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Employment Law - A duty to claim? Mitigation and social security benefits

This article considers the curious question of whether or not a claimant’s failure to claim benefits can ever constitute a failure to mitigate loss.

 

Under consideration is the situation where, typically, a claimant has been dismissed and is then unemployed for an extended period. During the period of unemployment, he might have claimed social security benefits – income support, job seekers’ allowance, incapacity benefit and so on – but, for whatever reason, did not do so. The claimant brings an unfair dismissal claim against his former employer claiming loss of earnings over that period. As part of its defence of his claim, his former employer argues that that:

 

  • had the claimant received social security benefits during the period of his unemployment, his losses would have been reduced;
  • the claimant’s failure to apply for benefits was unreasonable;
  • the claimant has thus failed to mitigate his loss;
  • accordingly, the Claimant’s claim for loss of earnings should be reduced by the amount of the benefits he would have received had he applied for them.

 

I call the question posed in the first paragraph of this article “curious” because, although one would expect it to crop up in practice all the time, in personal injury cases as well as employment cases, the courts don’t seem to have provided any clear answer to it. The reason I am raising it now is, first, that it was touched on earlier this year in Morgans v Alpha Plus Security Ltd [2005] IRLR 234 and, second, that it cropped up in a recent ET case in which I was involved.

Before dealing with the question, an employment tribunal has to have decided that the claimant’s failure to claim benefits was unreasonable and that had the claimant claimed benefits, he would, as a matter of fact, have suffered less loss than he in fact suffered. It is assumed in this article that the case being dealt with is one in which the tribunal has decided these two things.

My starting point is that there is something distasteful about the notion of someone being under a duty to claim from the state everything to which he is legally entitled. It is one thing to say that the safety net for the vulnerable provided by the state is a good thing and that there should be no stigma attached to claiming social security benefits, quite another to say that someone who fails to take advantage of that safety net is acting unreasonably.

Further, in County and High Court matters, a failure to mitigate is something that has to be specifically pleaded. It is not being suggested that the same pleading rules apply or should apply to employment tribunals. However, the advantage of having alleged failures to mitigate set out in pleadings is that the claimant knows well in advance the case he is going to have to meet and if it is suggested that he should be mitigating his loss by doing something or not doing something, he can take an informed decision about his actions.

No claimant in an unfair dismissal case needs to have pointed out to him by a respondent in advance of trial that he should, if he is fit for work, be seeking employment. But the argument that he is acting unreasonably by failing to apply for benefits, whilst it appears not to be entirely novel, is certainly unusual. If in any given case the respondent raises that argument at an early stage in the proceedings, the claimant and his legal advisers will have been forewarned and the claimant can take steps to look into his benefits situation. If the claimant then fails to apply for benefits, the respondent’s argument that he is behaving unreasonably may have some force. If, however, the respondent does not raise the argument until shortly before trial, it is too late for the claimant to do anything about it. In such circumstances, it would surely be unjust and inequitable for the amount the respondent has to pay out in compensation to be reduced on the back of such an argument.

In any event, I believe it would be wrong in principle for anyone’s compensation to be reduced because of social security benefits that he has neither applied for nor received.

As a matter of policy, those who advise claimants in employment cases (or in personal injury cases, in which the same arguments and considerations might arise) should not be expected to become experts in social security benefits or be placed at risk of claims in negligence if they fail fully to advise claimants of their rights to benefits.

There is no binding authority on the question of whether, as a matter of principle, a failure to apply to benefits can be a failure to mitigate.

In Morgans, the EAT considered it an open question: paragraph 19 of the decision.

In Secretary of State for Employment v Stewart [1996] IRLR 334, the EAT sitting in Edinburgh appears to have decided that a failure to apply for unemployment benefit might be a failure to mitigate. The status of a decision of the ‘Scottish EAT’ is unclear to me, but I believe that it should not be binding on an English ET. An appeal from the EAT sitting in Edinburgh would be to the Scottish Court of Session. It is understood that no decision of the Court of Session is binding on the Courts and Tribunals of England and Wales. Accordingly, if a decision of the ‘Scottish EAT’ were binding on an English ET, it would have to be followed even if that decision had been overturned by the Court of Session, an absurd state of affairs which cannot possibly pertain.

Secretary of State for Employment v Stewart is an unsatisfactory decision for a number of reasons.

     

  • Before the EAT, no arguments were advanced by or on behalf of the (unsuccessful) respondent, who was neither present nor represented.
  • The EAT was not referred to either of Eley v Bedford or The Liverpool (No. 2), both discussed below.
  • The EAT’s decision pre-dated the employment tribunal recoupment provisions (Employment Protection (Recoupment of Jobseeker’s Allowance and Income Support) Regulations 1996, SI 1996/2349) (“the Regulations”), and so was made without reference to them. At least in relation to recoupable benefits (e.g. job seekers’ allowance), Secretary of State for Employment v Stewart is readily distinguishable.
  • The decision in Secretary of State for Employment v Stewart turned on an interpretation of the House of Lords’ decision in Westwood v Secretary of State for Employment [1984] IRLR 209. The EAT appears to have considered itself bound to find, in the light of Westwood, that a failure to apply for benefits could, in principle, be a failure to mitigate. However, Westwood was not concerned with this issue of principle. The question decided in Westwood was whether or not someone had to account for sums actually received by him in social security benefits, such that they should be deducted from his damages for wrongful dismissal and/or from sums equivalent to those damages paid by the Secretary of State out of the Redundancy Fund. There is nothing in the House of Lords’ decision in Westwood to the effect that amounts in respect of benefits that have neither been applied for nor paid should be deducted.

