Employment Cases Update

Howells School v Gerrard UKEAT/0079/12/RN

Appeal against the level of compensation awarded to the claimant after a successful claim of unfair dismissal. Cross-appeal that a Polkey deduction had been applied in error to the award for failure to provide a statement of terms and conditions. Appeal allowed and compensation amended accordingly. Cross-appeal also allowed.

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The claimant was made redundant and the dismissal was found to be unfair, a finding that was not challenged. However, the Tribunal, when assessing the compensation, correctly posed itself the question of salary at which the claimant would have been employed if she had not been dismissed, but failed to answer it, despite having findings in fact which showed it was likely she would suffer a reduction in salary because of financial constraints being suffered by the respondent's business. The Tribunal also applied a 20% Polkey deduction to the award, including the award made for the respondent's failure to give the claimant written particulars of employment. The respondent appealed against the level of the award and the claimant cross-appealed against the Polkey deduction on the award for lack of written particulars.

The EAT upheld both the appeal and cross-appeal. The award was set aside and a figure substituted which took account of the findings in fact regarding what, at the most, the claimant could have earned if she had not been dismissed.  The cross-appeal, that the Tribunal had wrongly applied the Polkey deduction to a separate award for failure to provide a statement of terms and conditions of employment was conceded and the figure corrected accordingly.

Appeal No. UKEAT/0079/12/RN



At the Tribunal

On 19 September 2012





Transcript of Proceedings



For the Appellant
MS J THELEN (of Counsel)

Instructed by:
Richard C Hall & Partners
Red Hill House
Hope Street

For the Respondent
MR M BARROW (of Counsel)

Instructed by:
16 St Peter's Square
LL15 1AD




Polkey deduction

Unfair dismissal. Compensation. Tribunal found it likely that Claimant would not have been dismissed if a fair procedure had been followed and that 20% Polkey deduction appropriate. Tribunal posed itself the question of what would have been the Claimant's salary if she had been kept on in the Respondent's employment but failed to answer it despite having made findings in fact which showed it was likely that she would suffer a reduction in salary due to financial constraints being suffered by the Respondent's business. Award set aside and a figure substituted which took account of the findings in fact regarding what, at the most, the Claimant could have earned. Cross appeal that Tribunal had wrongly applied the Polkey deduction to a separate award for failure to provide a statement of terms and conditions of employment conceded and the figure corrected accordingly.



1. This is an appeal from the judgment of an Employment Tribunal sitting at Mold, Employment Judge W Beard sitting with members registered on 28 June 2011. The Tribunal found that the Claimant had been unfairly dismissed and awarded her a total sum of £7,958.09. The constituent parts of that award were a basic award of £1,730.75, an award for loss of statutory rights of £300, an award in respect of loss of earnings of £6,399.58 and an award for failure to provide terms and conditions of employment of £1,384.60. The loss of earnings figure was based on the sum of £10,085.16 before the application of a Polkey deduction of 20% and deduction of sums already received by the Claimant. The Claimant was compensated for 102 weeks salary at £263.58 per week, £263.58 being her pre-dismissal net weekly earnings. The starting point was, accordingly, £26,885.16. However, £16,800 was deducted by the Tribunal, being their allowance for what the Claimant would have earned if she had appropriately mitigated her loss.

2. We will continue referring to parties as Claimant and Respondent. The Claimant was represented by Mr Barrow of counsel before the Tribunal and before us today. The Respondents were represented by Ms Thelen of counsel before the Tribunal and before us today.

The Background Facts

3. Dealing briefly with the background facts, we note that the Respondents are a school and at the relevant time that school maintained an equestrian centre as part of its operation. The Claimant was employed as yard manager at the equestrian centre and she earned, as we have said, £263.58 net per week. Another woman, Sarah Hamlyn, was employed as the chief riding instructor and there were a further three employees working at the equestrian centre.

4. By late November 2009, the Respondent's bank required a reduction of 25% in their overdraft facility. Savings required to be and were made in the course of what the Tribunal referred to as a "thorough overhaul of the school's finances". Those savings included the making of cuts in salaries. Matters were not helped by the impending loss of a funding stream and a poor winter. The Respondent's owner, Mr Locke, concluded that the equestrian centre was not viable in its then existing form, in particular its fixed costs which were, in the main, salaries, had to be cut.

5. On 24 December 2009 the Claimant was told by Mr Locke that she was being made redundant because of the financial position of the school. Mr Locke lacked a clear understanding of the role performed by the Claimant, in particular he had failed to appreciate that both she and Sarah Hamlyn performed roles which, according to the Tribunal, were virtually the same. There was no consultation and the Claimant had no opportunity to ascertain and correct Mr Locke's misunderstanding. In the event Sarah Hamlyn resigned in the middle of January 2010.

