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Dismissed employee's duty to mitigate loss

Posted by TonyBrownEmploymentSolicitor on July 8, 2013

A dismissed employee cannot simply sit on his hands watching his losses accumulate with the intention of recovering them in full from his employer in an unfair dismissal claim. He has a duty to take reasonable steps to limit the losses that are incurred by the dismissal. This is known as a duty to mitigate loss. 

In most cases, the duty to mitigate loss requires the employee to take reasonable steps to find alternative employment, even in a job that is lower paid than the job s/he has lost. However, in the next case, a tribunal had to decide whether the Claimant’s decision to set up his own business rather than look for another job amounted to a failure to mitigate his losses.

Until his dismissal on ground of incapability, the Claimant’s job was to manage commercial properties owned by his employer. After his dismissal, the Claimant looked for alternative employment in the same field of work and in the same locality, but found there were very few opportunities and instead set up business on his own account as a property investment agent.

The tribunal ruled that the Claimant had been unfairly dismissed. However, the employer's case was that the Claimant’s decision to set up a business as an investment agent was unreasonable and it was unrealistic to expect that he would succeed in that business given the specialist nature of the business and his lack of experience. The employer’s contention was that the decision to set up the business was not reasonable mitigation of loss.

The ET (with whom the EAT agreed) sided with the Claimant and ruled that the decision to set up a new business was reasonable because:

  • the Claimant’s work for the employer was in a specialist field;
  • in the whole of the North of England, only a dozen positions became vacant in property asset management in the 12 months following the Claimant’s dismissal and given the reference he would have obtained, the Claimant would have been unlikely to obtain one of those positions;
  • although there was a significant risk in establishing a business in a field in which the Claimant had only limited familiarity, it was not an unreasonable risk given his skills and contacts.

Comment

The employee must take reasonable steps to mitigate his loss as a result of being dismissed. What is reasonable depends on the facts of each case, and the circumstances of the particular employee.

As this case shows, in appropriate circumstances, a decision not to look for alternative employment and instead to re-train or set up one’s own business can amount to adequate mitigation of loss and allow the dismissed employee to recover his loss of earnings from his former employer.

If you would like advice about how the issues in this note apply to your situation, please contact Tony Brown on 01225 740097 or by e mail to tony@bathemploymentlaw.co.uk

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