England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM EMPLOYMENT APPEAL TRIBUNAL
EAT/0141/03/TM

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/07/2004

Lord Justice Wall:

1. This is a judgment of the court.

The Appeal

2. With permission granted by Peter Gibson LJ on paper on 4 February 2004, Mr. William Lambe (the Appellant) appeals against a decision of the Employment Appeal Tribunal (EAT) which, in a constitution chaired by HH Judge Peter Clark on 21 May 2003, dismissed his appeal against the decision of the Employment Tribunal (the Tribunal) sitting at Reading on 25 September and 17 December 2002, the decision being sent to the parties on 20 January 2003.
3. The Appellant had applied to the Tribunal on the ground that he had been unfairly dismissed from his employment with 186K Limited (the Respondent). The unanimous decision of the Tribunal was that the appellant had been unfairly dismissed "by reason of the Respondent's handling of his redundancy". In summary, the Tribunal found that although the reason for the Appellant's dismissal was redundancy (a reason permitted by section 98(2)(c) of the Employment Rights Act 1996 (ERA 1996)), the dismissal was nonetheless unfair because there had been a failure on the part of the Respondent properly to consult him about other job opportunities. The Tribunal decided there should have been a longer period of consultation, and found that seven weeks would have been a reasonable period.
4. However, the Tribunal went on to find that even at the end of the seven week period the Appellant would not have found alternative employment with the Respondent or any of its associated companies, and that he would have left the Respondent's employment at that point. The Tribunal accordingly awarded the Appellant £4,063, representing seven weeks' salary at the rate of £544.85 per week and £250 as compensation for loss of statutory rights.
5. The Tribunal also rejected an assertion by the Appellant that he had been misled by the Respondent in relation to his pension rights on leaving the company pension scheme.
6. The Appellant appealed to the EAT against the Tribunal's finding that he had been fairly selected for redundancy; and against the other adverse findings made by the Tribunal. On 18 March 2003, Mr. Commissioner Howell QC directed that the appeal should be set down for a preliminary hearing (PH) in accordance with paragraph 9(7) of the Practice Direction (EAT – Procedure) 2002. This reads: -

The purpose of a PH is to determine whether: -

(a) the grounds in the Notice of Appeal raise a point of law which gives the appeal a reasonable prospect of success at a FH (Full Hearing); or

(b) for some other compelling reason the appeal should be heard e.g. that the Appellant seeks a declaration of incompatibility under the Human Rights Act 1998; or to argue that a decision binding on the EAT should be considered by a higher court.

7. Mr. Howell also directed that the PH be listed before a judge and two members. Thus it was that the appeal came before HH Judge Peter Clark sitting with Lord Davies of Coity CBE and Mr. S.M. Springer MBE on 21 May 2003. The Appellant was in person. In accordance with the PH procedure, the Respondent was not represented. The EAT dismissed the appeal. In doing so, it addressed each of the grounds raised by the Appellant in his Notice of Appeal, and came to the conclusion that none of them fulfilled the criteria identified in paragraph 9(7) of the Practice Direction.
8. The fact that the appeal was dismissed by the EAT at a PH is relevant to an ancillary issue relating to the hearing of the appeal in this court, with which we deal in a footnote to this judgment: - see paragraphs 70 to 84 below.

The appellant's case before the Tribunal

9. The Appellant is an accountant. He was employed by the Respondent between 8 May 2000 and 8 February 2002. In 2000, the Respondent was a newly established fixed line Telecoms Company based in Reading. The appellant was employed as a corporate finance manager (CFM). When he joined the Respondent (via a TUPE transfer) he was 28.
10. In the statement attached to the Form IT1 which the Appellant issued in the Reading Employment Tribunal on 7 May 2002, he describes his employment as a CFM with the Respondent as embracing a range of activities as follows:

….. to look at mergers and acquisitions, financing requirements for the business, investment opportunities, undertake analysis of our major competitors, undertake due diligence, providing the sales team with financial assistance, develop the companies business plan and support the parent companies head office functions e.g. tax, insurance, treasury.

11. In the same statement, the Appellant describes the Respondent's corporate finance department as separate from the more mainstream finance departments responsible for financial control, budgeting and the preparation of the management and statutory accounts.
12. The Appellant's case is that on 25 January 2002 he was told by the Respondent's head of corporate finance (Mr. Walker) that if he wished to remain with the Respondent he would have to change roles and move into the Respondent's Financial Control Department (FCD) because the Respondent wished to transfer one Ian Perry from the FCD into the Appellant's role. Later the same day, the Appellant says he met Mr. Perry and discussed the matter with him. On 28 January 2002 the Appellant says he protested to Sharon Evans, the financial controller, that he had been threatened with redundancy if he did not take the job in the FCD. He says she was unwilling to discuss the matter. He explained to her, he says, why the job in the FCD was unsuitable for him. Later the same day the Appellant says he told Mr. Walker that he had no alternative but to turn the job down, as his background and experience would make it impossible for him to undertake the work required. He says he was then told that there was no longer a role for him in corporate finance, and that Mr. Perry was taking his job. Between 28 January and 8 February 2002 he visited the office twice to clear his desk. He asked to be re-instated and for an apology. Neither was forthcoming and on 8 February he was formally made redundant.
13. In his form IT1 the Appellant argued that he was unfairly dismissed because his role in the company was not in fact redundant. His case was that he had been forced out because the Respondent wished to transfer Mr. Perry into his role. The alternative role he had been offered in the company was wholly unsuitable, and a demotion in terms of both quality of work and career development. In the alternative, the Appellant argued that if his role was redundant, the manner of his dismissal was both substantially and procedurally unfair.

