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Cite as: [1993] UKEAT 303_91_0202, [1993] UKEAT 303_91_202

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BAILII case number: [1993] UKEAT 303_91_0202

Appeal No. EAT/303/91, EAT/304/91

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 17 December 1992

Judgment delivered on 3 February 1993

Before

HIS HONOUR JUDGE J HICKS QC

MR P DAWSON OBE

MR R H PHIPPS

MISS L WESTON APPELLANT

METZELER (UK) LTD RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellant Mr J McMullen

(of Counsel)

Robin Thompson & Partners

37 Stoney Street

The Lace Market

NOTTINGHAM

NG1 1NE

For the Respondents Mr J Cavanagh

(of Counsel)

Hegarty & Co

48 Broadway

Peterborough

PE1 1YW

HIS HONOUR JUDGE J HICKS QC This is an appeal by the employee, Mrs Linda Weston, from the award of compensation made by the Industrial Tribunal on her application against the Respondent employers, Metzeler (UK) Ltd, complaining of unfair dismissal. The Tribunal gave their decision and Reasons in three parts: the first (which we shall call "the liability decision") on 21st February 1990, the second (which we shall call "the compensation decision") on 3 January 1991 and the third (which we shall call "the review decision") on 24th April 1991.

For our purposes the relevant facts found by the Tribunal are those set out in the following extracts from its liability decision:

"1. On 4th October 1989 the applicant was dismissed from her job as one of two team leaders - effectively charge-hands - supervising the work of a "team" of some seven or eight operatives working on the factory floor in the metal preparation area of the respondents' business. She had been continuously employed since January 1986 without giving any cause for complaint and had herself done several of the factory floor jobs done by other members of the team after having initially worked as a packer for six months. Her rate of pay as a team leader was not significantly greater than that of most other members of her team and about half her time was spent on "hands on" operative work and the other hand on supervision."

...

"3. During the first nine months of 1989 there was a significant decline in the volume of business available to the respondents: ... the respondents' Production Manager Mr Fox ... at [a meeting] on 18th September attended by the applicant, [gave] an assurance that "permanent" employees would be given preference over "week-to-week" employees if lay offs became necessary. ..."

"4. During the period leading up to October 1989 the respondents had been making changes in methods of working - particularly by introducing more automatic spraying - in the metal preparation area in which the applicant worked and it had become clear that in consequence of those changes much of the work done by team leaders as such in that area had disappeared and that they would not longer be required."

...

"6. At a meeting held at about 10.30 p.m. on 4th October when the applicant came into work Mr Fox told her that she was to be dismissed by reason of redundancy. At about the same time the other team leader in the metal preparation area, Mr Carman, was similarly dismissed but it so happened that, at the time, a single job as a moulder had become available in the factory and Mr Carman was offered and accepted that job: we are satisfied that the choice between him and the applicant for that job was properly made by Mr Fox on the basis of comparative length of service, job skills and attendance records.

..."

On the basis of their findings of fact the Tribunal reached the decision that the Applicant had been unfairly dismissed. The relevant parts of their Reasons for this decision were

"8. We are satisfied that at the time of the applicant's dismissal there was a "redundancy situation" in the respondents' business in that the requirements of that business for employees to carry out work of a particular kind - as team leaders - had ceased or diminished and we find that the applicant was dismissed by reason of redundancy. Our decision must therefore turn on the question posed by Section 57(3) of the Act - whether in the circumstances (including the size and administrative resources of the respondents' undertaking) they acted reasonably or unreasonably in treating the redundancy as a sufficient reason for dismissing the applicant: and we are to determine that question in accordance with equity and the substantial merits of the case. ... The respondents made a crucial error in failing to give any consideration to the question whether, given the applicant's three and a half years blameless service and her experience in other factory floor jobs, they should have made the necessary redundancy selection from a wider pool of workers. We do not criticise them for failing to dismiss someone else to make room for the applicant but we do find against them for failing to give any consideration whatsoever to that possibility and for their "tunnel vision" in supposing that because team leaders in the metal preparation area were no longer required it must therefore be the team leaders in that area and no other persons who must go.

