United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 564_94_2803

Appeal No. EAT/564/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 28 March 1995

Judgment delivered 9 May 1995

THE HONOURABLE MR JUSTICE BUCKLEY

MR E HAMMOND OBE

MISS C HOLROYD

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CHLORIDE LIMITED          APPELLANTS

(1) B J CAIN (2) G M HEWITT          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR T PITT-PAYNE

(Of Counsel)

EEF, South

Station Road

Hook

Hants

RG27 9TL

For the Respondents MS J EADY

(Of Counsel)

Brian Thompson & Partners Solicitors

Richmond House

Rumford Place

Liverpool

L3 9SW


 


MR JUSTICE BUCKLEY: Messrs Cain, Hewitt, Ainscough and Miss Monaghan had been employed by Chloride Limited (Chloride) since 1961, 1979, 1968 and 1969 respectively. They were dismissed on the grounds of redundancy effective from 31st Jan 1993 save that in Mr Cain's case the effective date was 31st March 1993.

The Industrial Tribunal sitting at Manchester up[held their claims for unfair dismissal, essentially on the basis that the procedure and criteria adopted in relation to the redundancy were unfair. At a subsequent hearing to decide on remedy the Tribunal made compensatory awards pursuant to s.74 of the Employment Protection (Consolidation) Act 1978 ("the Act").

Chloride appeals to this Tribunal on the ground that the Industrial Tribunal was wrong to reject its invitation to consider a reduction in the amounts awarded to reflect the risk or chance that the respondents might have been selected for redundancy even if a fair procedure and criteria had been adopted. This is sometimes referred to as a "Polkey reduction" after Polkey -v- A E Dayton Services Ltd [1988] ICR 142.

The relevant findings of the Tribunal, which we take from the Extended Reasons, are that Chloride had sustained severe trading losses and decided to attempt to sell the company. The employees were informed in September 1992. When negotiations to sell the company failed Mr Brown, General Manager and Mr Morrall, Divisional Manager, decided on redundancies in December 1992. It was their decision not to warn or consult either individuals or their trade union.

Paragraph 5 is worth quoting:

"5(d). The Tribunal found that a deliberate decision was made by Mr Brown and Mr Morrall not to warn either the individuals concerned or their trade union about prospective redundancies. A decision was made not to consult with individuals concerned or their trade union about these prospective redundancies and to make the decision as to selection for redundancy themselves. The Tribunal accepted the evidence of Mr Brown that this decision was taken in order to avoid frustration to the individuals caused by dragging the matter out. It would be kinder to do it in the way that they had decided. The decision as to selection was made by Mr Brown and Mr Morrall taking into account the future needs of the Company and the individual skills of the employees. The Tribunal accepted Mr Brown's evidence that he was not aware of a legal duty to have objective criteria for selection and Mr Morrall's evidence that he was aware of this but nevertheless both men felt it was better to get on with the job quickly. Mr Morrall accepted in evidence that skilled advice in relation to making redundancies was available elsewhere in the group and that this advice should have been taken and also that their criteria for selection for redundancy was subjective. The individuals selected for redundancy were called into Mr Brown's office on 22 December 1992 and told of their dismissal and handed letters detailing their financial entitlement. They were not told before dismissal of the reasons for their selection for redundancy and criteria used in such selection. They were therefore never put in a position to make an informed challenge to their selection".

The Tribunal's reasons are to be found in paragraph 7:

