Appeal No. UKEATS/0064/10/BI
EMPLOYMENT APPEAL TRIBUNAL
52 MELVILLE STREET, EDINBURGH, EH3 7HF
At
the Tribunal
On
14 June 2011
Before
THE
HONOURABLE LADY SMITH
MISS S AYRE FIPM FBIM
MR M SMITH OBE JP
VENTRAC
SHEET METALS LIMITED APPELLANT
MR
CRAIG FAIRLEY RESPONDENT
Transcript of Proceedings
JUDGMENT
THE HONOURABLE LADY SMITH
Introduction
1.
This is an employer’s appeal from a judgment of the Employment Tribunal
sitting at Glasgow, Employment Judge Victor Craig, registered on 1 September
2010, finding that the Claimant had been unfairly dismissed and awarding
compensation of £8,830.
2.
We will continue referring to parties as Claimant and Respondent. The Claimant
was represented by Ms M Gribbon, solicitor, before the Tribunal and by
Mr Cameron, advocate, before us. The Respondent was represented by Mr I
Kennedy, solicitor, before the Tribunal and by Mr Watt, advocate, before us.
Background
3.
The Respondent is a small family manufacturing business; they make and
install ducting for air conditioning systems. The Claimant was a trainee. He
started his traineeship on 28 April 2008 and was dismissed as redundant on 22
January 2010. The issue for the Tribunal was whether or not it was fair to
select the Claimant for dismissal; it was accepted that there was a genuine
redundancy situation. The Tribunal found that at the time of his dismissal the
Claimant was:
“…engaged mainly in the fitting and installation of ducting
which had been manufactured in the workshop.” (paragraph
15)
4.
There was a second trainee, Mr McArthur. He was not dismissed. The Tribunal
found that he had less service than the Claimant without finding how much less
that service was. On the findings of the Tribunal, Mr McArthur was:
“…engaged mainly in the manufacturing side of the business in
the workshop.” (paragraph 18)
5.
The Tribunal also found that Mr McArthur had been trained in both
manufacturing and installation of ducting and referred to a specific occasion
of him having been engaged in an installation job in June 2010 (paragraph 22). Likewise,
the Claimant had been trained in manufacturing and:
“could and did do the type of work Mr McArthur did.” (paragraph 24)
6.
It was for the trainees themselves to decide whether they wanted to work
in the workshop or out on site, installing ducting. The Tribunal’s findings
indicate that, at the time the relevant redundancy decision was made, Mr
McArthur was the workshop trainee and the Claimant was the “on site” trainee. The
immediate problem for the Respondent at the time of redundancy was, evidently,
the lack of on site work on account of orders drying up. The downturn in that
work was such that the Respondent required to reduce its “on site” employees
from a complement of 17 to only 7. In particular, the services of a trainee
working on site were no longer required.
7.
The Respondent suffered a significant downturn in business at the end of
2009. By the beginning of the week of 11 January 2010, the Claimant was at
risk of redundancy, as was discussed by the Respondent’s management. They did
not tell the Claimant.
8.
On 22 January 2010, the factory manager, Mr Tannahill, called the Claimant
into what the Tribunal state could “hardly be dignified as a meeting”
(paragraph 30). He was told that there was no more work for him and that he
was dismissed, with immediate effect. He was not advised that he had a right
of appeal.
9.
The Tribunal found that the Claimant was not told that he was entitled
to have a witness or companion with him at the meeting and that he was not
given any explanation of the reasons for his redundancy.
10.
Further, the Tribunal found that no consideration was given to the
question of whether the Claimant or Mr McArthur should be made redundant. No
appraisals, scoring or matrices were used.
The
Tribunal’s Judgment
11.
The Tribunal concluded:
“64. In the Tribunal’s view, the conduct of the respondent
company in this case cannot be described as merely procedurally inept or
technically irregular.
