Mark Shulman, Consultant Solicitor at Keystone Law

COMPENSATION

**Polkey – the basics
The judgment of the EAT in [Countrywide Freight Group Ltd v Hobbs]() UKEAT/0582/11/SM serves as a useful reminder of what the principle in Polkey v A E Dayton Services Ltd** [1987] IRLR 503 is all about.

In Hobbs, the Claimant won his claim of unfair dismissal after being made redundant. The ET found the dismissal to be procedurally unfair in the absence of meaningful consultation or a proper selection for redundancy procedure. However, no Polkey deduction was made because the ET concluded that, on the balance of probabilities, the Claimant would have retained his employment if the proper procedure had been followed. The Respondent appealed.

The EAT recalled that the effect of the House of Lords decision in Polkey was that if, on the balance of probabilities, a fair procedure would have resulted in dismissal anyway, the compensatory award should be adjusted to allow for the chance, expressed as a percentage, that the employee would have retained his employment following a fair procedure.

The EAT stated that the correct approach to applying Polkey was set out by Elias P in Software 2000 Ltd v Andrews [2007] ICR 825. Whilst the law has in some respects changed since that decision, the following principles derived from case law still hold good:-

* in assessing compensation, the task of the ET 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; * 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; * there will be circumstances where the nature of the evidence which the employer wishes to adduce is so riddled with uncertainty that no sensible prediction based on that evidence can properly be made. However, the mere fact that an element of speculation is involved is not a reason for the ET to refuse to have regard to the evidence; * in the light of the evidence, the ET may decide:

• that if fair procedures had been complied with, then on the balance of probabilities, the dismissal would have occurred when it did in any event. Where the employee would have been dismissed had fair procedures been followed, then whatever the reason for dismissal, it will be open to the tribunal to say that it is just and equitable for no compensatory award to be made - in other words, a 100% reduction; or

• employment would have continued, but only for a limited fixed period and compensation should be adjusted accordingly. The evidence demonstrating this may be wholly unrelated to the circumstances relating to the dismissal itself; or

• employment would have continued indefinitely (in which case the normal rules on compensation apply without a Polkey adjustment).

In Hobbs the EAT upheld the appeal as there were good grounds for remitting the case to same ET to determine the percentage chance that the claimant would have remained in employment following a fair procedure. The ET's approach in applying the balance of probabilities test to the Polkey question was wrong in law. The loss of the chance of the Claimant retaining his employment following a fair procedure would fall within a spectrum i.e. between 0 and 100%. Alternatively, it may be that the employee would inevitably have lost their employment at some later (specific) date had a fair procedure been followed.

It would be for the ET to determine, following argument, whether or not further evidence on the Polkey question would be admitted at the remitted hearing.

**Application of Polkey and reduction for contributory fault
Should there still be a Polkey deduction even if a Tribunal considers on the evidence that the employer would not have carried out a fair dismissal at some future point? Yes, said the EAT in [Kingston Transport Ltd v Sanders]() UKEAT/0035/12/SM – if Polkey** applies, it has to be assumed that a fair procedure would be followed.

The Claimant was employed to deliver skips to customers. In 2009 there were 5 incidents including accidents and an altercation with a customer which led to disciplinary action being taken. The Claimant was issued with a written warning which would stay on his file for 6 months. Before the expiry of the 6 month period, the Claimant had an accident with a car belonging to a member of the public. He denied responsibility but was dismissed summarily after the Respondent claimed he had acted aggressively towards one of the directors when he was questioned about the accident.

The Respondent made no attempt to comply with the ACAS guidance as to disciplinary proceedings and there was no investigation into the accident.

The ET found that the Claimant had been unfairly dismissed because the Respondent had not followed the ACAS disciplinary procedures. It noted the admitted failure by the Respondent to follow the ACAS Code of Practice on disciplinary and grievance procedures and therefore uplifted the award by 25 per cent.

However, there had been no discussion at the ET hearing in relation to a Polkey deduction or contributory fault. The Respondent appealed to the Employment Appeal Tribunal and the case was then remitted back to the Employment Tribunal to deal with these issues.