The Respondent's response

14. In its form IT3, the Respondent argued that the downturn in the telecommunications industry in the latter part of 2001 required it to make substantial cuts in its workforce. The Appellant had been one of three CFMs: by late January 2002 the Appellant was the only one left. Of the other two, one had joined another department and the other had taken up employment in another company in the group of which the Respondent formed a part. The Respondent took the decision not to replace the other two CFMs and to make the Appellant redundant. The three managers would be replaced by one senior CFM, Mr. Perry, who transferred from the FCD. The Respondent offered the Appellant a position in FCD, but he declined it. No other employment was available and he was made redundant. His dismissal was therefore for redundancy.
15. Before the Tribunal, however, the Respondent conceded that the Appellant's dismissal was procedurally unfair in that it had failed to allow adequate time for consultation before making the Appellant redundant. It suggested that a further period of seven weeks would have been appropriate, but argued that the outcome at the end of that period would have been the same. The Appellant would not have found an alternative post within the Respondent or its associated companies, and the Appellant's compensation, accordingly, apart from the basic award, should be limited to the seven weeks pay proposed.

The issues before the Tribunal

16. The first two issues for the Tribunal to decide were, accordingly: (1) was this a genuine redundancy? (2) If it was, but if, as the Respondent accepted, it had not been fairly implemented, was the Appellant's compensation to be limited to the seven weeks pay proposed by the Respondent?
17. The third issue (loss of pension rights) did not emerge from the Forms IT1 or 3. However, in the list of issues prepared for the Tribunal by the Appellant (who also appeared in person before the Tribunal) item 6 stated: -

The Tribunal are asked to consider whether 186K misled Mr. Lambe in providing advice to him regarding the pension implications of the events, which occurred in February 2002.

18. The pension dispute arises in the following way. The Respondent operated a pension scheme, which the Appellant joined. The scheme provided that if an employee left the Respondent's employment before completing two years service, his only entitlement under the scheme was the repayment of his contributions to the scheme made during the period of his employment. However, if he left after completing two years service, he became entitled to a deferred pension based on both his and the Respondent's contributions to the scheme. The latter were, at the time, running at something in the order of 23% of the employee's salary.
19. The Appellant's redundancy date was 8 February 2002. As at that date he had two options. He could either work out the three months notice to which he was entitled under his contract of employment, in which case he would have been paid his net salary plus a lump sum redundancy payment of £11,813: alternatively, he could accept immediate dismissal with pay in lieu of notice, a course which gave him a final termination payment of £23,857. The Appellant chose the latter.
20. Since the date on which he had joined the Respondent was 8 May 2000, it was apparent that working out his three months notice from 8 February 2002 would have taken him to 8 May 2002, and he would have qualified for the deferred pension. The Appellant's case is that when he opted to take pay in lieu of notice he was misled by the Respondent because the statements from the Respondent which computed the payments he would receive in relation to the two options both gave his termination date as being 8 May 2002. He therefore understood, after speaking to the Respondent's pension adviser, that even if he took the cash option, he would still qualify for the deferred pension.
21. The Respondent's case on this point is contained in a witness statement by Claire Jenkins, the Respondent's Human Resources Manager. She says that she discussed the two termination options with the Appellant and explained to him that if he waived his right to work out his notice he would not complete two years service, and that his pension rights would be affected. She also says she told him to seek the advice of the pension adviser.

The relevant statutory provisions

22. The Tribunal did not set out any of the relevant statutory provisions. Section 98(1) of ERA 1996 places the burden on the employer to show both the reason for the dismissal, and that it is either one of the reasons falling within section 98(2) or some other substantial reason of a kind such as to justify the dismissal. Redundancy is identified as a reason by section 98(2)(c). Section 98(4) then provides that: -

Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) -

(a) depends of whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and

(b) shall be determined in accordance with equity and the substantial merits of the case.

23. As to redundancy, the relevant section is ERA 1996 section 139. As applicable to the facts of this case, it reads: -

(1) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to -

…….

(b) the fact that the requirements of that business –

(i) for employees to carry out work of a particular kind……

have ceased or diminished or are expected to cease or diminish.

The Tribunal's approach to the first issue: was this a genuine redundancy?

24. The Tribunal recorded as common ground the fact that

…… in the latter part of 2001 and the early part of 2002 (the Respondent) needed to "downsize" and shed staff due to Market conditions. We have heard evidence that some 30% of the total staff were likely to be dismissed by reason of redundancy around that time…..

25. Having identified the witnesses from whom they had sworn evidence (four from each side including the Appellant) the Tribunal continues:

3. We began by considering what was the reason for the dismissal. The one thing that comes across to us very clearly is that against the background of what was happening to this company there was clearly a diminution in the need for the company to have a dedicated Corporate Finance Manager and in particular there did not appear to be any need for anybody to look out for and assist with potential acquisitions and mergers. That was a major part of Mr. Lambe's job. It seems clear to us that at the relevant time what the company did have a need for was for more experienced people who could deal, as Mr. Perry says in his statement, with the anticipated future activity of the respondent by which he meant the disposal of all or part of the business. We are satisfied that Mr. Perry fitted that bill and we are satisfied that it was a reasonable decision for the employers to say that Mr. Perry should go across to the Corporate Finance team. We find that the fact that he was going to broaden his "skill set" was incidental because he was gong to give the company the benefit of his previous experience. We do not find any "conspiracy" between Mr. Seddon and Mr. Tenner to advance Mr. Perry's career at the expense of the applicant. We do not find any evidence to suggest that this was anything other than a reasonable business decision.

4. However, although, as indicated, there was a diminishing need for Corporate Finance people, the applicant was not considered to be redundant at that stage as the respondent had in mind that he should move across to the Financial Control team as a manager in the Revenue Accounting Department and he was duly considered for such a post. However, despite this being a promotion in both status and salary, the applicant was not interested in taking such a job and accordingly at this point the respondent considered that the applicant was redundant. He was formally informed of this by letter dated 6 February and told that if an alternative position did not become available his contract would terminate on 8 May 2002. No further alternative position was found.

