The claimants were husband and wife who worked for the respondent as club stewards with the use of a flat. The respondent suffered financial difficulties and as a result made the claimants redundant. The claimants claimed unfair dismissal and the ET found in their favour, saying that there was no redundancy situation but that the respondent could have, but did not, run a 'some other substantial reason' argument. The husband was 4 years from retiring at the date of dismissal and compensation was awarded up until his retirement date the proposition being that if they had not been dismissed the claimants would have remained in employment up to retirement. The ET gave no consideration to any reduction to reflect the chance that the claimants could have been properly dismissed either at the time they actually were or some time before retirement. The respondent appealed the remedy judgment.

The EAT allowed the appeal. Given the findings in the liability judgment there was sufficient for the ET to have considered the chance that the claimants might have been properly dismissed at sometime before retirement and having considered those chances there was material on which they might have come to the view that they could reduce the compensation accordingly. However, they failed to do that.
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Appeal No. UKEAT/0096/12/BA

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX

At the Tribunal

On 13 February 2013

Before

HIS HONOUR JUDGE SHANKS, MRS L S TINSLEY, MISS S M WILSON CBE

NEW ELTHAM CONSERVATIVE CLUB (APPELLANT)

MR & MRS HAZEL (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

For the Appellant
MS NICOLA BRAGANZA (of Counsel)

Instructed by:
Clarkson Wright & Jakes LLP
Valiant House
12 Knoll Rise
Orpington
Kent
BR6 0PG

For the Respondents
MS LYDIA BANERJEE (of Counsel)

Instructed by:
Thomas Dunton Solicitors
217-219 High Street
Orpington
Kent
BR6 ONZ

UNFAIR DISMISSAL – Compensation

The Employment Tribunal found that Claimants had been unfairly dismissed rejecting Respondent's case that the dismissal was for redundancy and finding that it was procedurally unfair in any event. In the course of the judgment on liability the ET made a finding that R "had determined that its dire financial problems meant that it needed to make savings in the form of reducing overheads the biggest of which were staff and in particular the costs of employing the Claimants"; it also remarked that it may have been a case where "some other substantial reason" could have been argued successfully but that such a case was not advanced.

At the remedies hearing the ET made a compensatory award based on the proposition that if they had not been dismissed Cs would have remained in employment up to retirement and notwithstanding their findings in the liability Judgment they gave no consideration to any reduction to reflect the chance that the Cs could have been properly dismissed at the time they were in fact dismissed or at some time before retirement date. In so doing they rejected R's case on balance of probabilities but failed to consider whether there was such a "chance" and so erred.

The case is therefore remitted to the same ET on the question of compensation with a direction that the ET should consider the position in the light of any further submissions but that no further evidence should be received.

1. This is an appeal by the New Eltham Conservative Club against a decision of the London South Employment Tribunal at a remedies hearing held on 22 June 2011. At that hearing the Tribunal found that absent unfair dismissal the Claimants' – there are two of them: Mr and Mrs Hazel – employment would have continued up to Mr Hazel's 66th birthday, namely 14 March 2013, as the Claimants had maintained at that remedies hearing. The Claimants were originally employed as a couple from 22 June 1988 as club stewards, jointly, with the use of a flat and with the combined salary of £32,000 per annum, £17,000 of which apparently went to Mr Hazel and £15,000 to Mrs Hazel. Their main duties related to the operation of the bar for club members. The club had six staff in all. Mr and Mrs Hazel were dismissed with effect from 31 December 2009. At the liability hearing the club maintained that they had been dismissed fairly by reason of redundancy; the Tribunal rejected that case and found that they had been unfairly dismissed. The Claimants' claim at the remedies hearing was for compensation based on Mr Hazel's prospective retirement date: they were saying they should get compensation for their loss of remuneration during the entire period from 31 December 2009 to 14 March 2013 as well as compensation for losing the use of the flat during that period.

1. It is important to record in this Judgment a number of things said in the course of that liability Judgment. We start at page 69 in our bundle, paragraphs 26 and 27 of the Tribunal's liability Judgment. The Tribunal under the heading "Findings of Fact" said this:

"26. On 14th September 2009 the Respondent's ongoing financial problems were discussed at the Club Committee Meeting (R1 [bundle] page 60 [page 88 of our bundle, where the minutes are to be found]). We heard evidence that the Respondent had been experiencing financial difficulties for at least the last two years. In particular the meeting discussed the possibility of making staff redundant.

27. Mrs Hazel was told after the meeting that same day that the Committee had been talking about the risk of staff redundancies."