"7. The unanimous decision of the Tribunal was that the respondents had not complied with Section 57(3) of the 1978 Act and therefore the dismissals were unfair. The Tribunal considered the guidelines identified in the Employment Appeal Tribunal in the case of Williams -v- Compair Maxam Ltd that employers should warn employees and trade unions of impending redundancies, consult with individuals and trade unions before making decisions as to redundancy, use objective criteria in selection of employees for redundancy and consider alternatives to dismissal. The Tribunal accepted that these are only guidelines but found that the Company had not complied with any of them. There had been no warnings or consultation with either the applicants or their trade union and there had been only subjective decisions on selection by Mr Brown and Mr Morrall with no input by the trade union or the applicants. The applicants had never been put in a position to challenge their selection. Alternatives to dismissal had been discounted out of hand and no right of appeal had been identified to the applicants. The Tribunal took into account the size and administrative resources of the respondents' undertaking and the fact that there were 16 employees of the respondents at the time of the dismissal and 9 positions were declared redundant. However, it was clear from the evidence that the respondents were part of the larger Chloride group and therefore had access to expertise from the group. Indeed, they used that expertise, through the auspices of Mr Highwood, in January 1993 after the decision to dismiss had been made in order to help the applicants obtain future employment and maximise any benefits from redundancy. The Tribunal found that if the respondents could do this they could have used the expertise of the group's personnel department in advising them on the law relating to redundancy before the dismissal were made."

Chloride's representative, Miss Anderson, submitted to the Industrial Tribunal that there should be a "Polkey reduction" on the basis that any defects identified would be procedural and given the financial constraints experienced by Chloride a significant number of redundancies were inevitable. Consultation could not have changed the outcome.

The Tribunal states that it considered "Polkey" and Steel Stockholders (Birmingham) Ltd -v- Kirkwood [1993] IRLR 515 and understood them to indicate that whereas unfairness on procedural grounds entitled tribunals to take into account whether the decision would have been the same in any event (Polkey), unfairness related to substance rendered it unnecessary (Steel Stockholders).

The Tribunal expressly referred to s.74(1) of "the Act", which provides that the 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 is so far as that loss is attributable to action taken by the employer".

At Paragraph 11 it decided:

"11. The Tribunal were unanimous in the finding that the unfairness in this case was substantive as well as procedural. The respondents had been found not to comply with any of the guidelines contained in Williams -v- Compair Maxam Ltd. This included the adoption of criteria for selection in deciding who should be made redundant. The Tribunal had found that the selection criteria was totally subjective and purely a matter of the opinion of Mr Brown and Mr Morrall. The applicants had never been put in a position to challenge their selection. Consequently there should be no reduction in the amount of compensation paid to the applicants".

Mr Pitt-Payne for Chloride presented the appeal on two basis. First, he challenged the tribunal's finding that the selection criteria adopted here was unfair and hence the finding of substantive unfairness. He pointed out that subjective criteria was not necessarily unfair criteria and submitted the tribunal had fallen into the trap of treating them so.

We do not accept that submission. The Tribunal's reason must be read as a whole and with a reasonable, by which we mean not too analytical, eye. It is reasonably clear from the passages we have quoted that the criteria amounted to no more than Messrs Brown and Morrall's own view on the future needs of the company and the individual's skills. These views were admitted to be subjective. It was also admitted that no advice had been taken or consideration given to other or any more objective criteria. Whilst the Tribunal clearly laid emphasis on the subjective nature of the criteria we are satisfied that a fair reading of the reasons leads to the conclusion that the tribunal was satisfied that the criteria were in fact unfair.

Second, Mr Pitt-Payne submitted that even if the criteria were unfair and in that sense the unfairness was substantive and not just procedural (which he admitted) still the tribunal was wrong to refuse a "Polkey" reduction. In support of the submission he relied on the fact that nine out of sixteen employees were to be made redundant so that whatever procedures or criteria had been adopted every candidate was at serious risk and a reduction in compensation should have been made to reflect that.

It is clear from page 517 of the report of the Steel Stockholder's case that Lord Coulsfield, in giving the tribunal's decision reached the following conclusions;

i. a "Polkey" reduction only applied to procedural as opposed to substantive unfairness.

ii. the adoption of unfair criteria in redundancy cases is substantive unfairness; therefore;

iii. It is necessary for an industrial tribunal to decide whether the unfairness found is substantive or procedural and only if it is the latter need it consider whether, but for that unfairness, the decision might nevertheless have been the same.