6. The Claimant accepted in her evidence to the Tribunal that there was a need to reduce the running costs of the stables and that the Respondent's business was running at a loss. Mr Locke told the Tribunal in his evidence that, as at the date of the hearing in May 2011, the equestrian centre had one employee whose salary was £7,200 per year and a working student. He also had sessional workers to whom he paid £50 per day. Mr Locke's evidence appears to have been accepted by the Tribunal as credible and reliable.

The Tribunal's Judgment

7. The Tribunal found the Claimant's dismissal to have been unfair. That finding is not challenged. They concluded that if there had been a proper consultation, Mr Locke would have considered that the Claimant and Sarah Hamlyn could have been in a pool for selection. Consultation "…might have resulted in an outcome where the Claimant and not Sarah Hamlyn would be retained" (paragraph 26.1). At paragraph 27 they said this:

"The Tribunal take the view that it is not clear that the Claimant would have been dismissed for redundancy had a fair procedure been followed. It is not possible to say what would have happened."

8. They go on at 27.2 to 27.4 as follows:

"27.2 In our judgment given that there were two individuals carrying out similar roles we have to start from the premise that in a fair procedure there was an equal chance of dismissal.

27.3 However we add into that equation the evidence that Sarah Hamlyn wished to reduce her working hours, and within a short time resigned her employment and we are drawn to the conclusion that a proper consultation could have revealed that the claimant was more likely to remain as an employee.

27.4 Doing the best we can, and speculating on the available evidence as to possible outcomes, we have come to the conclusion that the claimant had a 20% prospect of being dismissed in a fair process."

9. The Tribunal then proceeded to consider whether the Claimant had mitigated her loss, found that she had failed to do so and estimated what ought, reasonably, to have been her earnings. They did not, however, address the question of what the Claimant's job would have been had she been retained or what she would have been paid. They simply proceeded to carry out their calculations on the basis of her pre-dismissal net earnings which were, as we note, £13,442.58 per year.

The Relevant Law

10. In the case of Scope v Dr Carol Thornett [2006] EWCA Civ 1600, on the subject of compensation for unfair dismissal, Pill LJ (at paragraph 34) said this:

"The Employment Tribunal's task when deciding what compensation is just and equitable for future loss of earnings will almost inevitably involve a consideration of uncertainties. There may be cases in which evidence to the contrary is so sparse that a Tribunal should approach the question on the basis that loss of earnings in the employment would have continued indefinitely. But where there is evidence that it may not have been so, that evidence must be taken into account."

11. That, in essence, approves the analysis carried out by this Tribunal in the case of Red Bank Manufacturing v Meadows [1992] IRLR 209 where at paragraph 10 Tucker J said:

"It seems to us that since the decision in Polkey [1987] IRLR 503 it is necessary for a Tribunal when calculating the amount to be awarded for compensation to ask itself this two-stage question; if the proper procedure had been followed and if consultation had take place, would it have resulted in an offer of employment? This was the question to which the Tribunal did address themselves in the earlier hearing and to which they gave the answer as it might have done so. What the Tribunal failed to do and what, in our view, they should have done was to go onto consider first what that employment would have been and, second what wage would have been paid in respect of it."

12. That approach was applied by this Tribunal in the case of Weston v Metzeler (UK) Ltd EAT/303/91 where HHJ Hicks QC said at pages 8 to 9 that he was following Red Bank and explained:

"A tribunal considering the amount of a compensatory award is concerned in the words of section 74.1 of the Employment Protection Consolidation Act 1978 with the loss sustained by the complainant. It is not in dispute that in quantifying that loss the tribunal should apply the same principles as a court quantifying the loss and damage suffered by a successful Plaintiff. The first and overriding principle is that an award of compensatory damages should be such as to put the injured party in the same position so far as money can do so as the wrongful injury had not been suffered. That entails a comparison between the real events which actually followed the wrongful act or omissions and the hypothetical events which would have followed it had it not occurred."

13. If those hypothetical events are the offer and acceptance of a different job then it is the earnings in that job which must be compared with actual earnings following the unfair dismissal. Pre-dismissal earnings that would not have continued are not relevant. No authority peculiar to employment is needed for such a basic principle.

Finally, we would refer to the case of KPG Computer Support Services Ltd v Abaymoi EAT/303/92, again a decision of this Tribunal, the judgment being delivered by HHJ Hicks QC who said:

"We agree with the decision in Red Bank that the two stages are separate. That is to say first the stage of assessing what are the respective chances that there would have been; 1) a fair dismissal from redundancy or; 2) retention in the post or; 3) the offer and acceptance of alternative employment. And then the second stage of assessing the value of such an offer and acceptance of all terms of employment if the chances of that are more than nil."