26. Mr. Patrick Green, for the Appellant, launched a root and branch attack on the Tribunal's findings. The Respondent's conduct, he submitted was about as bad as it could be when redundancies were being planned. The defects in the redundancy process so far as the Appellant was concerned were both substantive and procedural.
27. Mr. Green's first attack on the Tribunal's findings on the redundancy issue was that the Tribunal was wrong to rely on the Respondent's expression of a need for employees who could deal with the disposal of all or part of the business. The intention to make disposals in the company was not in the Respondent's mind before April 2002. It could not, accordingly, be relied upon in relation to the Appellant's redundancy in late January 2002.
28. Mr. Green also criticised the Tribunal for failing properly to consider the question of job descriptions, functions and skills. He criticised the use of the phrase "dedicated corporate finance manager" in describing the Appellant's role. He argued it was perverse of the Tribunal to find that it was a major part of the Appellant's job to "look out for and assist with potential acquisitions and mergers" when there was no proper evidential basis for that finding.
29. Mr. Green also submitted that the Tribunal failed properly to apply ERA section 139(1)(b) or alternatively that it failed to define the Respondent's need for employees to carry out work of a particular kind. He criticised the Tribunal for making unreasoned assumptions (in the absence of proper findings) about the result of a proper consultation process. He submitted that the Tribunal had not properly explained its reasoning, with the consequence, identified by this court in Meek v. City of Birmingham District Council (Meek) [1987] IRLR 250, that the Appellant did not know why he had lost on this issue.
30. Finally, both on the first issue and in relation to the defects in the redundancy process, Mr. Green argued that the Tribunal had failed to follow the guidance given by Glidewell LJ in R v British Coal Corporation and Secretary of State for Trade and Industry, ex parte Price (ex parte Price) [1994] IRLR 72 at paragraph 24.
31. Vigorously as this part of the case was argued, we do not think there is anything in any of the points Mr. Green makes in relation to this issue. The short answer is, we think, given by the EAT in paragraphs 4 to 6 of its judgment at the PH. The EAT said:

4. (The Appellant's) case below, advanced again to us today, was that his post remained and he was simply offered the option of swapping jobs with a Mr. Perry from a different department. True it is that Mr. Perry transferred into the Corporate Finance Department with the title Senior Corporate Finance Manager.

5. The factual question for the Tribunal was whether Mr. Perry was doing the same job as the Appellant had done or a different job. They found as a fact that it was the latter. Mr. Lambe submits to us that the Tribunal were wrong to find in these circumstances that he was dismissed by reason of redundancy.

(Having set out ERA 1996 section 139(1)(b) the EAT continued:)

6. It seems to us that the facts as found by the Tribunal - and we are not here to retry the facts - amounted to redundancy within that definition. The post held by the Appellant disappeared either because the requirement for employees to carry out work of that particular kind had ceased or diminished or was expected to cease or diminish within the next three months.

32. We agree with that analysis. In our judgment, the events described by the Tribunal fit comfortably within the terms of section 139(1)(b). There clearly was substantial "downsizing" and the Respondent had notified the Department of Trade and Industry of substantial potential redundancies on 24 December 2001. It is equally clear from the documentation that it was not initially the intention of the Respondent to dismiss the Appellant: it wanted him to transfer to the FCD. He was not, accordingly included in the initial redundancy processes initiated by the Respondent. It was only when he declined to transfer that he was dismissed.
33. In relation to business disposals, the Tribunal's finding was that there was a present diminution in the need for CFMs, and that at the relevant time there was a need for staff to deal with the "anticipated" future activity of the business. These were legitimate considerations both for the Respondent and the Tribunal. The phrase "dedicated corporate finance manager" used by the Tribunal in paragraph 3 of its reasons (set out at paragraph 25 above) seems to us an apt description of how the Appellant saw himself, particularly in the light of his refusal of employment in a different department. It is true that events moved swiftly. On the Appellant's case as set out in paragraph 12 of this judgment it was effectively two weeks from ultimatum to dismissal. However, in our judgment the Tribunal was entitled to find that these matters went to the fairness of the process, not to the question of whether the reason for the Appellant's dismissal was redundancy.
34. Finally, it seems to us that Glidewell LJ's judgment in ex parte Price, the relevant extract from which we set out at paragraph 40 below, goes to the process of selection for redundancy rather than to redundancy itself.
35. In summary, therefore, we take the view that the Tribunal was fully entitled to reject the first limb of the Appellant's case on the facts. The Tribunal heard a great deal of evidence, and although Mr Green submitted that the Tribunal's finding about the nature of the Appellant's employment was perverse, we do not agree for the reasons we have given. The first limb of the appeal accordingly fails.

The second issue: the process of selection and lack of consultation

36. The Respondent rightly conceded that the manner in which the redundancy was implemented was unfair. The question, accordingly, is whether or not the Appellant can demonstrate that the Tribunal was wrong to limit the extent of the relief, which it afforded him.
37. We propose to set out the whole of the Tribunal's reasoning on this point: -

5. We go on to consider whether or not the applicant's redundancy and dismissal were fairly handled. The first thing we have to look at is the selection procedure, and in particular the pool of selection. We think it reasonable to exclude Mr. Bowen from the pool because he was the Business Planning Manager but we are puzzled as to why Mr. Trafford was left out of the pool. However, having said that it does seem to us that in view of Mr. Trafford's extra experience had he been included in the pool it was certain that Mr. Lambe would have been selected as the candidate. We think the failure to include Mr. Trafford in the pool, whilst possibly rendering the procedure unfair, has no practical effect, because we find that Mr. Lambe would have been the casualty in any event.