9. There is a further ground upon which we find against the respondents; namely, their failure to engage in any degree of consultation whatsoever with the applicant before they dismissed her. We cannot say whether or not consultation would have made any difference to the outcome ... . Given her length of service on the shop floor set against that of several others she has named in evidence the applicant deserved and should have been given an opportunity of putting her representations before, not after, Mr Fox had made his final decision.

10. For these reasons it is the unanimous decision of the Tribunal that the respondents did not at the time of the applicant's dismissal act reasonably in treating the redundancy situation as sufficient reason for dismissing the applicant. ..."

11. ... the Tribunal finds that the applicant did not contribute in any way to her own dismissal and will not therefore reduce any compensation award on that account."

For the purposes of this appeal the relevant parts of the compensation decision are paragraph 4 and an extract from the computation of the award, as follows:

"4. The main reason for the finding of unfair dismissal against the Respondents was that they had acted unreasonably in failing to consider a significantly larger "pool" of workers from which redundancy selection might have been made at the relevant time with a view of offering the applicant an opportunity of continued employment in a lower grade and lower paid job: the Tribunal accepts the Applicant's evidence that if such an offer had been made to her she would almost certainly have accepted it and therefore considers it just and equitable in assessing her compensatory award to take account of the fact that if her employment with the Respondent had continued after 4th October 1989 it would almost certainly have been at a lower rate of pay than that to which she was entitled at the date of the unfair dismissal."

...

"6. ...

Loss of net pay from 4.10.89 to 18.12.90

at average pre-dismissal rate paid by Respondent, say£10,500.00

Less - discount for lower pay (para 4 above) 2,500.00

..."

It appears that the matter of the "discount" had not been canvassed at the compensation hearing on 18th December 1990 and the Tribunal therefore acceded to an application to review that decision. Following are the relevant passages from the Review Decision:

"1. ... The Tribunal considered it proper to make that discount given the particular reasons for the finding of unfair dismissal which are set out in paragraphs 8 and 9 of the decision on the substantive issue promulgated on 21st February 1990 and the Applicant's own frank statement in evidence that, in the redundancy situation which had arisen at the time of her dismissal, she would have accepted a lower paid job if the Respondents had then offered it instead of dismissing her. ..."

"2. Neither the Tribunal or the parties have been able to find any authority directly to the point of whether the discount referred to above should properly be made. The proposition that an Applicant who has been unfairly dismissed by reason only of some "procedural" default on the part of the employer and who would, but for such procedural default, have been fairly dismissed at some later but nevertheless relatively early date should have compensation only in respect of the period to the date at which he would have been fairly dismissed is well established. Despite the lack of authority on the point it seems to the Tribunal by parity of reasoning that if as in this case (a) the dismissal has been found unfair because - despite a clear redundancy situation in which some one or more employees would have to be dismissed - the employer has failed to make the redundancy selection from a sufficiently large group of employees and for failure to consult before effecting the redundancy and (b) the employee has readily acknowledged that if it had been offered she would have taken a lower paid job then those matters must be taken into account by the Tribunal in deciding what is the just and equitable amount to award to the unfairly dismissed employee for loss of pay between the dates of the dismissal and the Tribunal hearing. In this case the Respondents had decided that the job of "team leader" in which the Applicant was employed had to go: it was clear on the evidence given at the original hearing on the substantive issue that there were other more recently employed and lower paid shop floor workers in jobs of a kind which the Applicant had herself done in the past (and was willing to do again) who might very well have been properly dismissed before the Applicant if the Respondents had not taken the view that it was the Applicant who must necessarily go because she was a team leader and it was team leaders they no longer required: these matters must be relevant to a proper consideration of the amount of compensation.

3. We are fortified in this view by the latter part of the judgment of Lord Bridge of Harwich in Polkey v. A E Dayton Services Limited [1988] ICR 142 where, at page 163, having indicated that the question whether appropriate procedural steps would have made any difference to the outcome is irrelevant on the question whether the dismissal was fair or unfair, he goes on to make the point that the question of the likely effect of taking appropriate procedural steps is indeed to be considered at the stage of assessing compensation and may at that stage result in no award of compensation or a reduction of the amount of compensation which would otherwise have been awarded.

