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| Polkey v. A.E. Dayton Services Ltd. and section 98A(2) of the Employment Rights Act 1996 | |||||||||||||||||
| Introduction | |||||||||||||||||
| 1. | Of the many methods of reducing compensation awarded by a tribunal, none have entertained the EAT or courts more in the last few years than the Polkey reduction and the partial reversal of Polkey contained in s98A(2) of the ERA 1996. | ||||||||||||||||
| 2. | This part of the seminar is aimed at detailing the fundamental principles of each of the two schemes, and then seeing how they work together and whether or not there is a difference in emphasis and focus that warrants a difference in approach to each of the arguments. | ||||||||||||||||
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| Polkey reductions | |||||||||||||||||
| 3. | Very little, if anything, need be said about the impact of the House of Lords’ decision in Polkey v A.E. Dayton Services Ltd. [1987] IRLR 503. If an employer can show that the employee would have been dismissed despite the procedural error, then the compensatory award the employer has to pay will be reduced accordingly, in line with the obligation to assess the compensatory award in accordance with what is just and equitable in all the circumstances. | ||||||||||||||||
| 4. | Recently the EAT in Gover v Property Care Ltd. (UKEAT/0458/05) (an appeal was made against this decision but was rejected by the Court of Appeal) adopted the following categorisation of the types of claim where the compensation can be reduced by reason of Polkey: | ||||||||||||||||
a) |
“length of time cases”, where dismissal would have occurred in due course if proper procedures had been complied with; | ||||||||||||||||
b) |
“loss of chance cases”, where there was a chance of surviving dismissal; | ||||||||||||||||
c) |
“another ground cases”, where the reduction takes effect as the employee would have been dismissed on another ground (e.g. the factory closing: James W Cook & Co. (Wivenhoe) Ltd v Tipper [1990] ICR 716); | ||||||||||||||||
d) |
“complete sham cases”, where there is no reduction at all. | ||||||||||||||||
| 5. | For some time, there was confusion as to whether the Polkey concept allowed for a distinction to be drawn between the procedural failures of an employer, and those that were more profound and could be termed “substantive”. In Steel Stockholders (Birmingham) Ltd. v Kirkwood [1993] IRLR 515 the EAT held that it was only where the defect was procedural that the reduction could apply. Lord Prosser in King v Eaton (No. 2) [1998] IRLR 686, a Scottish Court of Session case, suggested that such a distinction was important. However, in so observing he was departing from the views of Peter Gibson LJ in O’Dea v ISC Chemicals Ltd [1995] IRLR 599, who noted: | ||||||||||||||||
| “I do not regard it as helpful to characterise the defect as procedural or substantive nor in my view should the [employment] tribunal be expected to do so” | |||||||||||||||||
[at page 604] |
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| 6. | This view was adopted by the Court of Appeal in Lambe v 186K Ltd [2005] ICR 307. The EAT (UKEAT/05831/05) (HHJ McMullen QC) in Lambe stated that: | ||||||||||||||||
| “the correct approach is not for a tribunal to adopt a taxonomy which separates procedural from substantive issues but to ask itself whether there was an unfair departure from what would or should have happened” | |||||||||||||||||
| 7. | However, the waters were muddied somewhat by the Court citing with approval Lord Prosser’s comments in the decision of King. Indeed, it will be seen that this issue has not been retired, but has merely has shifted its focus onto ERA 1996 s98A(2). | ||||||||||||||||
| 8. | How far, however, are tribunals to go when assessing the evidence the employers put forward in support of their arguments? King is renowned for its soundbite warning tribunals against embarking on a sea of speculation where the failure was such that one simply cannot sensibly construct the world as it might have been | ||||||||||||||||
| 9. | The EAT in Scope v Thornett (UKEAT/0477/05) (HHJ McMullen QC) regarded the requirement that the tribunal at first instance had to speculate as disqualifying them from carrying out the just and equitable assessment of a compensatory award. | ||||||||||||||||
| 10. | On appeal from this decision Pill LJ, with whom both Laws and Gage LLJ agreed, strongly rebuked such a practice, noting | ||||||||||||||||
| “The tribunal’s statutory duty may involve making such predictions and tribunals cannot be expected, or even allowed, to opt out of that duty because their task is a difficult one and may involve speculation…..[H]owever, there may come a point, at which evidence of countervailing factors is so slight that an indefinite continuation of the employment may be held to be an appropriate prediction” | |||||||||||||||||
[at pp158-159] |