1. Then, at paragraphs 29 and 30, the Tribunal say this:

"29. On 21st September 2009 Mr Waller [an employee of the Respondent] held a meeting with the Claimants at which Mrs McNeill [an HR consultant] and Mr Eric Giles, the Club Treasurer were also present. Mr Waller explained that the Respondent had dire financial problems and needed to 'substantially cut overhead costs while seeking to increase revenue and this meant the need to cut staffing costs'. In particular he said that this meant the Claimants were at risk of redundancy. A consultant period was set in place which in view of the Claimants absence [sic] on holiday for the next few days was extended to 1st October 2009 [there is then a reference to the minutes].

30. At the end of the meeting the Respondent handed the Claimants identical letters dated 21st September 2009. These letters confirmed the content of the meeting that day and in particular referred to the Respondent's 'need to reduce staff costs' [there is then another reference to documents]."

1. Then, paragraphs 34 and 35 of the liability Judgment say:

"34. Mr Waller and Mr Giles had been appointed by the Club Committee to make the final decision on who should be selected for redundancy. They had a further meeting with Mrs McNeill on 24th September 2009 to discuss possible salary savings. Minutes of that meeting are at R1 page 71 [our page 90]. They decided that the biggest and most meaningful savings would be made by dispensing with the post of joint stewards in terms of salary, pension payments, utility payments and council tax payments on the flat occupied by the Claimants. In addition, they believed they could rent out the flat to bring in further income. They also thought that the Respondent should try to staff the bar with volunteers and existing part time members of staff and if takings improved and it was not possible to manage this way, they could consider recruiting a non residential bar manager for a salary of approximately £20,000 per annum. Mr Waller stated that the Respondent also considered half way measures such as retaining one of the Claimants. However, he believed there were contractual difficulties with this as the Claimants held a joint contract and it included the right to occupy the flat. We heard no evidence as to the exact nature of the contractual difficulties or as to any further exploration of them by the Respondent. This option was not put to the Claimants. Indeed it was not identified as a consideration prior to the Claimants' dismissals.

35. A further meeting took place between Mr Waller, Mr Giles and Mrs McNeill and the Claimants on 1st October 2009 [to be found in our bundle at page 91, so far as minutes are concerned]. Mr Waller reiterated the deep financial difficulties that the Respondent faced and the need to make 'as big a cost saving as it could'. Mr Waller explained that painful as it was the decision had been made to make the Claimants redundant with effect from 31st December 2009. Mr Waller stated this had been as a last resort and may not be enough to save the Club. The Claimants were handed letters of redundancy. Mrs McNeill explained the contents to them, the way in which the redundancy payment was calculated and their right of appeal. [There is then a reference to the minutes.]"

1. Then, at paragraph 38, the finding was (and this is an important paragraph, particularly relied on by the club on this appeal):

"On balance we conclude that the Respondent had determined that its dire financial problems meant it needed to make savings in the form of reducing overheads the biggest of which was staff and in particular the costs of employing the Claimants. Mr Waller's specific evidence was that the greatest potential for savings in terms of salary, pension payments, utility payments and council tax payments on the flat would be achieved by dispensing with the post of joint stewards, i.e. the Claimants' employment."

Although the Tribunal do not expressly say that they accept that evidence, they certainly do not indicate that they reject it, and it is under the heading "Findings of Fact".

1. Notwithstanding that the club maintained that those facts gave rise to a redundancy situation, the Tribunal rejected that, although perhaps in slightly ambiguous terms. At paragraphs 59 64 they say this:

"59. In the case before us the requirements of the business appear to be that the Respondent wanted fewer staff or perhaps cheaper staff. This was not clear. The work of the particular kind appears to be bar work or bar work carried out by residential staff. Again it was not clear. But in these terms, the requirements of the business for work of the particular kind either ceased or were expected to cease.

60. However, the problem with the situation presented by the Respondent's [sic] is whether the Claimants' dismissals were wholly or mainly attributable to these circumstances or for some other reason.

61. Having considered the evidence carefully we reach the conclusion on balance of probabilities that in reality the Claimants' dismissals arose purely from the perceived need to save money. The dismissals were not by reason of redundancy either wholly or mainly despite that label being attached at the time and thereafter. As a result we do not accept the potentially fair reason for dismissal was redundancy.

62. This was purely a process of cost cutting and the Claimants were perceived to be the largest savings that could be achieved, due to not just their salaries which in fact comprised less than half the salary bill [some figures follow] but also the savings from their accommodation and its potential rental income (but in fact not yet achieved by the date of the Tribunal hearing [although, we were told, achieved shortly thereafter]). The consideration of the bar work itself was ancillary to this process and it still existed and needed to be carried out albeit the intention was that it would be done in a different way.

63. This was a case pinned firmly on the Claimants having been made redundant and the whole process that was followed and the considerations arising were on this basis. The Respondent was advised by HR consultants at the time of the events in question, who identified the situation, resultant process and the dismissals arising as being redundancy. The Respondent was represented by counsel and the case was put purely on the basis that the Claimants were fairly dismissed by virtue of redundancy. No alternative case was advanced.