4. The business of qualifying the appropriate discount in this particular case is inevitably speculative. The Applicant would have accepted a lower paid job had it been offered to her and in the circumstances obtaining at the time of the dismissal it is clear that there might also have been some possibility of a cut in the number of full time hours which the Applicant had until then been working. Doing the best we could at the time of the compensation hearing last December we concluded that £2,500.00 was the appropriate figure by which to discount the Applicant's lost earnings and we are not persuaded on this review that there is any reason to change that view."

Mr McMullen's submission for the Appellant is essentially that compensation should have been assessed for the relevant period (as to which there is no appeal by either party) at the full amount of the difference between her earnings had she not been dismissed and those which she in fact obtained from other employment. Mr Cavanagh defends the Tribunal's assessment, and in particular the deduction of £2,500. Mr McMullen confined his argument to what he says were errors of law on the part of the Tribunal; the Notice of Appeal and his skeleton argument also allege perversity, but he accepts that he cannot pursue that allegation in the absence of notes of evidence.

An employee who is unfairly dismissed and claims compensation will naturally seek to argue that it should be assessed on the basis advanced by Mr McMullen. An employer may argue for a lower award under a number of heads, including three of particular relevance to the development of the case law to which we were referred:

(i)conduct of the employee contributing to his dismissal or otherwise making it just and equitable to reduce the award (sections 74(6) and 73(7B) of the Employment Protection (Consolidation) Act 1978);

(ii)the fact or likelihood, if the Tribunal so find, that had the employer acted fairly the employee would or might still have been dismissed, either on the same date or on some later date, or would have been offered an alternative post, which he or she would (or acting reasonably should) have accepted;

(iii) the fact, if the Tribunal so find, that the alternative post considered under ground (ii) would have been at a lower level of earnings.

We observe that these three heads are different in kind. Head (i) does not affect the valuation of the employee's loss; it is concerned with justifications for awarding him less than the amount of that loss. Heads (ii) and (iii) are concerned with the valuation of the loss itself, but in different ways. Head (ii) involves assessing the relative chances of different results within the general hypothesis of fair conduct by the employers. Head (iii) is concerned with quantification in the narrowest sense, namely the assessment of what earnings the employee would actually have received in the event of one of those results.

We were referred to three authorities.

The first was Polkey v. A E Dayton Services Ltd [1988] ICR 142. That was a case where the applicant employee was dismissed for redundancy. The Tribunal held that the employers had been in breach of their obligation to consult the employee under the provisions of the relevant Code of Practice. They went on, however, to consider whether, if there had been consultation, the result would have been any different, concluded that the result would have been the same and dismissed the employee's complaint. Appeals to the Employment Appeal Tribunal and the Court of Appeal were dismissed, but the House of Lords allowed the final appeal, holding:

"... that the question that the Industrial Tribunal had to consider ... was whether the employer had been reasonable or unreasonable in deciding that his reason for dismissing his employee was a sufficient reason, not whether the employee would nevertheless have been dismissed even if there had been prior consultation or warning within the Code of Practice; but whether the employer could reasonably have concluded that the consultation or warning would be useless so that his failure to consult or warn would not necessarily render the dismissal unfair was a matter for the industrial tribunal to consider in the light of the circumstances known to the employer at the time when he took his decision to dismiss; and that, accordingly, the matter should be remitted to a differently constituted industrial tribunal for consideration of the correct question." (Headnote. p.142F - 143A)

The House of Lords overruled (inter alia) the case of British Labour Pump Co Ltd v. Byrne [1979] ICR 347.

