Under the Employment Rights Act 1996 (ERA), the amount of compensation awarded for unfair dismissal must be an amount such as the Employment Tribunal (ET) considers ‘just and equitable in all the circumstances’, having taken into account the loss sustained by the employee as a result of the dismissal, insofar as the loss is attributable to the employer’s actions.

 

Normally, employees have the right to be consulted before being dismissed. However, even if an employer’s failure to follow proper procedures results in a finding of unfair dismissal at the ET, the level of compensation awarded can be reduced if the employer can show that the employee would have been dismissed even if the correct procedures had been followed. This is referred to as a ‘Polkey reduction’ as this point was first established in the case of Polkey v A E Dayton Services Ltd.

 

A recent case in the Court of Appeal (Gover v PropertyCare Ltd.) dealt with this issue. Mr Gover and the other claimants were employed by PropertyCare Ltd. selling lettings insurance and related products to landlords. In mid 2001, PropertyCare Ltd. decided unilaterally and without proper consultation to reduce their commission rates. When no agreement to this proposal was forthcoming from the employees, the company announced that their employment contracts would be terminated on 31 October and invited them to apply for new ones with different terms and conditions. The claimants met to decide what to do but in any event their contracts were terminated on 1 November 2001.

 

Some members of the sales force brought a claim for unfair dismissal in the ET, which held that they had been unfairly dismissed. The ET described the employer’s handling of the process as ‘reprehensible’. However, it went on to find that even if the employer had, after proper consultation, proposed terms that would not have been a fundamental breach of the employment relationship, the sales force would not have found the terms of this package acceptable. Therefore, all they had lost was employment during the period when consultation should have taken place. The ET calculated that this would have been four months plus two weeks’ notice. On this basis, it applied a ‘Polkey reduction’ and compensation for the unfair dismissal was limited to an amount covering that period.

 

Mr Gover and his colleagues appealed against this decision but the Employment Appeal Tribunal dismissed their appeal. They therefore took their case to the Court of Appeal and argued that the Polkey principle did not apply because it was not possible to reconstruct what would have happened had the employer acted fairly. It was not open to the ET to consider what would have happened if the unfair dismissal had not occurred and such an exercise launched the ET ‘on a sea of unreliable speculation’.

 

The Court of Appeal dismissed the appeal. It judged that the ET had been correct in directing itself in reconstructing, from the evidence and drawing on its own experience, what would have happened had the employer consulted properly and offered reasonable terms. The key focus should be on the application of the wording of the ERA, which seeks to make the compensation awarded ‘just and equitable’, and the principle in Polkey v A E Dayton Services Ltd. was not confined to the facts of that case but can be more widely applied.