Mitigation of loss in employment claims

March 16, 2021


In this OnPoint we report on a recent Employment Appeal Tribunal decision which provides a useful reminder of the need for employers to consider mitigation of loss at an early stage when preparing for employment tribunal and other claims.

The duty to mitigate loss

In circumstances where an employee has succeeded in a substantive claim for unfair dismissal or unlawful discrimination, a crucial issue influencing the compensation that the employment tribunal will award will be the individual’s actual and prospective loss - and the extent to which the claimant could have minimised that loss by seeking other alternative employment. If the employee fails to use reasonable efforts to obtain alternative employment or remuneration this may be taken into account by the employment tribunal in determining compensation on the basis that the employee has failed to comply with what is often described as the duty to mitigate loss.

Burden of proof is on the employer

In Cooper Contracting Ltd v Lindsey in 2015 the Employment Appeal Tribunal (“EAT”) confirmed that the burden of proof is on the employer to show that the claimant has failed to comply with the duty to make reasonable efforts to mitigate his or her loss and that it is not for the employee to show that he or she has not done so. What needs to be shown – by the employer – is that the employee acted unreasonably‎ – the employee does not need to show that he or she acted reasonably. In Cooper the employment tribunal, whose decision was upheld by the EAT, found that it was legitimate for the claimant employee to mitigate his loss by taking up self-employment – which he had enjoyed previously and which suited his preferences at his stage of life and in light of his experiences with the respondent employer. However, the award of compensation to him was limited to three months on the basis that there were other higher paid opportunities “out there” had he chosen to look for them.

The EAT considered that the views and wishes of the employee need to be taken into account and that the employment tribunal must not apply too demanding a standard to the employee who is a victim of the employer’s wrongdoing. It may not always be unreasonable for an employee not to accept a higher paid job than one actually taken up if there are circumstances justifying that decision. Importantly, the EAT made the point that, since the burden of proof lies with the employer, if the employer does not put forward any evidence about mitigation, the tribunal is not obliged to make a finding on the issue.

Percentage reduction to compensation for failure to mitigate?

The proper approach for tribunals in applying the duty to mitigate loss is to:

  • identify what steps should have been taken by the employee to mitigate his or her loss;
  • find the date upon which such steps would have produced an alternative income; and
  • reduce the amount of compensation by the amount of income which would have been earned.

Earlier this year in Hakim v The Scottish Trade Unions Congress an employment tribunal applied a 30% reduction to the loss suffered by an unfairly dismissed employee when determining the compensation to be awarded to him to reflect a variety of matters that it considered should lead to compensation being reduced. The claimant employee’s new employment paid him less than his job with his former employer but the employment tribunal found that this ongoing loss should be treated as at an end when the claimant failed to secure permanent employment in his new role at the end of a probationary period.

In Hakim, the EAT held that employment tribunals should not adopt a “broad brush” approach to mitigation – such as a percentage reduction as the employment tribunal had applied in this case – if a more objective approach is available based on periods of unemployment or ongoing wage loss. The EAT also held that the employment tribunal did not have a proper basis to find that for the claimant employee not to secure permanent employment broke the “chain of causation” such that losses arising from that point onwards could not be taken into account. The issue of compensation was remitted to the employment tribunal for reconsideration.

Practical steps

As demonstrated by these cases, employers need to be ready to engage in detailed arguments about a successful claimant’s attempts to mitigate loss, whether insufficient efforts were used by the employee to gain a new position or remuneration, and whether the compensation awarded to the employee should be reduced accordingly.

When preparing for an employment tribunal case employers should consider from an early stage what evidence they can gather demonstrating the availability of job opportunities which would enable the claimant employee to mitigate his or her loss. Employers will wish to gather evidence of vacancies for which the employee could have applied and potentially even call expert evidence about recruitment prospects for the individual in question. The employer will also wish to consider what action the claimant employee could have taken by way of registering with employment agencies and headhunters to seek alternative employment. With this evidence the employer will, if it is unsuccessful in defending the employee’s claim, be better placed to challenge the award of compensation sought by the claimant employee and the employee’s arguments about the adequacy of their efforts to find alternative employment.

Mitigation in the pandemic

The pandemic has of course led to increased unemployment and reduced prospects for new employment in many sectors, leading employees to argue that the economic climate makes the ability to mitigate their loss especially difficult. That said, one of the consequences of the pandemic may nonetheless assist employers in relation to arguments about mitigation of loss. Many employers are or will be moving towards a far greater level of partial or even complete remote working. Employers seeking to challenge a claimant employee on their efforts to mitigate their loss may therefore be able to argue that an employee should cast their net far more widely in geographical terms when looking for a new position than when office-based working was more prevalent and therefore potentially limited the area where the employee could reasonably be expected to look for work.

Subscribe to Dechert Updates