That is the decision, and the only decision, in Polkey, and the decision of the Industrial Tribunal in the present case on the issue of unfair dismissal was in accordance with it. In the course of the argument in the House of Lords, however, there was naturally discussion of the effect on the issue of compensation of a finding such as that made by the Industrial Tribunal in that case. The Lord Chancellor, Lord Mackay, with whom Lords Keith, Brandon and Ackner agreed, adopted a passage from the judgment of Browne-Wilkinson J. in Sillifant v. Powell Duffryn Timber Ltd [1983] IRLR 91 which included the sentence:

"...Where, in the circumstances known at the time of dismissal, it was not reasonable for the employer to dismiss without giving an opportunity to explain but facts subsequently discovered or proved before the industrial tribunal show that dismissal was in fact merited, compensation would be reduced to nil . ..." (p.156F)

Lord Bridge developed the point further, and in particular gave two reasons why, despite the apparent inconsequence of a distinction between a fair dismissal and an unfair dismissal with no compensation, there are differences of substance between the operation of the true rule and that rejected by the House of Lords. The second of these does not concern us.

As to the first, however, Lord Bridge said:

"... First, as was pointed out by Browne-Wilkinson J. in Sillifant's case, if the industrial tribunal, in considering whether the employer who has omitted to take the appropriate procedural steps acted reasonably or unreasonably in treating his reason as a sufficient reason for dismissal, poses for itself the hypothetical question whether the result would have been any different if the appropriate procedural steps had been taken, it can only answer that question on a balance of probabilities. Accordingly, applying the British Labour Pump principle, if the answer is that it probably would have made no difference, the employee's unfair dismissal claim fails. But if the likely effect of taking the appropriate procedural steps is only considered, as it should be, at the stage of assessing compensation, the position is quite different. In that situation, as Browne-Wilkinson J. put 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." "

That was plainly obiter, and was an expression of opinion by one only of the five Law Lords, but it is reinforced by Lord Mackay's general approval of Sillifant and has generally been accepted as authoritative, and we accept and apply it. It is a little odd that it should be described as the "Polkey principle", as if it took precedence over the substantive decision in that case, but that has become a widespread usage and in the remainder of this judgment references to Polkey are, where appropriate, to that aspect of the report.

Polkey was cited to and considered by the Industrial Tribunal in the present case. The remaining two authorities were reported later.

First was the case of Rao v. Civil Aviation Authority [1992] IRLR 203. That was a case of dismissal on disciplinary grounds which the Industrial Tribunal had found to be an unfair dismissal. In assessing the compensation the Tribunal held that there should be a reduction in both compensatory and basic awards to reflect a finding of contributory conduct. To the reduced figure for the compensatory award there was applied a further reduction of 80% on account of their finding that, had the employers followed a fair procedure, there was only a 20% chance of Mr Rao's employment continuing. On appeal to the Employment Appeal Tribunal the employee submitted that once there had been a reduction in the compensatory award for contributory conduct then if a tribunal reduced the chance of obtaining that award by 80% there was in effect double counting and a double penalty being imposed upon the employee, or at least that that was a well-founded criticism where the behaviour which gave rise for the reason for dismissal was also the same behaviour which was relied upon as amounting to contributory conduct. The decision on this point of the Employment Appeal Tribunal delivered by the President, Wood J. is summarised in the headnote as follows:

"... Where a dismissal is unfair because of a procedural defect, the Industrial Tribunal first has to calculate compensation for loss in accordance with the statutory principles. If a reduction falls to be made on account of the employee's contributory conduct, the award so calculated will then be reduced to give £X. Where there is some degree of uncertainty as to whether the employee would have been fairly dismissed if the proper procedure had been followed, in accordance with the decision of the House of Lords in Polkey v. A E Dayton Services, a calculation has to be made of the chance of the employee receiving £X, or receiving nothing. If, as in the present case, the Tribunal takes the view that there is only a 20% chance of recovering £X, so to find is not to recalculate £X but to assess the likelihood of the employee recovering £X or nothing. There is no double penalty."

Rao, therefore, deals with the validity of and relationship between what we have called above heads (i) and (ii). It was not criticised in that respect by either party before us, and we respectfully agree with it. (There was a quite separate aspect of Rao dealing with the discretion to order reinstatement or re-engagement, with which we are not concerned.)