With real respect to Lord Coulsfield's tribunal we cannot see how the distinction between substantive and procedural unfairness can logically affect the question of a reduction in compensation. Accepting the decision in Polkey or to be more precise the speech of Lord Bridge at page 508 that when a tribunal holds 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", how can it make a difference whether the "steps" were procedural or matters of substance? If an award is to be reduced on the basis that it is compensatory and not punitive and that although the employer's decision was unfair a fair decision would have led to the same result that will be the same whatever the nature of the unfairness. Further any such approach is calculated to give rise to arguments about what is substantive as apposed to procedural unfairness. As Lord Coulsfield acknowledged, Lord Bridge included the adoption of a fair basis of selection for redundancy among the steps which he described as procedural, he was thus forced to conclude that Lord Bridge, however, could not have intended the adoption of criteria for selection to be treated as procedural. A fine distinction which may warn of the debates which could follow.

Having said that, we share the antipathy of the tribunal in Steel Stockholders, towards an employer who has used unfair criteria seeking to maintain subsequently that a different and fair basis of selection would or might have led to the same result. We think the solution lies, as it does so often in these cases, in the wording of s.74. The Tribunal is there directed to award such amount as is just and equitable in all the circumstances. Whilst that no doubt places on tribunals the burden of considering "all the circumstances" which includes whether a fair decision would have been any different, that will not add too much to most cases, in which the position will be reasonably clear one way or the other. In particular, provided the tribunal fairly considers the matter it could not properly be criticised for deciding that where an employer has used unfair criteria in selecting an employee for redundancy the overall equity of the case was not much affected by the fact, if it be so, that other criteria might have been adopted. It is what the tribunal considers just and equitable that counts and we could well understand that tribunals may take that view. In the end it is a fair assessment of the particular case that is called for and industrial tribunals are well equipped to carry out that task.

Returning to the facts of the present case it seems to us that the tribunal did indeed consider all the circumstances and the equity of the matter. We consider that appears from the paragraphs we have quoted leading to the conclusion in particular in paragraph 11, also from the fact that in paragraph 10 the tribunal expressly reminded itself of the terms of s.74. Although we have differed from the decision in Steel Stockholders, to the extent we have explained, and thus from that aspect of the tribunals decision here which is based upon it, we do not consider that justifies our interfering in the circumstances of this case. The tribunal's decision was, as we have said, clearly based on the overall equity of the matter and we do not believe the difference in approach could lead to a different result.

Finally, as to Mr Pitt-Payne's particular submission based on the numbers of employees concerned, we reject that also. If this submission was accepted, without more, logically it would apply in every case. For example, even where one or two out of a hundred employees were to be made redundant and they were selected unfairly there would be a one or two percent reduction in compensation. We know of no such rule and do not wish to encourage one. In any event this cannot be a consideration independent of the selection process.

We quote from Mr Pitt-Payne's skeleton argument:

"It [Chloride] selected 9 of its 16 remaining employees for redundancy, including the applicants. Whatever procedure was followed, and whatever selection criteria were adopted, each of the applicants would inevitably have been at serious risk of selection for redundancy."

That is simply wrong. It depends on the criteria adopted. Take this case. Five individuals were to remain. Suppose the selected criteria was "last in first out" and the four applicants happened to be the longest serving employees. There would be no risk of their selection.

We do not say this aspect of the matter is irrelevant. If the numbers are sufficiently striking and the relevant criteria do not exclude their consideration a tribunal would quite properly take the submission into account in assessing the overall equity of the matter. It is true that the tribunal did not do so here, albeit it was well aware of the situation (para 7). However, this was an extreme case, as found by the tribunal, in which none of the guidelines laid down for redundancy cases had been followed (para 7). Further, it was for Chloride to demonstrate the relevance of this argument by reference to appropriate criteria and it did not do so. In the circumstances we are not prepared to interfere on that basis either and the appeal is dismissed.

We are grateful to both Counsel for their assistance.