6. We then went on to consider the consultation and the consideration of alternatives that took place with the applicant and it seems to us that in this case they are really part and parcel of the same thing. It is unfortunate that the consultation did not last longer. We note on the other hand that the applicant made it clear what he really wanted was his job back. It seems to us, on reflection, it may have been possible during the consultation period to consider other job opportunities, some of which we mentioned during the hearing. Unfortunately, that was not done.

7. What therefore is the effect of the failure to consult? What would have happened if there had been proper consultation? We find that irrespective of alternative employment there would have come a time when Mr. Lambe's job would have come to an end. Janice Gregory told us that since the last hearing the respondent has continued to "downsize" and that closure of the entire company is anticipated. This is a process that has continued since Autumn 2001 [sic].

8 We are not satisfied that at the end of Mr. Lambe's consultation period there would have been a job for him and we find that his job would have come to an end in any event at the end of that consultation period. We think a reasonable consultation period is to the end of March 2002 which is the date suggested by the respondent. In other words, another seven weeks' consultation would still have resulted in Mr. Lambe leaving the company. On that basis he is entitled to be compensated for that further seven-week period…..

38. Mr. Green attacked the tribunal's reasoning on this part of the case with similar vigour. He repeated his submission that the whole redundancy process in relation to the Appellant was deeply flawed, and that the Respondent's failings were substantive, not merely procedural. The unfairness to the Appellant was demonstrated in every aspect of the process. Quite apart from the admitted absence of any consultation, Mr. Green pointed to the absence of any criteria for selection, or any proper consideration of those criteria by the Respondent. He also pointed to the use of the wrong pool for selection.
39. Mr Green's second criticism related to the Tribunal's reasons and what he described as their "speculation" about what would have happened had a fair procedure been followed. In this respect he submitted that the Tribunal failed to direct itself properly and in accordance with the decision of the Court of Session in King v Eaton Ltd (No 2) [1998] IRLR 686. In short, he submitted, the Tribunal had embarked upon an impermissible sea of speculation, which could have no reliable factual starting point.
40. On this issue, Mr. Green repeated his criticism of the Tribunal for failing to have any or proper regard for the nature and effect of the duty to consult in accordance with the guidance given by Glidewell LJ in the case of ex parte Price [1994] IRLR 72, at paragraphs 24 and 25. These passages read: -

24. It is axiomatic that the process of consultation is not one in which the consultor is obliged to adopt any or all of the views expressed by the person or body whom he is consulting. I would respectfully adopt the tests proposed by Hodgson J in R v Gwent County Council ex parte Bryant reported, as far as I know, only at [1988] Crown Office Digest p 19 when he said: -

Fair consultation means:

(a) consultation when the proposals are still at a formative stage;

(b) adequate information on which to respond;

(c) adequate time in which to respond;

(d) conscientious consideration by an authority of the response to consultation

25. Another way of putting the point more shortly is that fair consultation involves giving the body consulted a fair and proper opportunity to understand fully the matters about which it is being consulted, and to express its views on those subjects, with the consultor thereafter considering those views properly and genuinely.

41. In short, Mr Green submitted that, having (wrongly) embarked on a reconstruction of the world that 'never was' (a quotation from King v Eaton (No2) [1998] IRLR 686 at 691 paragraph 20), the Tribunal failed to make the necessary primary findings from which to reconstruct that world and failed to give any or adequate reasons for its conclusions, thereby wrongly depriving an unfairly dismissed employee of fair compensation.
42. For the Respondent, Mr. Robert Moretto submitted that the Tribunal was bound by the decision of the House of Lords in Polkey v AE Dayton Services Ltd (Polkey) [1988] AC 344 to consider what would have happened had a fair dismissal taken place. He relied on a passage in the speech of Lord Bridge in which he said at [1988] AC 344 at 365:

"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."

43. Mr Moretto also submitted that there was nothing in King v Eaton Ltd (No 2) to suggest that what the Tribunal did here, in making a finding as to what would have happened, was in any way wrong. He cited part of paragraph 19 of Lord Prosser's judgment in the Court of Session at [1998] IRLR 686 at 691, which we set out in full at paragraph 58. Mr Moretto submitted that on the facts of the instant case, the Tribunal was entitled to consider themselves to be in a position to reconstruct what would have happened had there been a fair procedure. He pointed to the clear conclusions reached in the passage from the reasons we have cited. He also submitted that the Tribunal had made a number of findings about the conduct of the selection process, including who should and should not have been in the pool, and the fact that the Appellant was not interested in the alternative job offered, despite the Tribunal finding that it was a promotion in terms of both status and salary. These findings were, Mr. Moretto submitted, a perfectly adequate basis upon which the Tribunal could conclude that seven weeks was an adequate period for consultation and that at the conclusion of the seven-week period the Appellant would have been dismissed.
44. Mr. Moretto submitted also that there was no necessity for the Tribunal to set out the guidance given by Glidewell LJ in ex parte Price. The Tribunal had found a failure to consult.
45. Finally, Mr. Moretto submitted that it was not necessary for the Tribunal to consider whether or not the Respondent's breaches of a fair selection procedure were "substantive" as opposed to "procedural". He pointed out that even King v Eaton (No 2) itself was not authority for such a proposition, and that this court in O'Dea v ISC Chemicals (O'Dea) [ 1995] IRLR 599 had cautioned against the use of such terminology.