The second Employment Tribunal noted that:

"The Respondent's case is that Polkey applies as there was potentially a fair reason for dismissal, namely the Claimant's conduct – the collision…. It is the Respondent's case it would have, on the balance of probabilities, fairly dismissed the Claimant within 1-2 weeks, thereby limiting his losses to that period."

However, based on the evidence it heard, the Tribunal's view was that the Respondent would not in fact have followed a fair procedure and therefore the Respondent's Polkey argument failed.

The ET also decided that a reduction for contributory fault was not appropriate because of the Respondent's conduct – the Respondent had not allowed the Claimant to explain at an internal hearing, his position about the collision in which he had been involved.

**Misapplication of Polkey principles
On the employer's further appeal to the EAT, it was argued that the ET had misapplied the principles set out in Polkey** because:-

* it failed to address relevant evidence of the Claimant's past history and the possibility that because of his recent driving record it was likely that he would give cause for further complaint leading to his dismissal within a short period of time i.e. two weeks. * Under the Polkey principle, the ET was bound to consider the position as though in fact there had been a fair procedure followed and to consider whether and for how long the Claimant's employment would have continued.

The EAT agreed. When considering whether to make a Polkey reduction, it must be assumed that fair procedures were put in place and carried out by the employer.

**Reduction for contributory conduct
Although separate from the Polkey issues, there were also two interesting reminders about how to approach the matter of contributory conduct. First there was a finding that the Employment Tribunal had fallen into error when it looked at the Respondent's conduct as well as the Claimant's, as being relevant to the issue - the ET had decided that it would not be just and equitable to reduce the Claimant's compensation because of conduct by the Respondent (by accepting the Claimant's version of events in order to defend the insurance claim from the other driver in the collision, yet deciding for internal purposes (without having conducted any form of investigation) that the Claimant was liable).However, the ET should have looked solely at the Claimant's conduct in deciding whether there was contributory fault (see: Parker Foundry v Slack [1992] IRLR 11). Also, as pointed out by the EAT, such conduct can relate to matters that are unrelated to the principal reason for the dismissal - although not referred to in the judgment, see for example Robert Whiting Designs Ltd v Lamb** [1978] ICR 89.

Secondly, it was also wrong, as a matter of law, for the ET to find that the Respondent was somehow precluded from raising arguments as to contribution by reason of its own conduct. The EAT confirmed that there is no estoppel or anything like that in this kind of case.

**Amount of Polkey reduction
With the agreement of the parties, the EAT then made its own decision about the extent to which a Polkey** deduction was appropriate. It decided that it was likely that the Claimant (i) would have been involved in further accident for which he was responsible and (ii) his employment would have terminated 26 weeks after the date he was actually dismissed. Compensation was adjusted to that extent. That decision took into account that the period before termination must assume a fair procedure on the part of the Respondent would be carried out and which would require:-

* the investigation of any further allegation of misconduct; * compliance with the ACAS Code so that there was no disciplinary action until after the investigation was completed; * the opportunity for there to be an appeal.

Therefore, whenever considering Polkey reductions, it will be necessary to factor in the various stages outlined above and the time needed to complete them.

**Mitigation of loss: what is reasonable?
**Section 123(4) of the Employment Rights Act 1996 requires a claimant to mitigate their loss. Therefore, a Claimant will be expected to explain what actions they have taken, including looking for other jobs. The ET is obliged to consider the question of mitigation in all cases.
In [Tandem Bars Ltd v Pilloni]() UKEAT/0050/12/DM, the EAT upheld an employer's appeal when the ET had failed to assess whether the steps taken by the Claimant to find another job were such as would have been taken by a reasonable employee. The ET had looked only at what steps the Claimant had actually taken when trying to mitigate his loss, not whether he had taken reasonable steps in order to avoid the loss.

The Tribunal had fallen into error by not considering whether it was reasonable for the Claimant to have confined his job search to seeking work via his contacts. The ET had not explained why the steps that might usually be expected of a person in that situation, namely to make written job applications and to invoke the assistance of the Jobcentre in finding jobs, were reasonably not undertaken by the Claimant.

The case was therefore remitted to the ET for further consideration in the light of the evidence that had already been heard.

Mark Shulman is a Consultant Solicitor with Keystone Law *and an accredited workplace and employment mediator.
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