65. The Tribunal has seldom come across a case in which an
employer has acted in such an unfair manner towards an employee, and
particularly to a young employee who was a trainee.”
12.
The Tribunal base their conclusion on the lack of consultation and the
manner of the Claimant’s dismissal. They approached matters on the basis that
there was a redundancy pool consisting of two trainees, namely the Claimant and
Mr McArthur.
13.
The Tribunal declined to make a Polkey reduction in
compensation (Polkey v A E Dayton Services Limited [1988] IAC 344)
under reference to King v Eaton (Number 2) [1998] IRLR 686 and
views that they set out in paragraphs 78 and 79:
“78. …considering the evidence and our conclusion that there
has been a most serious flaw in the decision making process of the respondent
company, namely the complete absence of any consultative procedures or
meetings, the respondent company in this case is not entitled to expect the
Tribunal to speculate about what might have happened had the respondent company
acted totally differently by convening a meaningful consultation meeting with
the claimant , having advised him in advance of the nature of the meeting and
of his right to be accompanied in accordance with the provisions of the current
legislation, and we can only echo the judgment of the Employment Appeal
Tribunal sitting in Scotland (Manzie v Optos Plc [EATS0029/04]) that
in this case the respondent company has treated the claimant in a way that
“offends practically every aspect of fairness that can be imagined.”.
79. We also bear in mind that the Polkey reduction is
considered within the context of Section 123(1) of the Employment Rights Act, a
provision which is founded on justice and equity and in our view it would be
quite unjust to seek to construct a hypothesis which the respondent company
itself never envisaged in order to reduce the compensatory award. There was no
evidence that the company had adopted even the most elementary of measures to
determine objectively which of the two employees (the claimant and Mr McArthur)
should be selected for redundancy and there is no basis for the Tribunal to
consider or speculate whether if a proper procedure had been adopted it would
have made no difference.”
14.
The Tribunal gave no consideration to the guidance given by Elias P (as
he then was) in the case of Software 2000 Ltd v Andrews [2007]
UKEAT/0533/06. They awarded compensation in respect of the whole of the
claimant’s loss earnings to the date of the hearing (28 weeks) and for a
further six months, together with a basic award and an award for loss of
statutory rights.
Relevant law
15.
When awarding compensation for unfair dismissal, a tribunal requires to
assess what is “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” (Employment
Rights Act 1996 s.123(1)). If the unfairness is that the employer failed
to take the appropriate procedural steps then an obvious series of “what if?”
questions arise – what if the employer had taken the steps desiderated? What
then? Was there a chance that the employee would have been dismissed in any
event? If so, how substantial was that chance? Unless these questions are
addressed, an unsatisfactory and unacceptable situation arises namely that the
implication of the award of compensation will be that the employee would have
retained his job indefinitely when the circumstances may in fact be that it
cannot be said that that would have been the case at all.
16.
The law has long been settled that in these circumstances, the tribunal
can award compensation which represents less than 100% of the claimant’s loss. In
Polkey v Dayton Ltd, Lord Bridge of Harwich explained, at
p.364-5:
“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…….
….
..if the likely effect of taking the appropriate procedural
steps is only considered, as it is should be, at the stage of assessing
compensation……………as Browne- Wilkinson J. put it 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.’
The second consideration is perhaps of particular importance in
redundancy cases. An industrial tribunal may conclude, as in the instant case,
that the appropriate procedural steps would not have avoided the employee’s
dismissal as redundant.”
17.
The analysis of authorities set out in the Software 2000
Ltd case is directly in point and we would refer to the helpful summary
of principles set out at paragraph 54. The tribunal requires to have regard to
all the evidence and, of particular significance for the purposes of the
present case, requires to appreciate that:
“(4)……it should have regard to any material and reliable
evidence which might assist it in fixing just compensation , even if there are
limits to the extent to which it can confidently predict what might have been;
and it must appreciate that a degree of uncertainty is an inevitable feature of
the exercise. The mere fact that an element of speculation is involved is not a
reason for refusing to have regard to the evidence.