The Appeal

14. There was essentially one point advanced in this appeal. It was as follows. The Tribunal whilst correctly posing itself the question of the salary at which the Claimant would have been employed if she had not been dismissed, failed to answer to it. Ms Thelen submitted that the Tribunal required to answer that question even if it involved speculation. She did so under references to the cases of Red Bank, Weston and KPG. The Tribunal could not, without doing so, assess the value of the Claimant's claim for compensation in relation to earnings. Ms Thelen submitted there was ample evidence and material before the Tribunal that, in the Respondent's business, times had changed. Costs had been reduced, there was, by the time of the hearing, only one employee at the equestrian centre and that employee earned only £7,200.

15. As to disposal, she submitted that we could determine the matter, which failing, we should remit to a fresh Tribunal.

16. For the Claimant, Mr Barrow submitted that the assessment of compensation under section 123 of the Employment Rights Act 1996 was a discretionary exercise which ought not to be interred with. He referred in support of that submission to the case of Chief Constable of Lincolnshire Police v Natasha Caston [2009] EWCA Civ 1298 and CICB v Beck [2009] EWCA Civ 619 as referred to by HHJ McMullen QC in his decision when he considered this case on the sift.

17. Mr Barrow pointed to the Tribunal having referred to Red Bank and Polkey correctly. This was not a case where the Claimant's job had disappeared. Mr Locke had wanted to keep on either the Claimant or Miss Hamlyn. The import of that submission seemed to us to be that the Tribunal were then entitled to proceed on the basis that that would necessarily be at the same salary as before. He submitted that there was no evidence that the Claimant's job would have changed. He referred to the same authorities as had Ms Thelen. In addition he referred to the case of Fuller v London Borough of Brent [2011] EWCA Civ 267 at paragraph 30, although we observe only for the latter part of that paragraph. He omitted quotation of the earlier part which advises:

"Another teaching of experience is that as with other Tribunals and Courts there are occasions when a correct self direction of law is stated by the ET but then overlooked or misapplied at the point of decision."

18. Mr Barrow submitted that in the passage in which the Tribunal had concluded that there was but a 20% chance of the Claimant being dismissed if the Respondent had followed a fair procedure, they had also found that it was not possible to reach any view about what salary she would have received if she had been kept on. We pause to observe that, on one view, that proposition wholly undermines the Claimant's case since it would suggest that no loss of earnings could be allowed for. We think, however, that the import of Mr Barrow's submission was intended to be that the Tribunal had, in fact, concluded that they could properly assume that the Claimant would have carried on being paid at her pre-dismissal rate.

19. Mr Barrow moved his cross-appeal, namely a submission that the Tribunal had erroneously applied the 20% Polkey deduction to the award for failure to supply the Claimant with a copy of her terms and conditions of the employment. The cross appeal was conceded. It was plainly an error on the part of the Tribunal to apply the deduction to that part of the award

The Decision

20. We are satisfied that this appeal is well founded. The Tribunal certainly asked themselves the right question, namely, if there was a chance that the Claimant would have been kept on in the Respondent's employment, what salary would she have been paid? However, they failed to answer it. We cannot read the passage founded on by Mr Barrow at paragraph 27, as beginning to do so. It deals solely with a different question - the initial Polkey question of whether or not there was a chance of the Claimant not being dismissed if a fair procedure had been followed.

21. The Tribunal were, for the reasons advanced by Ms Thelen and explained in the authorities to which we have referred, obliged to answer the question. We are satisfied that they had made findings which, in fact, provided them with the answer. It was that the financial circumstances of the business were undergoing a significant change for the worse at the time of the Claimant's dismissal which meant that salaries were being cut, the number of employees employed at the equestrian centre had been reduced from four to one and, by the time of the hearing, less than 18 months later, the most that was being earned there by anyone was £7,200, the salary being paid to the single, regular employee.

22. Thus, putting matters are their highest for the Claimant, the most she could have hoped was to have earned £14,400 during the two-year period which the Tribunal, in their discretion, considered was the appropriate compensatory period.

23. We are satisfied that there is no need for a remit here. It is plain that on the Tribunal's findings in fact, the only answer to their unanswered question was and is that the Claimant's award ought to have included nothing for loss of earnings since what she would have earned at the equestrian centre would have been exceeded by what, if she had mitigated her loss, she would have earned in alternative employment. That is even before any allowance is made for the payments actually made to her by way of redundancy pay and sums earned in the meantime.

24. The arithmetical result is then that the award payable to the Claimant ought to have been as follows. First, a basic award of £1,730.75 and £300 for loss of statutory rights, a total of £2,030.75 to which there required to be applied a Polkey deduction of 20% (£406.15) bringing out a figure of £1,636.60 as compensatory award. To that, there requires to be added the sum of £1,384.60 for the failure to provide terms and conditions of employment. The total award payable to the Claimant is thus £3,021.21 and we will pronounce an order upholding the appeal and substituting for the award made by the Tribunal the sum of £3,021.21.