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| 11. | The tribunal is therefore allowed to engage in informed speculation, but baseless conjecture is still forbidden. It is therefore incumbent on the Respondent to supply the evidential material that will allow the tribunal to engage in such an activity. | ||||||||||||||||
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| s98A(2) of the Employment Rights Act 1996 | |||||||||||||||||
| 12. | Inserted by s34 of the Employment Act 2002, this provision provides an absolute defence to procedurally improper dismissals: | ||||||||||||||||
| “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) [of the Employment Rights Act 1996] as by itself making the employer’s action unreasonable if he shows he would have decided to dismiss the employee if he had followed the procedure” | |||||||||||||||||
[my emphasis] |
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| Threshold | |||||||||||||||||
| 13. | The explanatory note to the 2002 Act made it clear that ERA 1996 s98A(2) was only to apply where the minimum statutory procedures introduced by the 2002 Act and the 2004 Regulations had been complied with. This view was adopted by the EAT in 2006 in the cases of Alexander v Bridgen Enterprises [2006] IRLR 422 and Silman v ICTS (UK) Ltd. UKEAT/0630/05. At paragraph 18 of Silman Elias P, addressing the approach of the tribunal, stated: | ||||||||||||||||
| “In the light of the finding that there was an 80% chance that the Claimant would have been dismissed, the Tribunal concluded that the result of applying that subsection was that they had to conclude that the dismissal was not unfair. So to summarise the approach of the Tribunal, it was as follows. It was first held that there was no automatic dismissal. There would, nonetheless, under the old Polkey principle have been an unfair dismissal with 80% contributory fault. However, they accepted that Section 98A(2) reverses Polkey where there is no breach to the statutory procedures. It has the effect that if the employer is able to satisfy the Tribunal, then it was more likely than not that the employee would have been dismissed, even if the contractual procedures had been properly complied with, then there was no unfair dismissal. Both parties accepted before the Employment Tribunal that this was the proper construction of Section 98A(2). On a provisional reading of the subsection, that seems to be right, but we should emphasise that we have heard no argument about the matter.” | |||||||||||||||||
| “Procedure” in relation to the dismissal of an employee | |||||||||||||||||
| 14. | So far, so good. However, the question left uncertain by Alexander and the decision in Mason v Governing Body of Ward End Primary School [2006] IRLR 432 (both reserved decisions handed down by the EAT on the same day), is what constitutes a “procedure in relation to the dismissal of an employee” for these purposes, the “contractual procedure” within the quote above. | ||||||||||||||||
| 15. | In Alexander the EAT (Elias P) adopted, albeit obiter, a wide definition of “procedure” for these purposes: | ||||||||||||||||
| “There is no basis at all for considering that the concept of procedure merely applies to such procedures as have been reduced into writing by the employer, nor is there any limitation on the nature of failure to comply found within the terms of the subsection itself…we see no limitation on the nature of the procedural breaches caught by the subsection…In our view it simply means any procedure which the tribunal considers in fairness the employer ought to have complied with.” | |||||||||||||||||
[at page 430] |
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| 16. | However, in Mason HHJ McMullen QC adopted a different, more restrictive, approach, seeking to confine “procedure” to the employers’ contractual terms and non-contractual safeguards, such as policies relating to “whistle blowing”, and “custom and practice”, but not to ACAS codes, natural justice or general criticisms based upon failures to comply with the standards of a reasonable employer. His Lordship held that the ACAS code was authoritative advice and guidance as to how to interpret other “procedures” the employer had in place, but not a “procedure” in its own right. | ||||||||||||||||
| 17. | It is the Alexander approach that seems to have won through, being adopted in Loosley v Social Action (UKEAT/0378/06) and YMCA v Stewart (UKEAT/0332/06). | ||||||||||||||||
| 18. | Unfortunately, however widely “procedure” is defined, criticism will still arise, as any definition of “procedure” will inevitably reintroduce a distinction between “procedure” and “substance” that was rejected when considering Polkey. If the failure is deemed to be “substantive” (even on a wider definition) then s98A(2) cannot take effect. Although this point was raised by counsel for the Appellants in Alexander the EAT did not address it. | ||||||||||||||||
| 19. | There seem to be two ways to approach this situation. On the one hand any failure that is deemed substantive is likely to result in a finding that there was a failure to comply with the minimum procedures set down by the 2002 Act. If this is right, then there is no issue with s98A(2) applying. | ||||||||||||||||