Discussion and analysis of the second issue

46. On this part of the case, we prefer Mr. Moretto's submissions. We are satisfied that on the facts of this case, the Tribunal was entitled to reach the conclusions which it expressed in paragraphs 5 to 8 of its reasons cited in paragraph 37 of this judgment. As the point is of some general importance, however, and formed the basis upon which Peter Gibson LJ granted permission (as to which, see paragraph 70 below), we propose to look at the three relevant authorities in a little detail. We have already identified them as Polkey, King v Eaton (No 2) and O'Dea respectively.
47. We start with Polkey. The importance of this case is that it remedied an injustice which became known as the British Labour Pump principle – so called because one of the statements of it is contained in a decision of the EAT in a case called British Labour Pump v Byrne [1979] ICR 347. The British Labour Pump principle was succinctly described by Browne-Wilkinson J (as he then was) in Sillifant v Powell Duffryn Timber Ltd (Sillifant) [1983] IRLR 91 at 92 in the following terms: -

…. even if, judged in the light of the circumstances known at the time of dismissal, the employer's decision was not reasonable because of some failure to follow a fair procedure yet the dismissal can be held to be fair if, on the facts proved before the industrial tribunal, the industrial tribunal comes to the conclusion that the employer could reasonably have decided to dismiss if he had followed a fair procedure

48. Mr. Polkey was one of four van drivers employed by A.E. Dayton Services Ltd. The company decided to replace the four van drivers with two van salesmen and a representative. This involved making Mr. Polkey and two of the other van drivers redundant. Without prior warning, he was called into his branch manager's office, informed that he had been made redundant, handed a redundancy letter setting out the payments due to him, and sent home. However, his complaint of unfair dismissal made to an industrial tribunal was dismissed. The industrial tribunal held that even though the employer had been in breach of its obligation to consult under the relevant code of practice, Mr. Polkey would still have been dismissed even if the employer had consulted properly. His appeals, both to the EAT and to this court were dismissed, both the EAT and this court holding themselves bound by the British Labour Pump principle.
49. The House of Lords allowed Mr. Polkey's appeal, and remitted the case to the Industrial Tribunal. Giving the leading speech, the Lord Chancellor, Lord Mackay of Clashfern adopted the analysis put forward by Browne-Wilkinson J in Sillifant as to what the correct approach should be. This is encapsulated in the following short passage: -

The only test of the fairness of a dismissal is the reasonableness of the employer's decision to dismiss judged at the time when the dismissal takes effect. An industrial tribunal is not bound to hold that any procedural failure by the employer renders the dismissal unfair: it is one of the factors to be weighed by the industrial tribunal in deciding whether or not the dismissal was reasonable within section 57(3) (now ERA 1996 section 98(4)). The weight to be attached to such procedural failure should depend upon the circumstances known to the employer at the time of dismissal; not on the actual consequence of such failure.

The effect of the decision in Polkey

50. In a case in which an employee is unfairly dismissed, but in which the dismissal is also, for other reasons, inevitable, the effect of the House of Lords' decision in Polkey is to shift the focus onto the question of compensation for the employee. As Lord Bridge pointed out in the passage cited by Mr. Moretto and set out at paragraph 42 of this judgment, there will be circumstances in which an employee, though unfairly dismissed, will recover no compensation or, in the case of redundancy, no compensation in excess of his redundancy payment.
51. It is to be noted that both in the passage from the speech of the Lord Chancellor which we have cited in paragraph 49 of this judgment, and in the speech of Lord Bridge, the word which is used to described unfairness in the redundancy process is "procedural". Thus Lord Bridge says at [1988] AC 344 at 364C: -

…. an employer having prima facie grounds to dismiss for one of (the reasons now contained in ERA section 98(2)) will in the great majority of cases not act reasonably in treating the reason as a sufficient reason for dismissal unless and until he has taken the steps, conveniently classified in most of the authorities as "procedural" which are necessary in the circumstances of the case to justify that course of action…..in the case of redundancy, the employer will normally not act reasonably unless he warns and consults any employees affected or their representative, adopts a fair basis on which to select for redundancy and takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within his own organisation. If any employer has failed to take the appropriate procedural steps in any particular case, the one question the industrial tribunal is not permitted to ask in applying the test or reasonableness posed by (what is now ERA 1996 section 98(4)) is the hypothetical question whether it would have made any difference to the outcome if the appropriate procedural steps had been taken. On the true construction of (ERA 1996, section 98(4)) this question is simply irrelevant.

52. In the EAT decision of Steel Stockholders (Birmingham) Ltd v Kirkwood [1993] IRLR 515, Lord Coulsfield took up Lord Bridge's used of the word "procedural" in the passage cited in the preceding paragraph, and doubted whether Lord Bridge could have meant to classify matters such as the choice of a pool for redundancy, or the adoption of criteria for selection as procedural as opposed to substantive. The EAT in that case therefore concluded that: -

In any given case, therefore, it is necessary to consider whether the unfairness can properly be classified as procedural or substantive.

53. That approach was disapproved by this court in O'Dea. Giving the leading judgment, Peter Gibson LJ described as "remarkably bold" a prospective submission by leading counsel for the employee that the industrial tribunal had been wrong in that case in identifying the defect in the redundancy process as procedural. Counsel wished to argue that they should have found that it was substantive and accordingly should not have allowed a Polkey reduction. Dealing with this argument, Peter Gibson LJ firstly cited with approval remarks of Browne-Wilkinson J in Sillifant also approved by Lord Bridge in Polkey [1988] 1 AC 344 at 365: -

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.

