Limiting losses in employment claims: what should employers know?

When an employee or former employee succeeds in an Employment Tribunal (ET) claim, a key factor in determining the compensation awarded is the claimant’s actual and prospective loss — along with the extent to which they could have mitigated that loss.

Claimants are expected to take reasonable steps to mitigate their losses (often referred to as the “duty to mitigate”), usually by looking for a new job if they are out of work. The ET will, in some circumstances, reduce the compensation it awards to a successful claimant if appropriate. If, for example, a Tribunal finds that a claimant has unreasonably failed to mitigate their loss, financial compensation can be reduced by a figure which the Tribunal considers appropriate, depending on the extent of the claimant’s failure. The issue of whether a claimant has taken reasonable steps to mitigate their losses is a question of fact for the Tribunal.

Mitigation has been considered by the ET and EAT in two recent cases. These follow the 2015 EAT decision in Cooper Contracting Ltd v Lindsay, in which the Tribunal set out the factors it will consider in relation to compensation if a claimant is found to have acted unreasonably (see here for an article written about this decision at the time). The decision also confirmed that the burden of proving that a claimant has acted unreasonably in failing to mitigate losses lies with the employer.

The recent cases further highlight how tribunals should assess the question of reasonableness in mitigation and provide a few key takeaways for employers to bear in mind if faced with a claimant who has failed to mitigate their losses.

Questions tribunals should ask about mitigation

In Edward v Tavistock and Portman NHS Trust, the Claimant (Mr Edward) was an NHS “Band 5” data officer, who was downgraded to a “Band 4” role and dismissed thereafter. He brought a successful victimisation claim on the basis that he had been dismissed for making allegations of age discrimination.

Mr Edward was out of work for over two and a half years, although by the time of the remedy hearing he had been in a new, better paid fixed-term role for three months. The ET found that he had failed to mitigate his losses and reduced the compensatory award by 50%. This was on the basis that he would have secured alternative employment if he had applied for other NHS “Band 4” roles, which the ET said he should have done.

The Claimant appealed, and the EAT found that the ET had erred in its assessment of the reasonableness of Mr Edward's alleged failure to mitigate. Importantly, it reiterated that the burden of proving that a claimant has acted unreasonably lies with the respondent.

The EAT also concluded that the ET had erred in law by making a percentage reduction to Mr Edward’s compensatory awards. In determining the appropriate reduction, the ET should consider what would have happened if a claimant had taken reasonable steps to mitigate their loss. This includes making findings as to when the claimant would have found a job and what the salary would have been. In doing so, the ET should consider the following questions (from the 1982 case of Gardiner-Hill v Roland Berger Technics Ltd):

1. What steps was it unreasonable for the claimant not to take to mitigate their loss?
2. If taken, when would those steps have produced an alternative income?
3. What amount of alternative income would have been earned?

The ET should make an assessment based on these questions and calculate any loss based on the income the claimant would have received if they had properly mitigated their loss, rather than applying a blanket percentage reduction to any award as the ET did in this case in the first instance.

Impact of an employee’s refusal to extend their notice period

These points were also highlighted in Wade v Jansen UK Ltd, in which the ET ruled that it had been reasonable for Mr Wade to refuse to extend his notice period after he had been dismissed and, therefore, he had not failed to mitigate his losses.

The ET held that Mr Wade had acted reasonably in not wanting to stay with a company who had dismissed him, particularly in circumstances where there was no guarantee of further work at the end of the proposed extended notice period. It was therefore reasonable for Mr Wade to refuse the offer of an extended notice period and concentrate on looking for alternative employment.

Mr Wade produced evidence that he had applied for hundreds of jobs after his dismissal – different roles of varying salary levels – but had failed to secure alternative employment. Jansen failed to establish that Mr Wade had not done enough to mitigate his losses, or that he had acted unreasonably.

Key takeaways for employers

What these decisions make clear is that although claimants are expected to mitigate their losses, there is no expectation by the tribunal that they take the first job that comes their way (particularly where they have a particular skill or expertise).

The key takeaways for employers are:

• The burden of proving that a claimant has failed to mitigate their losses lies with the employer. The employer needs to show what the claimant failed to do, when that would have been likely to earn new income, and what that income is likely to have been. If this cannot be proven, an ET will not find that a claimant has failed to mitigate.
• A claimant only needs to take reasonable steps to mitigate their losses (as opposed to all/any steps). The ET will consider the steps the claimant has taken to seek alternative employment, and whether any of those steps (or lack of) were reasonable in the circumstances. The burden of proving that any steps were unreasonable lies with the employer.
• Employers seeking to argue that a claimant has failed to mitigate need to be prepared to put forward a detailed argument about a claimant’s attempts to mitigate loss, and must ensure that sufficient evidence is gathered to support that argument. When preparing for a tribunal case, employers should consider at an early stage what evidence they can gather to demonstrate a potential failure to mitigate – for example, the availability of job opportunities or vacancies.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2025