approach. He points out that the Employee in this case was, as the Tribunal found, employed in a very specialist industry in which there was effectively only the one Employer, namely the Respondent. She had spent all her working life in that industry and there was every expectation that she would have remained there, but for the dismissal. So he submits that she falls fairly and squarely within paragraph 4.13. He also points out that in 4.12 the Guidance, set out above, cites the case of Brentwood Brothers (Manchester) Limited v Shepherd

[2003] IRLR 364

, which recognised that the substantial loss approach may be desirable in cases where the Tribunal determines that a person will return to a job at a comparable salary, but will not get a comparable pension. That, he submits, is the position here, given that the likelihood is that it will be a money purchase rather than a final salary scheme. The Tribunal was wholly justified in assuming that the latter would be likely to be more favourable; it is generally recognised that this is so. In short, he contends that it is simply not possible, given the Tribunal's findings and the terms of the Guidance, to say that the Tribunal made an error of law in reaching what it recognised was a difficult decision about which it had much hesitation in adopting the substantial loss approach. It was right to look at the matter in the round and to say, as it did at paragraph 19, that it considered that the simplified loss approach would not properly reflect the true loss to the Employee in this case.

[23]We entirely accept that argument. We find that the Tribunal did not err in adopting the substantial loss approach. The Tribunal gave reason for adopting the approach it did, in particular referring back to paragraph 4.13 of the Guidance. It recognised that the particular case before it was not entirely on all fours with the examples given in the Guidance, but concluded that it would not be just simply to apply the simplified approach in the circumstances of this case.

[24]Moreover, in our view, the Tribunal was fully entitled to have regard to the fact that it was more likely than not that in future Ms Booth would be likely to be employed in a pension scheme which applied the Money Purchase rather than the Final Salary principles of assessment. This would be likely to increase her loss, and make the simple approach too crude a calculation.

[25]In our judgment, this was plainly an approach which this Tribunal could perfectly properly think was more likely than not to lead to a just determination of the issue before it. Other tribunals may have reached a different conclusion, but that is not to the point. It would have to be a perverse decision before we could properly intervene, and we think this decision does not begin to attract that epithet.

[26]We should add that Ms McNeill drew to our attention the case of Orthet Ltd v Vince Khain

[2004] IRLR 857

where, in the course of a lengthy judgment, HHJ McMullen QC, giving the judgment for the EAT observed at paragraph 55 that paragraph 7.1 of the Guidance suggested the simplified approach should not be used where the period of loss is likely to be more than two years. Ms McNeill suggests that this may involve a misreading of paragraph 7.1. We have not explored that question, but we would accept that it would be a mistake for tribunals to take the view that they were obliged to adopt a substantial loss approach if the period of loss was for more than two years, and in our view HHJ McMullen QC was not saying that they were. Were future benefits taken into consideration?

[27]We turn to the second ground of challenge to the pension loss. It is contended that the Tribunal failed to give credit for the pension benefit which the Respondent employee will accrue from the new employment. Ms McNeill submits even if the Tribunal was justified in adopting the substantial loss approach, the Tribunal did not properly apply it. They did not make any allowance for the future pension payable, whether under a Final salary scheme or the Money purchase scheme. She says that, having made the findings that it did, the Tribunal was obliged to calculate the chance of the Employee securing employment under the terms of one Scheme or the other, and to give credit for the chance of the pension benefit which would be secured under each. Her primary position was that these future benefits should be taken into consideration when assessing the overall pension loss, but she submitted that even if the Tribunal chose to adopt the approach adumbrated in paragraph 8.11 of the Guidance, then at the very least the future pension benefits of a money purchase scheme had to be taken into account when assessing loss of earnings. But no credit was given in that context either. The result is a significant over-compensation of the employee.