….
(6) ………..even if a Tribunal considers that (sic) some of the
evidence or potential evidence to be too speculative to form any sensible view
as to whether dismissal would have occurred on the balance of probabilities, it
must nevertheless take into account
any evidence on which it considers it can properly rely and from which it could
in principle conclude that the employment may have come to an end when it did,
or alternatively would not have continued indefinitely.”
18.
Regarding the possibility of a tribunal making no Polkey
deduction and thus finding that the claimant’s employment would have continued
indefinitely, the President observed:
“..this …finding should be reached only where the evidence that
it might have been terminated earlier is so scant that it can effectively be
ignored.”
19.
The theme of the guidance in Software 2000 Limited was
taken up recently in the case of Eversheds Legal Services Ltd v De
Belin [2011] IRLR 448 where, at paragraph 45, Underhill P observed:
“45. We rather suspect that the Tribunal was seduced into
abandoning its proper course, as tribunals still too often are, by the siren
word “speculative”, which at para 4.16 it quotes from Mr Bacon’s own evidence.
“Speculative” is not a dyslogistic term in this field. The trouble starts with
the decision of the Inner House in King v Eaton no.2 Ltd [1998] IRLR
6868, which appears, at least on one reading, to say that tribunals when
invited to make discounts for future contingencies should decline to engage in
speculation: another much quoted phrase from the judgment of Lord Prosser is
his reference to being unable “sensible [to] reconstruct the work as it might
have been”. But the Court of Appeal in Thornett v Scope [2007] ICR 236
counselled against too wide a reading of King v Eaton.”
20.
He then referred to Software 2000 Ltd and added:
“ …Elias P reviewed the previous authorities (which include also
Lambe v 186K Ltd [2005] ICR 307 and Gover v Propertycare Ltd [2006] ICR 1073 , adding, at para 38 ( p. 832E– H) his own note of caution against
reading King v Eaton too expansively.”
21.
We recognise that the chimes of caution regarding the interpretation of King
v Eaton have been rung not in Scotland but by this Tribunal sitting
south of the border and by the Court of Appeal, but we are satisfied that, when
King v Eaton is properly interpreted, such caution is
justified. We agree with Underhill P’s observations at paragraph 45 and with
his apparent anxiety that tribunals appear to shy away from speculating in the
sense of asking the “what if?” questions that we pose above. We do not read
King v Eaton as ruling out all exercises in
speculation; the references in paragraph 19 to the tribunal’s task involving
“hypothesis”, ‘impression”, to it being a matter of “judgment”, to it being a
matter of what was “possible” and to it reaching a conclusion that can be not
only with “more” confidence but with “less” confidence, all, to our minds, show
that uncertainty and speculation were accepted as being inherent in the Polkey
exercise. Whilst Lord Prosser rejected the submission that the exercise could
be carried out in King v Eaton, referring to it involving
embarking on a “sea of speculation” at paragraph 22, that was in the context of
there being “no reliable factual starting point” for it. He was not, as we
read him, saying that it was not legitimate for a tribunal to speculate – to do
so would, we consider, have been contradictory of his discussion at
paragraph 19.
22.
As to the source of the evidence relied on, having regard to certain
submissions that were made on behalf of the claimant, we do not consider that
the evidence relied on by a tribunal when making a Polkey
reduction requires to have emanated either from the employer’s witness or
productions or from cross examination of the claimant’s witness(es). Whilst
Elias P’s comment at paragraph 54(2) in Software 2000,
that it is for the employer to adduce any relevant evidence on which he wishes
to rely, might, if taken out of context, be thought so to indicate, when his
comments are read in their entirety, including that he then proceeds to state:
“However, the tribunal must have regard to all the evidence when
making that assessment including any evidence from the employee himself”
it seems clear to us that he did not intend to suggest that
there was any such rule.
23.
