EAT takes fresh look at Polkey deductions

Two recent decisions of the Employment Appeal Tribunal provide examples of how to calculate unfair dismissal compensation where there is a chance that the claimant could still have been dismissed even if the employer had adopted a fair procedure.

It is now nearly 30 years since the House of Lords’ decision in Polkey v A E Dayton Services, from which the (at times) troublesome Polkey deduction gets its name. That case makes it clear that employment tribunals must always assess the fairness of a dismissal based on the reasonableness of the employer’s conduct at the time the decision to dismiss was made. However if the tribunal thinks there is a chance that the claimant would have lost his or her job in any event, the compensation that would otherwise have been awarded can be adjusted by an appropriate percentage.

In Polkey the claimant was one of four van drivers, three of whom lost their jobs when the employer decided to save money by replacing them with sales staff who could also drive. Since then the principle has migrated a fair distance from its original environment and tribunals are now expected to apply a percentage reduction to more complex redundancy scenarios, as well as capability and conduct dismissals.

Contract Bottling v Cave involved an unfairly handled redundancy exercise where 4 employees were selected for redundancy from a pool of 10. First time round the tribunal made no Polkey deduction because they thought the exercise was too speculative. After the employer’s successful appeal to the EAT they came up with a deduction of 20%. However there was insufficient reasoning to support this conclusion, which led to a second successful appeal by the employer. To avoid a second remission the parties invited to the EAT to decide the correct percentage. In a carefully reasoned decision the EAT President Mr Justice Langstaff came up with a figure of 33%.

A few weeks later another EAT judge was faced with a similar scenario in Hamer v Kaltz, though this time it was in the context of an unfair dismissal on grounds of conduct. This time the tribunal had swung from a zero deduction at the initial remedies hearing to 100% at the remitted hearing. Second time round the claimant appealed, pointing out that this was inconsistent with a 10% deduction from the basic award for misconduct that had contributed to her dismissal. This time the EAT fixed the correct deduction at 40%.

Clearly in both these cases the parties would have been better served by making realistic submissions about the amount of any Polkey deduction at the outset. From an respondent perspective it is helpful to understand the difficult task tribunals face, and appreciate that it is for the employer to lead evidence at the remedies hearing about the decisions it would have taken had it been given the opportunity to re-run its decision making process fairly.