Mitigating losses

Employees have an important duty to mitigate (lessen) their losses, which they must do principally by looking for alternative work.

The key to success in any compensation claim is to be well organised and realistic, and to think ahead about proving your losses.

Employees should keep a careful record and, for example, a “job search diary” of all efforts to find work, including evidence of all adverts, application forms, online applications, responses received, interviews attended and all costs incurred, such as travel costs. These will need to be shown to the tribunal.

Remember that an employer facing a finding of unfair dismissal will usually arrive at the tribunal armed with evidence of all the jobs you could have applied for.

Where an employee is dismissed while on maternity leave, it is particularly important to be ready to resist arguments that the compensation should be cut because the employee would probably not have come back to work quickly in any event (Ministry of Defence v Cannock [1994] 918). Claimants can protect against this by making (and keeping a record of) regular job applications (including online applications) while on maternity leave, and following them through appropriately.

Where an employee is dismissed without notice, they need not give credit in their unfair dismissal compensation for any wages from a new job during the notice period (Norton Tool Company Limited v Tewson [1972] ICR 501). This rule of “good industrial practice” was upheld by the Court of Appeal in Burlo v Langley ([2006] EWCA Civ 1778), even though it can result in “double-recovery” of compensation during the notice period. The rule is different for claims for wrongful and constructive dismissal. In both these situations, the employee must give credit for any sums earned in a new job during the notice period (Stuart Peters Ltd v Bell [2009] EWCA Civ 938).

Earnings from any new job are taken into account to reduce the compensatory award, although the basic award stays the same. The compensatory award will be reduced by earnings from, for example, new full or part-time work, self-employment, agency or casual work. However, the tribunal does not take into account earnings from a second job that a claimant already had before dismissal. Neither will it normally take account of income from any insurance product a claimant bought before dismissal, for example, mortgage or income protection insurance that pays a percentage of pre-dismissal earnings for a fixed period.

Note that it is not a breach of the duty to mitigate to refuse an offer of self-employed terms from your employer (F&G Cleaners Limited v Saddington ([2012] UKEAT/140/11/JQT).

An employee who finds a new higher-paid job will have no on-going claim for loss of earnings. In some circumstances, an employee who finds a new job but then loses it before the tribunal hearing may still be able to bring a claim for future lost earnings, but the employer will argue strongly that it should no longer be held responsible for on-going lost earnings.

An employee may be able to use other ways of mitigating losses apart from finding a new job, for example, setting up a new business, or attending a training course, if able to show it would be unreasonable to find a new job in their particular circumstances. For example, in Orthet v Vince-Cain ([2004] IRLR 857), the EAT ruled that a dismissed employee had mitigated her loss by attending a university course, since she was unlikely to get a comparable new job to the one she had lost without further qualifications.

The burden of proof that the employee has failed to mitigate loss rests with the employer (Fyfe v Scientific Furnishings [1989] IRLR 331).

An unreasonable refusal of an offer of re-employment can amount to a failure to mitigate. The tribunal will consider whether the employee acted unreasonably in refusing the offer, taking into account all the circumstances (Wilding v BT [2002] IRLR 524)). For example:

As always, each case depends on its own facts.

The maximum compensatory award that can be made in most cases is £74,200 (2013-14). There is no maximum in cases of dismissal for health and safety reasons or for whistleblowing. If the dismissal is discriminatory, compensation for lost earnings can be claimed under the Equality Act 2010. There is no limit on the amount of compensation that can be awarded for a discriminatory dismissal, although you cannot recover twice for the same loss (see Chapter 6: Discrimination). In reality, the vast majority of claimants achieve awards far below these maximum sums. The median award for unfair dismissal in the year to March 2012 was just £4,560.

Employers cannot avoid paying proper compensation by arguing that they do not have enough money and that the size of the award would endanger their business: