Often a claimant’s employment tribunal victory can be rendered meaningless when compensation rules mean that the award is reduced to nil. Charles Price explains.

The Employment Rights Act (ERA) 1996 states that the employer must show that the dismissal was for one of five potentially fair reasons such as misconduct, capability or redundancy and that it acted reasonably when treating that reason as sufficient to dismiss the employee.

As part of the tribunal’s thinking process, it is necessary for the tribunal to review the fairness of the procedure followed by the employer when dismissing the claimant.

The procedures adopted when dismissing an employee are not straightforward and professional advice should always be sought. The employment judge and the panel will be looking, amongst other omissions on the part of the employer, for the absence of an opportunity for an employee to present their side of the story, or if the employee is dismissed, an invitation to appeal the decision.

Employment law, however, hands an olive branch to the recalcitrant employer in the shape of a principle established in the case of ICR/Polkey v A.E. Dayton Services Ltd (HL 1988):

If the dismissal is held to be procedurally unfair, the tribunal will ask itself the question whether this failure would ultimately have made any difference to the outcome. If not, then compensation will be limited to the period it would have taken for a proper procedure to take place before a fair dismissal could have occurred. This is commonly known as a ‘Polkey’ reduction.

The employment tribunal’s task is to predict what would have happened had there been no unfair dismissal.

In the case of Software 2000 Ltd, some of Softwares’ employees were told that they faced redundancy. There were 18 managers who carried out the assessments of individuals, but they were not told how to approach the exercise nor were they given a full explanation of what the criteria involved. There was no proper consultation and dismissal letters were backdated wrongly.

This case also looks at the new section 98A(2) of ERA 1996 which states: “Subject to subsection (1), failure by an employer to follow a procedure in relation to the dismissal of an employee shall not be regarded for the purposes of section 98(4)(a) as by itself making the employer’s action unreasonable if he shows that he would have decided to dismiss the employee if he had followed the procedure”.

The tribunal found that all the claimants had been unfairly dismissed by reason of redundancy, because the selection process was fundamentally flawed. It concluded that the subjective nature of the selection criteria did not render the decision unfair on its own, but, when coupled with the assessment by a large number of different managers, without proper guidance, they did render the dismissals unfair. The tribunal, however, refused to reduce compensation under the ‘Polkey’ guidance, on the basis that it would be too difficult to predict whether or not the claimant would have been dismissed but for the flawed dismissal procedure.

The Employment Appeals Tribunal gave guidance on the case:

• That if fair procedures had been complied with, the employer has satisfied it – the onus being firmly on the employer – that on the balance of probabilities the dismissal would have occurred when it did in any event. The dismissal is then fair under s98A(2).




• That there was chance of dismissal but less than 50%, in which case compensation should be reduced accordingly.

Mitigating loss

Another way in which an award may be reduced is if the tribunal determines that the individual has not attempted to mitigate his/her loss for the period for which they are trying to claim compensation. This can mean looking for alternative employment or setting up their own business.

The compensatory award should be calculated as “such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer” (section 123 ERA 1996).

Charles Price is a barrister at No5 Chambers.