[28]Mr Plaut did not strongly resist Ms McNeil's basic proposition that the benefit of future pensions must be taken into consideration in one way or another. He submitted that the Tribunal was entitled not to have regard to the potential loss which might result if Ms Booth were to be employed in a final salary scheme because it was for the Employer to put actuarial evidence before the Tribunal and they had failed to do so. As to the implications of Ms Booth obtaining employment with the benefit of a money purchase scheme, he did indeed contend that paragraph 8.11 does not permit any such benefit to be taken into consideration in circumstances where the new salary was commensurate with the old. But he frankly recognised the potential injustice of this approach. Conclusions

[29]We accept Ms McNeill's submission on this aspect of the appeal. The Tribunal had made a finding as to when comparable employment would be obtained, and it commented that it would be likely to involve a money purchase scheme. On that basis it did not apply the C factor at all. There is an obvious injustice, one way or another, in failing to give credit for the benefit of the future pension scheme. That effectively amounts to conferring a windfall upon the Employee. There may be some dispute about the best way in which credit can be given for future pension benefits, but what cannot be in doubt is that in a system which is designed to assess loss actually flowing from the unlawful act, credit must properly be given in one form or another. We suspect that the Tribunal may have misunderstood the effect of paragraph 8.11 and thought that it could not take the value of the employer's contributions into account. Plainly it should have done so.

[30]Accordingly, unless the parties can now agree the loss in the light of this judgment, this matter should be remitted to the Tribunal to determine what should be the appropriate level of damages, after giving credit for future pension benefits. We leave it to the Tribunal to decide how it can best fairly assess that loss, and no doubt it will wish to hear further submissions from the parties about that. It might also wish to hear further evidence on this matter; there is some debate as whether actuarial evidence would be required or not. That again is an issue which can be explored by the tribunal with the parties. Private health insurance

[31]We turn briefly to the question of private health insurance. Ms McNeill contends that there was simply no basis on which the Tribunal could assess this loss over five years. That had been the contention advanced by the claimant below, but that was at least implicitly on the basis that she would be out of employment of a comparable kind for a period of five years. Since the Tribunal found that she would be likely to obtain comparable employment in two-and-a-half years, that negated the premise on which the Employee's argument had been founded.

[32]She submitted, but without much enthusiasm, that given that the Tribunal found that further employment could be found within six months, then that should be the period for which the pension loss should be determined, whilst recognising that this is the most favourable outcome for her clients. Alternatively, she contended that the tribunal erred in failing to give proper reasons to explain why the five year period was chosen and the matter should be remitted so that it could give full reasons.

[33]Mr Plaut for the Respondent, contends that the Tribunal has made a clear finding. It was plainly open to it to find that the loss will be for five years. There was no guarantee that a new job would include private health benefits. Moreover, the appellants only provided evidence of one job for which the employee would have been suited and that did not include the benefit of private health insurance. So five years was a reasonable figure to identify. He did, however, accept that it was not obvious how the Tribunal had reached that result given its finding as to when comparable employment would be obtained.

[34]We accept that the Tribunal has failed to provide an adequate explanation for why it chose a five year period. It simply indicated that it adopted the employee's contention. Often that will indicate clearly enough what the Tribunal's reasons are, but here, given that the premise of the employee's submission was apparently undermined by the Tribunal's own findings, it was necessary for the Tribunal to explain why it was nonetheless fixing the loss over a five year period. We strongly suspect that what the Tribunal intended to indicate was that it accepted the Employee's contention that there would be a private health loss until comparable employment had been secured. On that analysis, the loss would be limited to the two-and-a-half years after which the Tribunal found that comparable employment would be found.

[35]Were this the only issue between the parties, then bearing in mind the relatively small amounts at stake, the overriding objective and the need to save costs, we would have substituted that finding for the Tribunal's decision on this point. However, since we are sending the matter back to the Tribunal in any event, we have come to the conclusion that the proper thing to do is to leave this to the Tribunal to determine. If we are correct in our supposition as to what the Tribunal intended, then the necessary modification can be made. If the Tribunal says that it intended to reflect this loss over five years, it can explain why. Outcome

[36]For these various reasons therefore, the appeal succeeds, and we remit the matter back to the same Tribunal, if possible, to reconsider the loss in the light of the principles identified in this Judgment.