Mr Cameron submitted that the employer required to lead Polkey
evidence because there was an onus on him, as shown by those comments in Software
2000 and by the judgment of this Tribunal (HHJ Peppitt QC) in Britool
v Roberts [1993] IRLR 481, at paragraph 26. We do not, however, read Britool,
a decision which predated King v Eaton¸ predated the
discussions which explained its effect so as to guard against it being read
expansively, predated Software 2000 and which turned very
much on its own facts as being authority for that proposition. Further, there
is no hint in s.123(1) of the 1996 Act, of there being any burden of proof on
the employer. Assessment of compensation is at large for the tribunal; it
requires to take account of all facts which emerge from the evidence before it,
whatever their source. We would add that an Employment Tribunal is to be
expected to have regard to the relevant statutory authority and case law. In
the present case, that meant the Employment Tribunal ought to have had regard
not only to Polkey but to the development of the law since King
v Eaton conveniently set out in and summarised in the guidance
contained in the Software 2000 decision. They
particularly required to do so in the light of their reliance on King v
Eaton and we are surprised not only that they were not referred to it
but also that they did not identify it as relevant and invite submissions from
parties’ solicitors.
24.
Further, we would observe, further, that in the case of Gover
& others v Property Care Ltd [2006] ICR 1073, the Court of Appeal
approved this Tribunal’s endorsement of an employment tribunal (in the case of Hennessy
v Craigmile [1986] IRLR 461) having itself constructed a working
hypothesis as to what would have occurred had the employer acted differently,
from the evidence before it – it made its own findings. It was not suggested
that they were constrained by any considerations of the source of the evidence
or indeed, by the submissions of parties.
The appeal
25.
Mr Hay submitted that the Tribunal had erred in law. They applied the
wrong test and ignored relevant facts. Given the findings that the Respondent
faced bleak business prospects, that there was a genuine redundancy situation,
that the Respondent was a small business with a maximum of 22 staff, that the
“on site” staff required to be reduced from 17 staff to 7 staff, that the round
of redundancies under examination focussed on trainees, and that the Tribunal
themselves assessed matters as showing that there was a pool of two – the Claimant
and Mr McArthur – they had a clear and proper basis for speculating about
what would have occurred had a proper procedure been followed. There were
sufficient pieces of the jigsaw for a working hypotheses to be constructed by
the Tribunal and that hypothesis showed that it could not be concluded that the
Claimant would have been dismissed in any event. Insofar as the Tribunal
appeared to have taken account of the gravity of the Respondent’s failings,
they should not have done so. They were irrelevant. The Tribunal had adopted
a punitive approach which it was not open to them to do.
26.
Further, when the Tribunal had considered their “fall back” position, of
what they would have concluded had they been persuaded that they should
speculate about what would have been the outcome, they applied the wrong test. It
was not just a matter of asking whether or not they were satisfied that the Respondent
would have decided to retain Mr McArthur rather than the Claimant. It was a
matter of assessing the chances either way. If the answer was, as they seemed
to say ‘honours even’ then that pointed to a Polkey
reduction of 50%. The Tribunal had wholly failed to appreciate that the law
did not require them to reach an absolute decision. They had a duty, when
exercising the discretion conferred by s.123, to do so judicially and that
involved taking account of all relevant factors, which they had failed to do.
27.
As to disposal, Mr Hay submitted that the Tribunal’s error was such as
to show that there should have been a Polkey reduction
whilst no higher than 50%, of the order of 50% and that we should substitute an
order which effected that reduction. Failing that, he sought a remit to a freshly
constituted Tribunal.
28.
We have already referred to what was the mainstay of Mr Cameron’s
submission namely that the onus was on the Respondent and it was not
discharged. He submitted that the Tribunal were correct to have declined to
speculate. The Respondent should but did not lead evidence as to what they
would have done if correct procedures had been followed. The Tribunal had not
erred in deciding not to speculate (a) because this was a case involving
serious procedural flaws; and (b) because there was inadequate evidence as to
what would have happened.