What we have called heads (ii) and (iii) were considered in Red Bank Manufacturing Co Ltd v. Meadows [1992] IRLR 209. The relevant facts are summarised in the report as follows:

"Mr Meadows was dismissed on grounds of redundancy after 32 years' service with the appellant company. An Industrial Tribunal found the dismissal unfair because the employers had failed to consult with the employee before dismissing him. In assessing the amount of compensation to be awarded, the Tribunal based their calculations on the difference between Mr Meadows' actual earnings since dismissal and what he would have received in the job from which he had been dismissed.

The employers appealed against the sum awarded on the following grounds. First, even if a fair procedure had been followed, no job would have been found for Mr Meadows and, therefore, the award should have been nil, or there should at least have been a percentage reduction to reflect the chance that the outcome would have been the same. Secondly, since Mr Meadows' old job had disappeared through redundancy, his loss of earnings could at most have been the difference between his actual earnings in his new job and what he would have earned in any job he might have been offered by the appellants, and accepted."

The matter was dealt with thus in the judgment of the Employment Appeal Tribunal, delivered by Mr Justice Tucker:

"9. The Tribunal expressly dealt with the specific questions of the respondent's duty to mitigate his loss and with his solicitor's argument for an open-ended loss.

10. However, it seems to us that since the decision in Polkey 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 taken 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 that it might have done so. What the Tribunal failed to do, and what in our view they should have done, was to go on to consider first what that employment would have been, and second what wage would have been paid in respect of it.

11. In considering the first of those questions, it would not have appeared to have been open to the Tribunal to conclude that the employment which might have been offered was the respondent's old job, since that had disappeared through redundancy.

12. It is not clear from the second decision whether or not the Tribunal did apply the Polkey principles to their consideration of the question of calculation of quantum. While of course Tribunals are not required when giving the reasons for their decisions to deal with all the arguments put before them, we feel in view of the appellants' counsel's submissions that it is unsatisfactory in the circumstances of the present case that a fundamental question such as this should not have been seen to be expressly addressed.

13. Furthermore, we think that the Industrial Tribunal should have made it clear whether or not they considered making a percentage reduction in the award to reflect the chances that the outcome might have been the same even if consultation had taken place."

Counsel for both parties submitted that Red Bank was wrongly decided or should not be followed, although in different respects and for opposite reasons. Mr McMullen, having accepted Rao, could hardly dispute that the assessment of compensation involves what Red Bank calls the "first stage" of asking whether fairness by the employer would or might have resulted in continued employment. He says that the Tribunal failed to make a finding on that point, and to that we must return. He denies, however, that there should be any "second stage" of quantifying the wage which would have been paid in that employment.

We disagree, and follow Red Bank on that issue. 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 if the wrongful injury had not been suffered. That entails a comparison between the real events which actually followed the wrongful act or omission and the hypothetical events which would have followed had it not occurred. If those hypothetical events are the offer and acceptance of a different job then it is the earnings in that job, not pre-dismissal earnings which would not in any event have continued, which must be compared with the claimant's actual earnings following the unfair dismissal. No authority peculiar to employment law is needed for such a basic principle.

Mr Cavanagh's criticism, in contrast, is that although Red Bank correctly identified what we have called heads (ii) and (iii) it is wrong insofar as it requires a Tribunal to "show its workings" by dealing with them separately.

Again we disagree, and respectfully adopt and apply the passage in the judgment in Red Bank that "It is unsatisfactory ... that a fundamental question such as this should not have been seen to be expressly addressed" (paragraph 12).

Mr Cavanagh cited three authorities in support of his submissions on this point. The first was Piggott Bros & Co Ltd v. Jackson [1991] IRLR 309, and in particular paragraph 29 in the judgment of the Master of the Rolls, Lord Donaldson, in the Court of Appeal, as follows:

"29 It is at this point that I think we are being invited to fall into another trap for unwary appellate courts, namely, to construe an Industrial Tribunal's reasons as if they were a statute or a deed. As I put it in UCATT V. Brain [1981] IRLR 225 at p.228 (27).