64. It may well be that this was a situation where the potentially fair reason might be some other substantial reason in accordance with section 98(1) [of the Employment Rights Act] ERA 1996 but this case was not advanced, the considerations attaching to it were not raised in evidence or submissions and as a result we cannot find that this reason was shown to us."

There the Tribunal appear to be saying that there was a chance at least that if a different case had been run, it might have succeeded. At paragraph 77 the Tribunal said this:

"Whilst the Claimants have been criticised for not putting forward any alternatives to their 'redundancy' at the time, it is of concern to us that the Respondent did not consider any alternatives to 'redundancy' with the Claimants, such as moving out of the flat or making one of them redundant (notwithstanding the possible legal difficulties of the latter which whilst identified were not explored in detail). Their approach was purely to achieve the maximum savings in staff costs."

1. Then, at paragraph 78 they considered whether this was a case that fell within the exception to Polkey v A E Dayton Services Ltd [1987] IRLR 503, and they rejected the notion that consultation would have been utterly futile. That reference to Polkey, of course, is not to the point about reducing compensation to recognise that certain things may happen, or may have happened, in any event, following a dismissal; it is a reference to the procedural point about consultation being utterly futile, which is a different point, which we need not consider further.

1. The liability hearing was in August 2010, and the decision was sent out in November 2010. There then followed a remedies hearing in June 2011. At the remedies hearing no evidence was called by the club but Mrs Hazel gave evidence on behalf both of herself and her husband. There was a counter schedule in the bundle (at page 112 of our bundle), which is not referred to in the Judgment, and which, we are told by Ms Banerjee, was not even referred to by counsel on either side at the hearing. In any event, it was in the bundle, and it made a few points under the heading "Compensatory Award":

"(A) Role of Joint Residential Steward would not have continued beyond 24.12.09 [the date the Claimants were formally notified of the end of their employment] as Club did not need and could not afford it.

(B) If Claimant had remained in employment would have been on basis of non residential part time bar work @ £5.93 20 hours per week [and there is then a calculation]

(C) Claimant was unfit to work between 24.12.09 and 16.8.10 and would have received SSP […]."

We have not heard anything about the SSP point, and we say no more about it, but there was clearly something being put forward as to what would or might have happened after the dismissals. There were then some figures and then there was another passage at page 114 of our bundle under the heading "In the alternative", which says:

"The fact that his [Mr Hazel's] employment would have been terminated on the same date or shortly afterward if he had been fairly dismissed; alternatively, he would have accepted alternative part-time lower paid employment and/or would have been in receipt of SSP etc; the accommodation would have been withdrawn at the date the Claimant was dismissed or shortly afterwards and in view of the fact the Claimant has made very little effort to mitigate his loss."

1. There is a record of some submissions made by counsel for the Respondent, Mr Downey, who, we stress, is not counsel who appears in front of us, Ms Braganza. Those submissions are recorded at paragraph 11.1 11.3 of the remedies judgment, at page 3 of our bundle, as follows:

"11.1 The Tribunal should consider what would have happened after the Claimants' dismissals. This is a speculative exercise but one has to assess and apportion the losses attributable to the dismissals. It also involves looking at what did happen.

11.2 At the liability hearing the Tribunal found that there was a redundancy situation although it did not find redundancy to be the reason for dismissal. The Tribunal identified that this was potentially an 'SOSR' [some other substantial reason] dismissal but found that this case was not advanced. This does not mean it should be ignored. The Respondent could quite legitimately have chosen to reorganise its business, restructure the bar and to have live out staff so as then to free up the Claimants' flat for renting. The Tribunal noted that the hours of existing staff increased and the volunteers were used at least initially to staff the bar.

11.3 The Respondent's accounts indicate it had been losing money for several years and needed to take drastic action in removing the Claimants from employment. By doing so this might have improved its financial position but if it had not done so it faced insolvency."

1. The Tribunal's relevant findings are at paragraphs 22 26 of the remedies decision:

"22. The Claimants were both dismissed on 24th December 2009. We accept that they would have continued in the Respondent's employment until Mr Hazel reached the age of 66 on 14th March 2013. We heard no evidence to persuade us on balance of probability that the Claimants would not have continued in the Respondent's employment and living in the accommodation provided.

23. Reference was made to our Judgement on liability and what appeared to us to be submissions by which the Respondent attempted to reopen matters already determined as to the Respondent's financial position and its ability to employ the Claimants. Even if we did not think this, we were still not presented with any clear evidence on balance of probabilities that the Respondent's financial position was sufficiently grave or perilous to indicate that the Claimants would no longer continue to be employed. Further, the Respondent did not consider any alternatives to dismissal and still has not put forward any evidence as to how these might have changed the position.