 

There is nothing unjust or inequitable about failing to deduct from the compensation payable by a respondent sums which might have, but were not, paid to claimant in recoupable benefits. The effect of the Regulations is that the total amount the respondent has to pay is no different regardless of whether recoupable benefits have been paid. If such benefits have been paid, the amount of such benefits is deducted from the claimant’s compensation but is still paid by the respondent: the respondent pays it to the Secretary of State. Who the respondent has to pay sums to – whether as compensation to the claimant or under the Regulations to the state – surely makes no difference to the respondent. The only person who is affected is the claimant.

Further, the Regulations must be exhaustive of the circumstances in which a claimant’s compensation may be reduced by reason of recoupable benefits. See Eley v Bedford [1972] 1 QB 155 at 158 (a High Court decision in a personal injury case, but the logic of the decision applies equally to an employment case).

A further argument against considering a claimant’s failure to apply for benefits as a failure to mitigate is that the claimant’s situation is akin to that of someone who is entitled to the same damages from two people, i.e. someone who suffers injury or damage as a result of the negligence of two people.

It is well established law that where someone is entitled to the same damages from two people, he can, if he wants, claim the whole amount from one of them without having to give credit for sums that he might have received from the other. He must account for any sums he has actually received from the other (just as a claimant in an unfair dismissal case has to give credit for any incapacity benefit he has received: Morgans), but not for sums he might have, but has not because of his reasonable or unreasonable actions, received from the other.

In Steamship Enterprises of Panama Inc., Liverpool (Owners) v Ousel (Owners) and Others [1963] P. 64 (“The Liverpool (No. 2)”), the Court of Appeal applied the well established law referred to in the previous paragraph to a rather extreme set of facts, essentially these:

     

  • there was a collision between two ships – the Liverpool and the Ousel – in waters for which the Mersey Docks and Harbour Board (the Board) was responsible;
  • the Ousel sank;
  • the Liverpool’s owners admitted 100% responsibility for the collision;
  • the potential liability of the Liverpool’s owners was limited by the operation of the Merchant Shipping Acts to £106,000;
  • the claims made against the Liverpool’s owners by the Ousel’s owners, by the Board and by the owners of some of the Ousel’s cargo totalled about £340,000, meaning they wouldn’t all get the money to which they were entitled because of the £106,000 limitation of liability;
  • the Board’s claim against the Liverpool’s owners made up about £128,000 of the £340,000;
  • the Board had cleared the wreck of the Ousel, pursuant to statutory rights and duties;
  • the Board had a right under statute to claim about £10,000 from the owners of the Ousel towards the cost of clearing its wreck, even though the Ousel was blameless for the collision;
  • it was agreed that the Board’s claims against the Liverpool’s owners and the Ousel’s owners covered essentially the same ground as each other;
  • the owners of the Ousel had offered to pay the Board the £10,000 they owed it and had gone so far as to deposit the £10,000 with stakeholders.

 

The question the Court of Appeal had to consider was whether or not the Board had to give credit for the £10,000 the Ousel’s owners had offered to pay, so as to reduce the Board’s claim against the Liverpool’s owners by £10,000 to £118,000. It was common ground that if the Board had actually received the £10,000 from the Ousel’s owners, it would have to give credit for that sum. However, the Court of Appeal decided that the Board did not have to give credit for the sum, because it had not actually been received.

The relevant part of the Court’s judgment (given by Harman LJ) is at pages 82 to 84 of the report (from “In our judgment…” to “The first question should therefore be answered by saying the board need not reduce its claim by giving credit for the £10,000.”). The crucial point is that the reasonableness or otherwise of the Board’s decision not to take the £10,000 was irrelevant since, however reasonable it might have been for the Board to take the money, there was “no duty on the Board to enforce its rights against the Ousel” because (page 83):

     

  • “the duty to mitigate damages” was not the issue;
  • the issue was “the board’s legal rights, and no duty rests on it at the demand of a tortfeasor to satisfy part of the damages by resorting to another tortfeasor; still less by resorting to an innocent party made liable merely by statute”.

 

The situation of a claimant who would have been paid benefits had he applied for them but who chose not to apply for them is, arguably, directly analogous to the situation of the Board in The Liverpool (No. 2). The respondent’s position is equivalent to that of the Liverpool’s owners and the position of the state (the Benefits Agency) is equivalent to that of the Ousel’s owners – the “innocent party made liable merely by statute”. The claimant’s possible right to benefits is equivalent to the Board’s statutory right to £10,000 from the Ousel’s owners.

In the same way that the Board did not have to give credit for the £10,000 (which it was entitled to and which had been offered to it) because it had not actually taken the money, a claimant should not have to give credit for sums in respect of benefits to which he might have been entitled but which he did not receive.

My conclusion is that, as a matter of principle, there are no circumstances in which a claimant’s failure to apply for social security benefits should be found to have been a failure to mitigate his loss. I am confident that the higher courts would agree with me so far as recoupable benefits are concerned, but the position with regards to non-recoupable benefits (in the employment tribunal, incapacity benefit for example) is far more open to question. Prudent employment lawyers advising claimants should tell their clients to apply for social security benefits as well as for jobs as part of mitigation.