29.
Further, as to the Tribunal’s fallback position, the Tribunal had relied
on the fact that the trainees’ roles were essentially interchangeable and there
was no evidence to show that, in a competition between the two, the Claimant
would have been preferred.
30.
Regarding the Tribunal’s explanation in paragraph 78, Mr Cameron
accepted that it was “unfortunately phrased” but submitted that they were not
seeking to be punitive. It was rather a matter of their expressing their sense
of injustice.
31.
As to disposal, Mr Cameron submitted that if we were minded to uphold
the appeal we should make only a minimal Polkey reduction. If
there had to be a remit, he agreed that, in the circumstances, it should be to
a freshly constituted Tribunal.
Discussion and Decision
32.
In this case, there was a pool of two trainees, one of whom required to
be dismissed as redundant, given the undisputed downturn in the Respondent’s
business. The redundancy situation was a genuine one and the side of the
business in which the Claimant was working at the time was to undergo a severe
staffing reduction. There were two trainees between whom, on the Tribunal’s
findings, there was little to choose, save that the Claimant had been employed
longer than Mr McArthur and that there is an express finding that the Claimant
was regarded as a very good worker (paragraph 16). The Tribunal did not find
exactly how much longer the Claimant had been employed but it cannot, given
that his overall period of employment with the Respondent was not long (April
2008 to January 2010), have been a disparity of more than a matter of some
months. As against that, whilst both trainees were able to carry out on site
installation and workshop manufacturing tasks, at the time of the redundancy
decision, Mr McArthur was working in the workshop, whilst the Claimant was
not – he was in the position of waiting for on- site orders which were not
materialising.
33.
In our view, Mr Hay’s submission that the above presented the Tribunal
with a proper evidential basis on which to reach a working hypothesis for Polkey
purposes was well founded. The Tribunal refused to do so (a) because the Respondent
was guilty of such serious procedural flaws that they were “not entitled to
expect the Tribunal to speculate”; and (b) because the Tribunal would have had
to construct a hypothesis which the Respondent had not itself envisaged. Neither
proposition is sound in law. It is not the case that where the procedural
failing in question is a heinous one, the employer is to be deprived of a Polkey
reduction, which is what the Tribunal seem to suggest in paragraph 78. To put
it another way, punishment is not a relevant aspect of the assessment of
compensation under s.123 and a tribunal errs in law if its reason for assessing
compensation in a particular way or at a particular amount is that they seek to
punish the employer. Nor is it the case that it is only where the employer had
themselves envisaged a hypothesis which emerges from the evidence that a
tribunal is entitled to formulate it. In this case we accept that a clear
picture emerges that one of the two trainees were bound to have been dismissed
and it could not be said with certainty which one of them it would be. In
favour of preferring the Claimant would, on the findings, have been that he had
longer service and was regarded as a very good worker. Against preferring him
would have been that to do so would have been that his on- site work had dried
up and retaining him would have involved displacing Mr McArthur from the work
that was available to him.
34.
Contrary to the Tribunal’s approach in paragraph 80, resolution of the
issue was not a matter of asking whether they could be satisfied that Mr
McArthur would actually have been preferred to the Claimant in the matter of
redundancy selection. It was, rather, a matter of assessing chance. The Tribunal
failed to do so.
35.
The Tribunal should have made a Polkey reduction as there
was plainly a chance of the Claimant being dismissed in any event. This is, we
consider, where we can properly reach a view on the matter and there does not
require to be a remit. Taking account of all of the above circumstances, we
assess the chances of the Claimant being dismissed had there been a fair procedure
as being of such significance that there ought to have been a Polkey
reduction of 35%.
Disposal
36.
We will, accordingly, pronounce an order upholding the appeal to the
extent of substituting in that part of the Tribunal’s judgment awarding
compensation the sum of £5740 in place of the present award of £8,830.