| 20. | On the other hand, if there were a substantive failure and still compliance with the minimum procedures then it is arguable that traditional Polkey applies, bearing in mind its rejection of the substantive/procedural divide. | ||||||||||||||||
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| Guidance as to the tribunal’s approach | |||||||||||||||||
| 21. | In January 2007 the EAT (Elias P) handed down the decision in Software 2000 v Andrews & Others (UKEAT/0533/06). In that decision at paragraph 54 the EAT gave the following guidance: | ||||||||||||||||
| “The following principles emerge from these cases: | |||||||||||||||||
(1) |
In assessing compensation the task of the Tribunal is to assess the loss flowing from the dismissal, using its common sense, experience and sense of justice. In the normal case that requires it to assess for how long the employee would have been employed but for the dismissal. | ||||||||||||||||
(2) |
If the employer seeks to contend that the employee would or might have ceased to be employed in any event had fair procedures been followed, or alternatively would not have continued in employment indefinitely, it is for him to adduce any relevant evidence on which he wishes to rely. However, the Tribunal must have regard to all the evidence when making that assessment, including any evidence from the employee himself. (He might, for example, have given evidence that he had intended to retire in the near future). | ||||||||||||||||
(3) |
However, there will be circumstances where the nature of the evidence which the employer wishes to adduce, or on which he seeks to rely, is so unreliable that the tribunal may take the view that the whole exercise of seeking to reconstruct what might have been is so riddled with uncertainty that no sensible prediction based on that evidence can properly be made. | ||||||||||||||||
(4) |
Whether that is the position is a matter of impression and judgment for the Tribunal. But in reaching that decision the Tribunal must direct itself properly. It must recognise that it should have regard to any material and reliable evidence which might assist it in fixing just compensation, even if there are limits to the extent to which it can confidently predict what might have been; and it must appreciate that a degree of uncertainty is an inevitable feature of the exercise. The mere fact that an element of speculation is involved is not a reason for refusing to have regard to the evidence. | ||||||||||||||||
(5) |
An appellate court must be wary about interfering with the Tribunal's assessment that the exercise is too speculative. However, it must interfere if the Tribunal has not directed itself properly and has taken too narrow a view of its role. | ||||||||||||||||
(6) |
The s.98A(2) and Polkey exercises run in parallel and will often involve consideration of the same evidence, but they must not be conflated. It follows that even if a Tribunal considers that some of the evidence or potential evidence to be too speculative to form any sensible view as to whether dismissal would have occurred on the balance of probabilities, it must nevertheless take into account any evidence on which it considers it can properly rely and from which it could in principle conclude that the employment may have come to an end when it did, or alternatively would not have continued indefinitely. | ||||||||||||||||
(7) |
Having considered the evidence, the Tribunal may determine | ||||||||||||||||
(a) |
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 by virtue of s.98A(2). | ||||||||||||||||
(b) |
That there was a chance of dismissal but less than 50%, in which case compensation should be reduced accordingly. | ||||||||||||||||
(c) |
That employment would have continued but only for a limited fixed period. The evidence demonstrating that may be wholly unrelated to the circumstances relating to the dismissal itself... | ||||||||||||||||
(d) |
Employment would have continued indefinitely.” | ||||||||||||||||
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| Peaceful co-existence? | |||||||||||||||||
| 22. | It is suggested that it is easy to consider the two regimes as being part of the same whole. Indeed, they look as though they can live together, however one may feel they are moving apart. The scope of traditional Polkey is widening with the rejection of the procedural/substantive divide and the recognition that any assessment of what is just and equitable involves speculation to some degree. Yet s98A(2) seems to have opened up old wounds that many thought healed, namely whether a breach is procedural or substantive. | ||||||||||||||||
| 23. | In Alexander Elias P seeks to mitigate the apparent difference between “procedure” and “substance” when he states: | ||||||||||||||||