'The purpose of reasons is to tell the parties in broad terms why they lose or, as the case may be, win. I think it would be a thousand pities if these reasons began to be subjected to a detailed analysis and appeals were to be brought based upon any such analysis. This, to my mind, is to misuse the purpose for which reasons are given.' "

In our view, to require a distinction between heads (ii) and (iii) is not to construe what the Tribunal says like a statute or deed but simply to expect that they give reasons for their decision in the sense explained by Lord Donaldson, which is to tell the parties in broad terms why the amount of compensation awarded is what it is.

Mr Cavanagh's second case was Hough v. Leyland DAF Ltd [1991] ICR 696. In that case the Industrial Tribunal had made a 50% reduction in compensation in respect of the chance that the employee would in any event have bee dismissed, but did not explain how they arrived at that percentage by reference to any appraisal of what proposals or counter-proposals would have been put forward or with what result, and the Employment Appeal Tribunal dismissed an appeal criticising that omission. We consider that that case well illustrates the level of particularity required; there should indeed be an assessment in percentage terms of the chances of the different events (which was made), but a detailed exposition of how it has been reached is not required. It does not appear to have been suggested in that case that the alternative to dismissal was anything other than the continuance in the pre-dismissal job.

Mr Cavanagh's third case was Fougere v. Phoenix Motor Co [1976] ICR 495, in which Mr Justice Phillips, giving the judgment of the EAT, said:

"... Industrial Tribunals are bound to have work in practical conditions, and they are obliged to assess the amount of compensation quickly - unfairly of course - but they are bound of necessity to operate in a somewhat rough and ready way, and to paint the picture with a broad brush. It is in everybody's interest that that should be the case. ..."

We do not dissent, but the question is whether the brush can properly be so broad that the identities of our heads (ii) and (iii) are lost in a general blur. We believe not. They are, as we have pointed out, different in kind.

It seemed at one stage in the argument that it might be possible to infer from the Tribunal's Reasons that they found that the chance of continued employment at lower pay to be 100%. This turns on the words "discount for lower pay" in the computation in paragraph 6 of the compensation decision quoted above. If the reduction was all and solely for lower pay that would leave no room for any chance of a fair dismissal on the one hand, or of continued employment at the same pay on the other. Both Mr McMullen and Mr Cavanagh, however, for different reasons, argued against any such inference, and we have come to the conclusion that it cannot safely be drawn. The words "discount for lower pay" quoted above are followed by "(para 4 above)" and paragraph 4 contains no finding that the employers, acting fairly, would inevitably have dismissed someone else, or would have offered the Appellant a lower paid job; on the contrary the expressions "if her employment had continued" and "it would almost certainly have been at a lower rate of pay" (our emphases) implied less than certainty on both points. Moreover, a reduction of as much as £2,500 is difficult to understand if lower pay was the only consideration, in view of the Tribunal's finding that the Appellant's rate of pay as a team leader was not significantly greater than that of most other members of her team.

We therefore conclude that the Tribunal did not make the necessary findings to justify their assessment of compensation and that the application must be remitted for rehearing so that that can be done in the two stages required. The first stage necessitates a finding as to the relative chances that the employers, acting fairly (and in particular after considering a significantly larger pool of workers from which to select for redundancy, and after proper consultation), would (a) have retained the Appellant at her existing level of earnings, or (b) have offered her a lower-paid job which she would (or acting reasonably should) have accepted, or (c) have still dismissed her. The chances of each may, subject to the Tribunal's findings of fact, be anything from nil to 100%; they must, of course, total 100%.

The chance of each event then requires to be applied to its value. The value of (c) is of course nil and that of (a) is the difference for the relevant period between actual earnings since dismissal and earnings had the Appellant been retained without reduction of pay. The value of (b) requires the "second stage" of Red Bank - an assessment of what the Appellant's earnings would have been in the lower-paid job assumed to have been offered to and accepted by her.

Mr Cavanagh submits that this introduces unacceptable complications, because a number of posts and levels of remuneration might have been possible. We doubt whether that is much of a factual difficulty in the present case, but in any event we do not consider that the Tribunal is obliged to spell out that kind of detail; it is at this level of particularity that Mr Cavanagh's citations from Hough and Fougere legitimately come into play, and justify a "rough and ready" or "broad brush" approach, albeit one based on the evidence.