54. Secondly, Peter Gibson LJ concluded his judgment with a passage which we respectfully endorse as both an accurate and a helpful statement of the law, Peter Gibson LJ said: -

In my judgment, in a case where the reason or principal reason for dismissal is redundancy but the employer acted unreasonably in some particular respect in the process of selecting the applicant for redundancy so that the dismissal was rendered unfair, it is for the industrial tribunal to decide what it is just and equitable in all the circumstances to award the applicant, having regard to the loss sustained by the applicant in so far as that loss is attributable to action by the employer (see what is now ERA 1996 section 123(1) set out below at paragraph 66). To a case such as the present, where the industrial tribunal are satisfied that the particular defect in what the employer did only deprived the applicant of a chance that he would have been retained in the absence of such a defect, the applicability of the dictum, already cited, of Browne-Wilkinson J and its good sense seem to me obvious. I do not regard it as helpful to characterise the defect as procedural or substantive nor in my view should the industrial tribunal be expected to do so, though in fact in the present case the industrial did repeatedly describe the defect as procedural. The fact of the matter is that Mr. O'Dea lost only a one in five chance of being retained, and I can see no arguable case that he should have been compensated on the same footing as if he was bound to have been retained but for his trade union activities

55. In our judgment, the decision of the Court of Session in King v Eaton (No 2) upon which Mr. Green relies, needs to be read in the light of the decision of this court in O'Dea and, in particular, in the light of the two passages from the judgment of Peter Gibson LJ which we have set out.
56. In King v Eaton (No 2) a number of employees were dismissed on the grounds of redundancy. An employment tribunal held the dismissals to be unfair on the basis that there had been no consultation worthy of the name with any of the employees and because it was impossible to decide whether the selection criteria had been fairly applied in the absence of evidence from those who had made the relevant markings when assessing employees for redundancy. The EAT upheld the employer's appeal on the ground that although there had been no individual consultation there had been extensive consultation with the unions. The Court of Session allowed the employees' appeals and remitted the cases to the Employment Tribunal to consider remedy. At the remitted hearing, the employers sought to lead additional evidence to show that the employees would still have been dismissed even if a fair procedure had been followed and that, accordingly, compensation should be reduced in accordance with the principle identified in Polkey. The Employment Tribunal refused to allow the employers to adduce such evidence and both the EAT and the Court of Session dismissed the employees' appeals.
57. During the course of his judgment, Lord Prosser, in discussing Polkey emphasised that in King v Eaton (No 1) the question of the fairness or otherwise of the dismissals had been concluded in the employees' favour, with no suggestion from the employers that in the light of the circumstances known to them at the time when they took the decision to dismiss they had concluded (far less that they could reasonably have concluded) that consultation would be useless. He went on to discuss the proposition deriving from Polkey that an employee who has been unfairly dismissed may not recover any compensation if he would have been dismissed in any event. This, in turn, led to a discussion of how Tribunals should approach the question of compensation in such cases.
58. Lord Prosser's conclusions are contained in paragraph 19 of his judgment, which we propose to set out in full.

19. We are not persuaded that the various expressions of opinion to be found in previous cases are as difficult to reconcile as may be suggested, or as may have been thought when some of these opinions were expressed. If one reads the whole of the final paragraph of the opinion delivered by Lord Coulsfield in Steel Stockholders (Birmingham) Ltd, it seems to us that he appreciates that the word 'procedural' does not reflect some precisely identifiable category, far less that it represents a category which would be precisely defined in all cases without enquiry into the facts. In broad terms, it appears to us that there will be situations where one can say that what went wrong was 'merely' procedural. Equally, in broad terms, it appears to us that there will be situations where once can say that an employee has been deprived of 'something of substantive importance' to use a phrase of Lord Coulsfield's. We see no need to discard entirely terminology of this kind; and whilst in many cases it may be inappropriate to allocate the particular facts to either category, or to do so without enquiry, it seems to us that a distinction between the 'merely ' procedural, and the more genuinely 'substantive' will often be of some practical use, in considering whether it is realistic, or practicable, or indeed 'just and equitable' to embark upon an attempt to construct a hypothesis, enabling one to assess what would have happened, if only it had. If there has been a "merely" procedural lapse or omission, it may be straightforward to envisage what the course of events would have been if procedures had stayed on track. If, on the other hand, what went wrong was more fundamental, or "substantive", and seems to have gone "to the heart of the matter", it may well be difficult to envisage what track one would be on, in the hypothetical situation of the unfairness not having occurred. It seems to us that the matter will be one of impression and judgment, so that a tribunal will have to decide whether the unfair departure from what should have happened was of a kind which makes it possible to say, with more or less confidence, that the failure made no difference, or whether the failure was such that one cannot sensibly reconstruct the world as it might have been [emphasis added]. It does not seem to us that there is anything very wrong in using the word 'substantive' in connection with this latter situation.

59. We respectfully agree with the formulation contained in the highlighted passage from that citation. However, we share Peter Gibson LJ's view, expressed in the extract from his judgment in O'Dea which we have cited, that it is unhelpful for the purposes of assessing compensation to characterise the defect in the employer's behaviour as either substantial or procedural. The highlighted passage from King v Eaton (No 2) seems to us both practical and to coincide with the approach of this court in O'Dea. It provides Tribunals with a straightforward and sensible yardstick with which to approach such cases, and avoids unnecessary and unproductive debate about whether a particular piece of conduct fits into the "substantive" as opposed to the "procedural" category.
60. The application of the O'Dea / modified King v Eaton (No 2) approach to the facts of the instant case leads us to the conclusion that on the evidence available to it, the Tribunal was entitled to conclude that in the Appellant's case, whilst both the process of selection for redundancy and the absence of consultation was unfair, it was unlikely that the Appellant would have found alternative employment with the Respondent or any of its associated companies at the conclusion of an extended period of consultation. The Tribunal was entitled to find that what the Appellant wanted was his job back, and that he was not willing to consider the alternative offered by the Respondent, which the Tribunal found was both a promotion and commanded a higher income. In short, this was not a case in which it was impossible for the Tribunal sensibly to reconstruct the world as it never was: the Tribunal was entitled to come to the conclusion that an extended period of consultation should have taken place, but that at the end of it, the Appellant would still have left the Respondent's employment.
61. Mr. Green also mounted a reasons challenge to this part of the Tribunal's findings. We do not think it necessary to set out the thinking of this court in Meek, which is extremely well known. It is, we think, sufficient to say that whereas the Tribunal could, of course, have set out its reason with greater elaboration, the essential building blocks for its decision are in place. The Appellant knows why he lost: see the summary contained in the preceding paragraph.
62. In our judgment, therefore, the Appellant fails on the second issue.