24. The Respondent indicated that we found the dismissal to be by reason of redundancy but simply concluded that the dismissal was not wholly or mainly attributable to those circumstances […]. However this was not what we found. We found there was no redundancy.

25. The Respondent then submitted that paragraph 64 of our liability Judgment allowed the possibility of 'some other substantial reason' […] as the potentially fair reason. However, in our liability Judgment we said that possibly this situation might have been argued as SOSR but it was not. We did not state that we thought the reason was either shown or applied. Moreover the Respondent did not present any evidence at our hearing today to support the proposition.

26. In any event we already considered and rejected any exception to Polkey applying (paragraph 78 of our liability Judgment) and in the absence of anything further by way of evidence we have no reason to apply a reduction in compensation at the remedy stage. The Respondent offered no evidence to support this and did not even give an indication of a possible date by which the Claimants' employment might have come to an end."

1. The law on all this is set out comprehensively and clearly by Elias J, then the President, in the well-known Software 2000 Ltd v Andrews [2007] IRLR 568 case. Leaving out references to section 98A of the Employment Rights Act, which is now happily repealed, he summarised the position in paragraph 54 of that Judgment in this way:

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. […]

(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) […] 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. […]

(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.

However, this last finding should be reached only where the evidence that it might have been terminated earlier is so scant that it can effectively be ignored."

1. In our view, what the Tribunal here did was to adopt the approach in (d). It is right that they did not give compensation going on for ever and ever, but they accepted the Claimants' case without more that they would have together retired when Mr Hazel reached the age of 66. What the Tribunal did not do was to find that the employer had satisfied it that the dismissal would have occurred in any event or that there was a chance that that would have happened or a chance that the employment would have continued but only for a limited period.

1. We are persuaded that in failing to consider those other possibilities the Employment Tribunal misapplied the law as explained so clearly by Elias J. If we go back to paragraphs 22 26 of the remedies decision, it becomes apparent that they have indeed failed to apply those guidelines. In both paragraphs 22 and 23 they make reference to being persuaded of things on the balance of probabilities. First, they say (paragraph 22):

"We heard no evidence to persuade us on balance of probability that the Claimants would not have continued in the Respondent's employment and living in the accommodation provided."

And, at paragraph 23:

"Even if we did not think this, we were still not presented with any clear evidence on balance of probabilities that the Respondent's financial position was sufficiently grave or perilous to indicate that the Claimants would no longer continue to be employed."

In those statements, they are apparently rejecting possibility (a) as it is set out in Elias J's decision, and that may have been something that was open to them. What they failed to go on to do is consider whether there was a chance that those things might have happened, namely that their employment would have ended sooner or would have ended at the same time in any event, a chance that is then reflected in some kind of reduction to the compensation figure otherwise awarded.

1. In paragraph 24 they say that they wholly reject the notion that there was a redundancy, and then at paragraph 25 they go back to the question of some other substantial reason. They say that it was not argued and it was not established, but if one goes back to the liability decision and to their comments about that at paragraph 64, it is clear that they were persuaded, without deciding, that it may well be that there was a potentially fair reason (some other substantial reason). They were prepared to say that at the liability stage, and it seems to us that they should have at least considered the chance that that may have happened, having acknowledged themselves that it was a possibility without it ever having been raised with them by the Respondent at the liability hearing.

1. Then, at paragraph 26, they say that they had already rejected any exception to Polkey and that in the absence of further evidence there was no reason to apply a reduction. We have referred already to paragraph 78 of the liability Judgment; it is clear that the reference to Polkey there is to a completely different point, to do with going through procedures being utterly futile. The Polkey point that we are here dealing with is whether in some circumstances there should be some kind of reduction to compensation to recognise the chances of certain things happening, and that the Tribunal have not addressed their minds to. They have in fact taken too narrow an application of that Polkey case, and, as I have indicated, a so called Polkey reduction can be a percentage – up to 100 per cent, indeed – but it does not require a finding that consultation would have been utterly futile.

1. Given the findings in the liability Judgment, in our view there was clearly sufficient for the Tribunal to have considered – and we think they should have considered – the chances that the Claimants might have been properly dismissed at some stage before March 2013, possibly in December 2009, and that having considered those chances there was material on which they might have come to the view that they could reduce the compensation accordingly. However, they failed to do that.

1. On that basis, we are going to allow the appeal. We are going to refer the matter back to the same Tribunal – it would be quite wrong to go to a different Tribunal – for them to consider the compensatory awards in the light of this decision. We are also very firmly of the view that on any re hearing (and we leave it to the Tribunal to decide how to deal with it, whether orally or in writing) the Respondent should be confined to making submissions based on the material that was before the Tribunal on the original remedies hearing (that is, the liability Judgment, the bundle and the evidence from Mrs Hazel) and that they should not be allowed to put in further evidence: that would be unfair.