Contractual Rights and Remedies for Dismissed Employees after the 'Employment Revolution'
Keesing, Grace, Melbourne University Law Review
[In recent decades, recognition of the social reality of employment has transformed the way in which courts determine actions for breach of the employment contract. In construing the express and implied terms of the contract, as well as in awarding damages, courts have accepted that the employment bargain extends beyond the mere exchange of remuneration for services. The employer, like the employee, is generally also obligated to act in accordance with the expectations of care, trust and fairness that underpin the employment relationship. The notable exceptions to this 'employment revolution' are the contractual rights and remedies available to dismissed employees. In Australia, contractual dismissal actions are subject to unique restrictions that derive from the 1909 decision of the House of Lords in Addis v Gramophone Co Ltd. This article critically analyses the nature and impact of these restrictions and considers the likely consequences of removing them.]
CONTENTS I Introduction II The Addis Ratio III Legal Effects of the Headnote Rules A The Direct Effect: Restricted Damages for Wrongful Dismissal B The Indirect Effect: Restricted Contractual Causes of Action C Statutory Exclusion: An Explanation for Restricted Causes of Action? D The Combined Effect: Limited Contractual Protection IV Doctrinal Difficulties A The Indirect Effect and Construction of the Employment Contract B The Direct Effect and Compensation in Contract V New Directions for Dismissal Law A Dismissal in Breach of Mutual Trust and Confidence B Dismissal Damages under Ordinary Contractual Principles C Overall Consequences: Compensation and Consistency VI Concluding Remarks
For over a century, the decision of the House of Lords in Addis v Gramophone Co Ltd ('Addis') (1) has constrained the award of damages for dismissal in breach of contract and occupied 'an entirely pivotal role, more than is normally recognised,' (2) in the law of dismissal. Although the High Court of Australia has never considered Addis in the context of dismissal, (3) trial and intermediate courts have generally applied the decision in the terms of the headnote to the reported case to preclude a dismissed employee from recovering 'compensation for the manner of the dismissal, for his injured feelings, or for the loss he may sustain from the fact that the dismissal of itself makes it more difficult for him to obtain fresh employment' ('the headnote rules'). (4) These rules have been applied in place of ordinary contractual principles of construction, causation and remoteness, to restrict both the damages available for wrongful dismissal (5) and the extension of implied contractual obligations to the manner of dismissal.
As a consequence, the common law protection provided to dismissed employees is 'strictly limited'. (6) If an employee is dismissed in breach of a contractual requirement to provide notice, (7) he may recover damages for the remuneration and associated pecuniary benefits he would have earned during the notice period, less any amount he actually earned or could reasonably have earned in alternative employment. (8) 'Beyond this, the employee has no legal claim at common law, whatever hardship he suffers as a result of his dismissal.' (9)
Since Addis was decided, statutory unfair dismissal laws have significantly increased the scope and accessibility of legal remedies for dismissed employees. (10) However, contractual damages continue to play an important role in Australian dismissal law. Contract law remains the primary source of redress for many dismissed employees, particularly higher income and professional employees, who are generally ineligible to bring statutory unfair dismissal claims. (11) For these employees, the headnote rules constitute significant obstacles to the recovery of both pecuniary and non-pecuniary losses caused by dismissal. …