The third issue; was the Appellant misled over his loss of pension rights?

63. This leaves the pension issue. In our judgment, this is a question in which the Appellant succeeds on a Meek v City of Birmingham District Council basis. We have set out how the issue arises in paragraphs 17 to 21 of this judgment. The Tribunal deals with the matter in the following way: -

9. There was an issue as to whether Mr. Lambe was misled as to his pension entitlement by opting to take a sum in lieu of notice rather then remaining employed until the end of his notice period. Seven weeks further employment over the consultation period taking Mr. Lambe's total service to the end of March still would not have given him the necessary two year qualification period for the purposes of his pension. If of course at the end of that seven weeks he did not opt for the "pay in lieu" option, he would have had pensionable service, which would take him beyond the two-year period. However, we have heard no evidence today to make us believe that he would have done anything different then to what he did in February. At that time he made his own enquiries of the Pension Administrator and made the decision that he would take the cash option and we think that the same thing would have happened had he been making that decision at the end of March. On that basis, there is no further compensation payable in relation to the pension.

64. We agree with Mr. Green that this paragraph of the Tribunal's reasons neither identifies the issue nor addresses it. The reasoning appears to be that if the Appellant had had (as he should have done) an additional seven weeks with the Respondent before his employment terminated he would still have taken the cash option. This thinking not only piles hypothesis upon hypothesis, but does not address the case, which was being advanced by the Appellant.
65. Furthermore, the matter is not cured by the EAT, which itself appears to misunderstand the issue since it records the Tribunal as "not persuaded on the evidence that (the Appellant) would have taken that option (i.e. the deferred pension) in February 2002 when dismissal took place". The EAT also deals inadequately with the issue, stating shortly: "No doubt the Tribunal balanced in their minds the options available to the Appellant" and going on to say that the question seemed to them a matter of judgment for the Tribunal, and one moreover which did not give rise to an issue of law. We do not agree. It is axiomatic that a failure properly both to identify and address an important issue, with the consequence that neither side can understand clearly why it won or lost, is clearly an error of law.
66. We do not, however, agree with Mr. Moretto's submission that the Appellant's proper remedy is not by means of a claim for unfair dismissal, but by an action for negligence against the Respondent's pension adviser in the local county court. In our judgment, ERA section 123(1) negates such a submission. That sub-section reads: -

Subject to the provisions of this section the amount of the compensatory award shall be such amount as the tribunal considers 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.

67. In our judgment, any loss of pension entitlement attributable to the unfair dismissal would fall within ERA 1996, section 123(1).
68. As we are remitting this part of the case to the Tribunal we do not propose to say any more about it. We make it equally clear that we are expressing no opinion on the outcome of the remitted hearing. The pension issue will be re-heard on its merits by the Tribunal. There was no objection by either side to the issue being remitted to the same Tribunal. It will, accordingly, be a matter for the Regional Chairman as to whether the same Tribunal can be reconstituted. It would, however, seem to us sensible for there to be a hearing for directions as soon as possible in order to decide what evidence should be adduced and how long it will take to hear.
69. The appeal will, accordingly, be allowed to the limited extent of remitting the third issue to the Tribunal for re-hearing. We invite counsel to agree a formulation of the issue for this purpose.

Footnote: the preliminary procedural point arising in this appeal

70. In granting permission to appeal in this case on paper, Peter Gibson LJ stated:

The points which Mr. Lambe wishes to raise cannot be said to have no prospect of success, and the point on the Polkey practice in the light of King v Eaton (No 2) is one of some general importance to practice in the ET