| “we consider s98A(2) applies to all procedures, which we take simply to mean the steps which ought to be taken by an employer before determining that he will dismiss the particular employee. Those steps will of course vary depending on the reason for the dismissal. There is no magic in the word ‘procedure’ and there is no justification for seeking to redefine some steps that would naturally be described as ‘procedural’, such as a duty to consult, as ‘substantive’ merely on the basis that they are said to provide particularly important safeguards to the employee. All procedural safeguards are important for employees” | |||||||||||||||||
[at page 430] |
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| 24. | Whilst subsequent EAT decisions have adopted the Alexander definition of procedure, it is respectfully submitted that it is hard to accept the apparent running together of the two separate concepts of mere procedural and substantive rights that had been acknowledged for some time under traditional Polkey principles. Indeed, why, if Parliament did not intend s98A(2) to be limited to procedural errors, but meant it to cover all failures by an employer, did it not say so by making s98A(2) apply to any failures of an employer? | ||||||||||||||||
| 25. | Indeed, one must remember that despite the similarities in their aims Polkey and s98A(2) are different creatures. One is a crystallised form of the tribunal’s express duty to assess compensation on a just and equitable basis, and in such a woolly undefined arena technical distinctions are not to be expressly favoured. | ||||||||||||||||
| 26. | The other, however, is a total defence exonerating respondents from any liability. The EAT in Alexander counselled caution about setting the bar too low for respondents because of the potential outcome if they succeed in arguing the s98A(2) defence. | ||||||||||||||||
| 27. | Indeed, s98A(2) is limited by its terms to the procedure in question and its application to the dismissal in question, and not a consideration of vicissitudes of the future. It is arguable therefore that s98A(2) has no application to the James W Cook type of case referred to above, or any argument where the employer seeks to show what would have happened in the future | ||||||||||||||||
| 28. | In these cases traditional Polkey reigns, with the possibility of a 100% finding still available. | ||||||||||||||||
| 29. | This division however should not be allowed to have the effect of taking focus off the evidence. In both Polkey and s98A(2) evidence is the key. Recent case law has dragged the focus back onto the cogency of evidence relied upon. | ||||||||||||||||
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| Practical steps | |||||||||||||||||
| 30. | Claimants and their advisors must be aware of the “reasonableness gap” in the respondent’s procedures and seek to exploit that weak point. If respondents plead a Polkey/s98A(2) defence in the ET3 it is advisable to get them to nail their colours to the mast early with fully pleaded particulars of what they are saying they would have done, and what they are saying would have happened had they done it. | ||||||||||||||||
| 31. | Equally, respondents must be alert to the need to produce reliable and cogent evidence if they are to succeed in a Polkey/s98A(2) argument. According to the wording of s98A(2) the employer can only succeed in its defence where it can convince a tribunal that the employer “would have decided to dismiss the employee” [emphasis added]; seemingly it is not enough to show that the employer “may have” or “could have” decided to dismiss. | ||||||||||||||||
| 32. | Tribunals are unlikely to be persuaded by a bald assertion in a witness statement by the respondent that had they followed a procedure they would have still dismissed the claimant. What the tribunal will want is cold hard evidence (e.g. evidence of previous dismissals for similar conduct, evidence of what the witness, who would have been interviewed had a fair procedure been followed, would have said, evidence of how little effect the failed procedure would have had on the scores allocated to the employee etc.). | ||||||||||||||||
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| Conclusion | |||||||||||||||||
| 33. | Although s98A(2) has promoted discussion almost since the day it was proposed, and has kept the EAT and the courts entertained for some time, it is submitted that there is still a way to go before its boundaries are fully set out and the full impact of its relationship with traditional Polkey arguments is understood. | ||||||||||||||||
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| 34. | Such guidance as there is from the EAT is undoubtedly useful. However, until there is a recognition that the two concepts concern different interests before the tribunal there will be debate within cases as to which scheme applies and where | ||||||||||||||||
| 35. | The refocusing of attention from the debates as to whether a failure is procedural or substantive and towards the cogency of evidence is an important step and one that should be built on by practitioners by insisting that Respondents commit themselves early to explaining what their argument actually is. | ||||||||||||||||
| Michael Salter | |||||||||||||||||
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