Polkey moves on
Labour & European Law Review Weekly Issue 104 - October 2005 26 October 2005
Until the introduction of new dispute resolution rules in October last year, there was a particular question that tribunals were not allowed to ask in unfair dismissal claims.
And that is, when deciding whether the dismissal was unfair, whether it would have made any difference to the outcome if the employer had followed the correct procedure.
In this article, a solicitor from Thompsons' Employment Rights Unit in Leeds, takes a look at the effect that the new rules, which partially reversed that decision, are having on the rights of employees.
What did the House of Lords decide?
The rule about following the correct procedure emerged from the famous House of Lords decision in Polkey v A E Dayton Services (1987, IRLR 503).
Basically, the Lords said that, if an employer uses an unfair procedure when dismissing someone, the dismissal would be unfair. But they also said that, even if following the correct procedure would have resulted in dismissal, it would still be unfair.
There was one - very narrow - exception, however. And that was when an employer, in the light of everything that he or she knew at the time, decided that it would have been completely futile to follow procedure because it would not have made any difference to the outcome.
On top of that, tribunals had the power to reduce the level of compensation if the employer could show that the end result would have been the same, even if they had followed a fair procedure.
How do the new rules affect that approach?
The Employment Act 2002 inserts a new section 98A into the Employment Rights Act (ERA) 1996. This change partly reverses the decision in Polkey.
The rule now is that, if an employer fails to complete all the requirements of the minimalist statutory procedure, the dismissal will be automatically unfair. However, if they do not follow their own, fuller, dismissal procedure (having complied with the statutory one), they can now argue that they would still have dismissed the employee, and tribunals have to find that it was fair. This is potentially disadvantageous to employees.
In such circumstances, a recent Court of Appeal case, Lambe v 186K LTD, (2004 EWCA Civ 1045), may provide some protection for employees. Likewise, a previous decision of the Scottish Court of Appeal, King v Eaton No 2 (1998, IRLR 68) may be of help.
What happened in Lambe v 186K Ltd?
Following Mr Lambe's dismissal for redundancy, the tribunal decided that it had been unfair to dismiss him because his employer had not consulted him about other job opportunities.
Mr Lambe appealed unsuccessfully to both the EAT and the Court of Appeal, which held that the tribunal was entitled to reach the conclusions it did.
In rejecting his arguments, the Court of Appeal disapproved of attempts to characterise defects in dismissal procedures as "procedural or substantive". Subject to that, however, it helpfully approved the decision in King v Eaton (No 2).
What Happened in King v Eaton (no 2)?
Following a number of redundancies, a tribunal concluded that the dismissals had been unfair because the employer had failed to show that the method of selection was fair or applied reasonably because of a failure to consult with the trade union. The appeal tribunal disagreed, but the Scottish Court of Appeal said that the tribunal was right.
At a hearing to sort out compensation, the employer tried to argue that the employees would still have been dismissed even if a fair procedure had been followed, and that their compensation should, therefore, be reduced in accordance with the Polkey principle.
The tribunal acknowledged that, when a dismissal is unfair because of a serious flaw in procedure, compensation might be reduced if the outcome would not have been any different, even if a fair procedure had been followed.
But in a more serious case "riddled with unfairness throughout", usually a full award would be made. The EAT agreed with that view, as did the Scottish Court of Appeal. The crucial question was whether it was possible to "reconstruct the world that never was".
It said: "To ask whether the same method and criteria would have been adopted, if there had been consultation beforehand, or to try to show what method and criteria would have been adopted, in the light of consultation, is in our opinion to embark upon a sea of speculation, where the opinions of witnesses could have no reliable factual starting point. "In such a situation, a tribunal is in our opinion well justified in refusing to allow evidence as to whether the unfair act or omission 'made a difference'."
Although Mr Lambe was ultimately not successful, the principles set out in his case can be used to the advantage of employees to avoid Polkey reductions being applied, or, under section 98A(2) ERA, an unfair dismissal claim not being upheld at all. The following points are, therefore, worth noting:
- Although it is entirely appropriate to talk of "procedural failings" in a dismissal process, it is unhelpful to describe the consequences of such failings as "merely procedural" or "substantive".
- The Court of Appeal in Lambe has helpfully endorsed the central thrust of the decision in King v Eaton (No. 2) that in certain circumstances a Polkey reduction is inappropriate.
- In light of the partial reversal of Polkey brought about by the insertion of Section 98A(2) into the ERA 1996, the extent to which it is possible to "reconstruct the world that never was" is likely to be just as important, in certain cases, in deciding whether there was an unfair dismissal at all.
- The "no difference"/percentage reduction principle in Polkey is still central to deciding the appropriate level of compensation in a case that is unfair contrary to sections 98A(1) (automatically unfair dismissals) , or 98(4) ERA 1996 (dismissals outside the range of reasonable responses). We should always try to persuade tribunals not to speculate too much, especially where it is not possible to "sensibly reconstruct the world as it might have been".
- There are going to be some cases in which tribunals will find, under section 98A(2) ERA 1996, that a failure to follow a fuller contractual procedure does not make the dismissal unfair, on the ground that the employee would have been dismissed in any event. Similarly, there will still be cases in which tribunals are going to continue to assess compensation on the basis that the employee had, say, only a 50 per cent chance of staying in their job.
- Lambe and King v Eaton (No 2) are likely to be particularly important in redundancy cases where there has been a failure to consult properly with the trade union over the selection criteria.