71. This formulation of permission led to a dispute between the parties as to the future of the appeal, which we determined administratively prior to the appeal being heard. Mr. Lambe wanted his appeal heard and decided by this court in the normal way. The Respondent, however, suggested that since Peter Gibson LJ's had said that the points raised by the Appellant could not be said to have no real prospects of success, the proper course was for the matter to be remitted to the EAT (which had said none of the points was arguable) for that Tribunal to conduct a full hearing of the appeal.
72. It was suggested that this course would be appropriate in the light of two decisions of this court, namely Vincent v MJ Gallagher Contractors Ltd [2003] ICR 1244 and Sukul-Lennard v Croydon Primary Care Trust (The Times 22 July 2003). Having raised the point, however, the Respondent made it clear that if we did not think it appropriate for the matter to be remitted to the EAT for a full hearing, it would be content to argue the appeal before this court on its merits.
73. We took the view, on the facts of this case, that the EAT had exhausted its jurisdiction, and that the proper course was for the appeal to proceed on its merits in this court. We took that view for the several reasons, which we need briefly to explain.
74. Firstly, because there is no requirement for permission to appeal from the ET to the EAT, the EAT has introduced various procedures which endeavour to sift out those appeals which, on paper, it does not think contain an arguable point of law. One of the ways this is done is by way of PH. The term is, perhaps, slightly misleading. The hearing is only preliminary in the sense that, if the appeal is found to contain an arguable point of law, it goes forward to a full hearing with both parties present. If, in the judgment of the EAT and after the appellant has been heard the appeal is held not to raise an arguable point of law, it is dismissed then and there and that, subject to any question of permission to appeal to this court, is the end of the matter.
75. Neither of the cases cited is, in our judgment, applicable to the facts of this case. In Vincent v MJ Gallagher Contractors Ltd the EAT, at a preliminary hearing, allowed the appeal to go forward to a full hearing on two of the five grounds advanced. There was an appeal to this court against that ruling. This court took the view that, since the compass of the appeal was a narrow one, the EAT should have allowed the appeal to be argued before it on all five grounds. It therefore allowed the appeal and remitted the matter to the EAT for the full appeal to be conducted on that basis.
76. In our judgment, that is a quite different situation to that which appertains here. In Vincent's case there had been no adjudication by the EAT on the appellant's appeal. This court was astute to point out that the outcome of the appeal was at large. This court was being asked to decide how the EAT should go about hearing the appeal. That is manifestly not this case, where the EAT dismissed Mr. Lambe's appeal on the basis that in its view it contained no arguable point of law.
77. Equally, it does not seem to us that Sukul-Lennard is in point In that case the ET had struck out Mrs. Sukul Lennard's application. She appealed to the EAT which dismissed her appeal at a PH. She applied to this court for permission to appeal. This court (Peter Gibson LJ and Hooper J) identified three grounds of appeal, which either had not been argued at all; alternatively, one had (possibly) been argued in rather a different form. Permission to appeal having been given, the appeal subsequently came on for hearing before a constitution of this court comprising Peter Gibson, Mance and Longmore LJJ.
78. Counsel for the Respondent in Sukul-Lennard conceded that the points identified by this court were arguable. This court accordingly allowed the appeal against the EAT's preliminary ruling. The Respondent had not, of course, been either present or represented at the preliminary hearing. The question for the court was whether to remit the matter to the EAT or the ET. The court remitted the matter to the EAT. It did so (1) because the EAT had not adjudicated on the points identified by this court as arguable, and (2) because this court said it would find it of assistance to have the decision of the EAT on them in the event that the matter were to return to the Court of Appeal. The appellant wanted the matter remitted to the ET. Peter Gibson LJ said at paragraph 5 of his judgment:

To my mind, given the nature of this case and the procedural issues involved, it is plain that it would be better that the EAT should consider the arguments now sought to be advanced for the respondent. The preliminary hearing procedure for appeals to the EAT does have the consequence that this court may have an appeal from the decision reached at a preliminary hearing without the benefit of the views of the specialist tribunal, the EAT on the respondent's case. It may well be that the respondent could have advanced points in writing to the EAT for the preliminary hearing, but if it had done so it would have been responding to what were the points taken by the appellant, not trying to anticipate what this court might consider to offer a real prospect of success on an appeal. In my view, there must be power for this court to achieve the result that the EAT will, at a full hearing, consider points such as now arise in this case.

It seems to me that the appropriate order is to set aside the decision of the EAT and to direct that Mrs. Sukul-Lennard's appeal from the Tribunal should go to a full hearing of the EAT so that both sides can advance the arguments which they wish to advance but which have not yet been heard in contested litigation.

79. The critical point in Sukul-Lennard seems to us to be that the EAT had not had the opportunity to consider the points identified by this court as arguable. Here, of course, the EAT has dealt fully with Mr. Lambe's appeal, and dismissed it. In our judgment it would be inappropriate for this court to remit the appeal to the EAT simply the basis that this court had taken the view on paper that the points the Appellant wished to raise could not be said to have no real prospect of success. In our judgment, in these circumstances, both good practice and good sense dictated that this court should proceed to hear and determine Mr. Lambe's appeal on its merits.
80. We are fortified in that view by the fact that it is, of course, the original decision of the ET with which we are concerned: see Vento v Chief Constable of the West Yorkshire Police [2002] ICR 318 at 326 paragraph 25 per Mummery LJ. Thus if this court finds an error of law in a Tribunal's decision, it is to the Tribunal which it remits the matter.
81. Mr. Moretto submitted, in his skeleton argument on this point, that for this court to hear the full appeal on its merits rather than remitting it to the EAT would prejudice the Respondent by preventing it from; (1) having an opportunity fully to argue the merits of the Tribunal's decision in front of the EAT; and (2) doing so in what is a costs free jurisdiction. The purpose of the PH system, he argued, was to save the Respondent to an appeal having to incur unnecessary costs.
82. We do not accept these arguments. The Respondent has in fact so benefited. It has not had to pay the costs of being represented before the EAT, where, of course, it succeeded. Had the Appellant not obtained this court's permission to appeal that would have been the end of the matter. To have remitted this appeal to the EAT without a hearing – assuming such a course was open to us - would, in our view, have been to duplicate proceedings and to incur unnecessary costs.
83. The circumstances in which this court will remit an appeal to the EAT are, we think, limited. Examples are, of course, provided by the two cases to which we have referred. Another example is where the EAT dismisses an appeal from the Tribunal on the grounds that the EAT does not have jurisdiction to hear it. In such circumstances, if this court on appeal from the EAT takes the view that the EAT does have jurisdiction to entertain the appeal, it will remit the appeal to the EAT for hearing – see, for example, Grady v Prison Service [2003] 3 All ER 745, where the EAT held that it did not have jurisdiction to entertain an appeal by a bankrupt appellant whose claim for unfair dismissal had been dismissed by the Tribunal.
84. Where, however, under the PH procedure the EAT, as here, dismisses an appeal on the basis that none of the grounds of appeal raises a point of law which gives the appeal a reasonable prospect of success at a Full Hearing, and the disappointed appellant obtains the permission of this court to appeal to the Court of Appeal, this court will hear the appeal in the normal way and will either dismiss it or allow it. If it does the latter, and upsets the Tribunal's decision, it will either impose its own order; alternatively, as here, it will remit the decision, or a relevant part of it, to the ET for reconsideration.