1. When awarding compensation for unfair dismissal, a tribunal requires to assess what is "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" (Employment Rights Act 1996 s.123(1)). If the unfairness is that the employer failed to take the appropriate procedural steps then an obvious series of "what if?" questions arise – what if the employer had taken the steps desiderated? What then? Was there a chance that the employee would have been dismissed in any event? If so, how substantial was that chance? Unless these questions are addressed, an unsatisfactory and unacceptable situation arises namely that the implication of the award of compensation will be that the employee would have retained his job indefinitely when the circumstances may in fact be that it cannot be said that that would have been the case at all.

1. The law has long been settled that in these circumstances, the tribunal can award compensation which represents less than 100% of the claimant's loss. In *Polkey v Dayton Ltd*, Lord Bridge of Harwich explained, at p.364-5:

"If it is held that taking the appropriate steps which the employer failed to take before dismissing the employee would not have affected the outcome, this will often lead to the result that the employee, though unfairly dismissed, will recover no compensation or, in the case of redundancy, no compensation in excess of his redundancy payment…….

….

..if the likely effect of taking the appropriate procedural steps is only considered, as it is should be, at the stage of assessing compensation……………as Browne- Wilkinson J. put it in Sillifant's case, at p.96:

'There is no need for an "all or nothing" decision. If the industrial tribunal thinks there is a doubt whether or not the employee would have been dismissed, this element can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment.'

The second consideration is perhaps of particular importance in redundancy cases. An industrial tribunal may conclude, as in the instant case, that the appropriate procedural steps would not have avoided the employee's dismissal as redundant."

1. The analysis of authorities set out in the Software 2000 Ltd** case is directly in point and we would refer to the helpful summary of principles set out at paragraph 54. The tribunal requires to have regard to all the evidence and, of particular significance for the purposes of the present case, requires to appreciate that:

"(4)……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.

….

(6) ………..even if a Tribunal considers that (sic) 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."

1. Regarding the possibility of a tribunal making no Polkey** deduction and thus finding that the claimant's employment would have continued indefinitely, the President observed:

"..this …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. The theme of the guidance in Software 2000 Limited was taken up recently in the case of [Eversheds Legal Services Ltd v De Belin]() [2011] IRLR 448 where, at paragraph 45, Underhill P observed:

"45. We rather suspect that the Tribunal was seduced into abandoning its proper course, as tribunals still too often are, by the siren word "speculative", which at para 4.16 it quotes from Mr Bacon's own evidence. "Speculative" is not a dyslogistic term in this field. The trouble starts with the decision of the Inner House in King v Eaton no.2 Ltd [1998] IRLR 6868, which appears, at least on one reading, to say that tribunals when invited to make discounts for future contingencies should decline to engage in speculation: another much quoted phrase from the judgment of Lord Prosser is his reference to being unable "sensible [to] reconstruct the work as it might have been". But the Court of Appeal in Thornett v Scope [2007] ICR 236 counselled against too wide a reading of King v Eaton."

1. He then referred to Software 2000 Ltd** and added:

" …Elias P reviewed the previous authorities (which include also Lambe v 186K Ltd [2005] ICR 307 and Gover v Propertycare Ltd [2006] ICR 1073 , adding, at para 38 ( p. 832E– H) his own note of caution against reading King v Eaton too expansively."

1. We recognise that the chimes of caution regarding the interpretation of King v Eaton have been rung not in Scotland but by this Tribunal sitting south of the border and by the Court of Appeal, but we are satisfied that, when King v Eaton is properly interpreted, such caution is justified. We agree with Underhill P's observations at paragraph 45 and with his apparent anxiety that tribunals appear to shy away from speculating in the sense of asking the "what if?" questions that we pose above. We do not read King v Eaton as ruling out all exercises in speculation; the references in paragraph 19 to the tribunal's task involving "hypothesis", 'impression", to it being a matter of "judgment", to it being a matter of what was "possible" and to it reaching a conclusion that can be not only with "more" confidence but with "less" confidence, all, to our minds, show that uncertainty and speculation were accepted as being inherent in the Polkey exercise. Whilst Lord Prosser rejected the submission that the exercise could be carried out in King v Eaton, referring to it involving embarking on a "sea of speculation" at paragraph 22, that was in the context of there being "no reliable factual starting point" for it. He was not, as we read him, saying that it was not legitimate for a tribunal to speculate – to do so would, we consider, have been contradictory of his discussion at paragraph 19.