There are certain other minor adjustments required to the computation of the award, which we need not rule upon, because we are told that they are agreed between the parties and will be dealt with by consent at the re-hearing.

That suffices to dispose of this appeal, but a number of submissions were made by Mr McMullen which we should briefly deal with, in fairness to the Tribunal's original approach and so that if they are advanced at the rehearing the Tribunal will be aware of our views.

The first was that since Mr Fox had a "closed mind" and "tunnel vision" consultation with the Appellant would have made no difference. This is, to say the least, a quixotic argument, because it would reduce compensation to nil. It is in any event fallacious, because the test is not how Mr Fox would have acted if he had corrected one only of his errors, leaving his remaining defects and idiosyncrasies intact, but what a reasonable employer, acting fairly, would have done.

Secondly, Mr McMullen says that if the employers had acted reasonably and offered alternative employment the Appellant would have accepted it and therefore would not have been dismissed, and that there is therefore no scope for a percentage deduction. There are three points to be made as to that. The first is that, as we have already pointed out, the word "deduction" wrongly implies that the issue is whether the Appellant should receive less than her loss, whereas in truth it is one of quantifying that loss. The second is that the assumption that had the employers acted reasonably they "would" (sc. certainly) have offered alternative employment begs the question which, as Mr McMullen rightly submits elsewhere, the Tribunal should have answered but did not, namely what was the probability of that event rather than of a fair dismissal or continuation in post. If the answer to that question were less than 100% then there would be a percentage adjustment under our head (ii). The third is that, even if the answer to that question were 100%, although there would indeed be no percentage adjustment under our head (ii) the question would still remain to be answered under head (iii) what the Appellant's earnings would have been in the alternative employment.

Thirdly, Mr McMullen submits that the Tribunal's use of Polkey was a misdirection, since that the decision operates only to reduce the compensation payable by an employer who makes the right decision to dismiss but goes about it in the wrong way. In our view the Tribunal fell into no such error, because what was said in Polkey has no such limitation. Lord Bridge's speech and its application in Rao make it plain that the so-called "Polkey principle" operates not only where the employers have (certainly) "made the right decision", but also where there is a chance that they may have done so. It is true that Polkey has nothing directly to say about our head (iii), the financial consequences of alternative employment, because that was not in point there, but the Tribunal in this case clearly appreciated that fact, as appears from the first sentence of paragraph 2 of their review decision. The Tribunal, however, rightly concluded from Lord Bridge's speech that the likely effect of the employers' acting fairly was to be considered at the stage of assessing compensation and might result in no award or a reduction of the amount which would otherwise have been awarded (review decision, paragraph 3).

Finally, Mr McMullen submits that Polkey applies only to procedural errors, not to substantive ones, and that the failure by the employers to make their redundancy selection from a wider pool was substantive. This can be answered at two levels. The first accepts the postulated classification at its face value. On that basis the failure referred to was plainly "procedural"; the adoption of a "fair basis on which to select for redundancy" is one of the very examples chosen by Lord Bridge as bringing into play the considerations developed in the passage quoted above.

But, more fundamentally, words such as "procedural" and "substantive" are at best convenient labels, and to divorce them from the rationale of the principle in question and then to use them to delimit its scope is either circular or misleading. Lord Bridge refers only to steps "conveniently classified in most of the authorities as "procedural"", and convenience of classification must not prevail over justice. The true question is whether rectification of the unfairness under consideration would have left the employee in his or her existing job. If it certainly would then what the employee has lost is the value of that job, and no adjustment is required to allow for other eventualities. If it would, or might, not have done so then the assessment of loss must take into account the situation which would have resulted, or the range of possible situations and their relative likelihoods.

In the result, therefore, the appeal is allowed and the application remitted to an Industrial Tribunal for a rehearing confined to the assessment of compensation, applying the principles set out in this judgment. The rehearing should be before the same Tribunal, if it is reasonably practicable to reconstitute it.