1. As to the source of the evidence relied on, having regard to certain submissions that were made on behalf of the claimant, we do not consider that the evidence relied on by a tribunal when making a Polkey reduction requires to have emanated either from the employer's witness or productions or from cross examination of the claimant's witness(es). Whilst Elias P's comment at paragraph 54(2) in Software 2000**, that it is for the employer to adduce any relevant evidence on which he wishes to rely, might, if taken out of context, be thought so to indicate, when his comments are read in their entirety, including that he then proceeds to state:

"However, the tribunal must have regard to all the evidence when making that assessment including any evidence from the employee himself"

it seems clear to us that he did not intend to suggest that there was any such rule.

1. Mr Cameron submitted that the employer required to lead Polkey evidence because there was an onus on him, as shown by those comments in Software 2000 and by the judgment of this Tribunal (HHJ Peppitt QC) in Britool v Roberts [1993] IRLR 481, at paragraph 26. We do not, however, read Britool, a decision which predated King v Eaton¸ predated the discussions which explained its effect so as to guard against it being read expansively, predated Software 2000 and which turned very much on its own facts as being authority for that proposition. Further, there is no hint in s.123(1) of the 1996 Act, of there being any burden of proof on the employer. Assessment of compensation is at large for the tribunal; it requires to take account of all facts which emerge from the evidence before it, whatever their source. We would add that an Employment Tribunal is to be expected to have regard to the relevant statutory authority and case law. In the present case, that meant the Employment Tribunal ought to have had regard not only to Polkey but to the development of the law since King v Eaton conveniently set out in and summarised in the guidance contained in the Software 2000 decision. They particularly required to do so in the light of their reliance on King v Eaton** and we are surprised not only that they were not referred to it but also that they did not identify it as relevant and invite submissions from parties' solicitors.

1. Further, we would observe, further, that in the case of Gover & others v Property Care Ltd [2006] ICR 1073, the Court of Appeal approved this Tribunal's endorsement of an employment tribunal (in the case of Hennessy v Craigmile [1986] IRLR 461)** having itself constructed a working hypothesis as to what would have occurred had the employer acted differently, from the evidence before it – it made its own findings. It was not suggested that they were constrained by any considerations of the source of the evidence or indeed, by the submissions of parties.

1. Mr Hay submitted that the Tribunal had erred in law. They applied the wrong test and ignored relevant facts. Given the findings that the Respondent faced bleak business prospects, that there was a genuine redundancy situation, that the Respondent was a small business with a maximum of 22 staff, that the "on site" staff required to be reduced from 17 staff to 7 staff, that the round of redundancies under examination focussed on trainees, and that the Tribunal themselves assessed matters as showing that there was a pool of two – the Claimant and Mr McArthur – they had a clear and proper basis for speculating about what would have occurred had a proper procedure been followed. There were sufficient pieces of the jigsaw for a working hypotheses to be constructed by the Tribunal and that hypothesis showed that it could not be concluded that the Claimant would have been dismissed in any event. Insofar as the Tribunal appeared to have taken account of the gravity of the Respondent's failings, they should not have done so. They were irrelevant. The Tribunal had adopted a punitive approach which it was not open to them to do.

1. Further, when the Tribunal had considered their "fall back" position, of what they would have concluded had they been persuaded that they should speculate about what would have been the outcome, they applied the wrong test. It was not just a matter of asking whether or not they were satisfied that the Respondent would have decided to retain Mr McArthur rather than the Claimant. It was a matter of assessing the chances either way. If the answer was, as they seemed to say 'honours even' then that pointed to a Polkey** reduction of 50%. The Tribunal had wholly failed to appreciate that the law did not require them to reach an absolute decision. They had a duty, when exercising the discretion conferred by s.123, to do so judicially and that involved taking account of all relevant factors, which they had failed to do.

1. As to disposal, Mr Hay submitted that the Tribunal's error was such as to show that there should have been a Polkey **reduction whilst no higher than 50%, of the order of 50% and that we should substitute an order which effected that reduction. Failing that, he sought a remit to a freshly constituted Tribunal.

1. We have already referred to what was the mainstay of Mr Cameron's submission namely that the onus was on the Respondent and it was not discharged. He submitted that the Tribunal were correct to have declined to speculate. The Respondent should but did not lead evidence as to what they would have done if correct procedures had been followed. The Tribunal had not erred in deciding not to speculate (a) because this was a case involving serious procedural flaws; and (b) because there was inadequate evidence as to what would have happened.

1. Further, as to the Tribunal's fallback position, the Tribunal had relied on the fact that the trainees' roles were essentially interchangeable and there was no evidence to show that, in a competition between the two, the Claimant would have been preferred.

1. Regarding the Tribunal's explanation in paragraph 78, Mr Cameron accepted that it was "unfortunately phrased" but submitted that they were not seeking to be punitive. It was rather a matter of their expressing their sense of injustice.

1. As to disposal, Mr Cameron submitted that if we were minded to uphold the appeal we should make only a minimal Polkey reduction. If there had to be a remit, he agreed that, in the circumstances, it should be to a freshly constituted Tribunal.

1. In this case, there was a pool of two trainees, one of whom required to be dismissed as redundant, given the undisputed downturn in the Respondent's business. The redundancy situation was a genuine one and the side of the business in which the Claimant was working at the time was to undergo a severe staffing reduction. There were two trainees between whom, on the Tribunal's findings, there was little to choose, save that the Claimant had been employed longer than Mr McArthur and that there is an express finding that the Claimant was regarded as a very good worker (paragraph 16). The Tribunal did not find exactly how much longer the Claimant had been employed but it cannot, given that his overall period of employment with the Respondent was not long (April 2008 to January 2010), have been a disparity of more than a matter of some months. As against that, whilst both trainees were able to carry out on site installation and workshop manufacturing tasks, at the time of the redundancy decision, Mr McArthur was working in the workshop, whilst the Claimant was not – he was in the position of waiting for on- site orders which were not materialising.

1. In our view, Mr Hay's submission that the above presented the Tribunal with a proper evidential basis on which to reach a working hypothesis for Polkey purposes was well founded. The Tribunal refused to do so (a) because the Respondent was guilty of such serious procedural flaws that they were "not entitled to expect the Tribunal to speculate"; and (b) because the Tribunal would have had to construct a hypothesis which the Respondent had not itself envisaged. Neither proposition is sound in law. It is not the case that where the procedural failing in question is a heinous one, the employer is to be deprived of a Polkey reduction, which is what the Tribunal seem to suggest in paragraph 78. To put it another way, punishment is not a relevant aspect of the assessment of compensation under s.123 and a tribunal errs in law if its reason for assessing compensation in a particular way or at a particular amount is that they seek to punish the employer. Nor is it the case that it is only where the employer had themselves envisaged a hypothesis which emerges from the evidence that a tribunal is entitled to formulate it. In this case we accept that a clear picture emerges that one of the two trainees were bound to have been dismissed and it could not be said with certainty which one of them it would be. In favour of preferring the Claimant would, on the findings, have been that he had longer service and was regarded as a very good worker. Against preferring him would have been that to do so would have been that his on- site work had dried up and retaining him would have involved displacing Mr McArthur from the work that was available to him.

1. Contrary to the Tribunal's approach in paragraph 80, resolution of the issue was not a matter of asking whether they could be satisfied that Mr McArthur would actually have been preferred to the Claimant in the matter of redundancy selection. It was, rather, a matter of assessing chance. The Tribunal failed to do so.

1. The Tribunal should have made a Polkey reduction as there was plainly a chance of the Claimant being dismissed in any event. This is, we consider, where we can properly reach a view on the matter and there does not require to be a remit. Taking account of all of the above circumstances, we assess the chances of the Claimant being dismissed had there been a fair procedure as being of such significance that there ought to have been a Polkey reduction of 35%.

1. We will, accordingly, pronounce an order upholding the appeal to the extent of substituting in that part of the Tribunal's judgment awarding compensation the sum of £5740 in place of the present award of £8,830.