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EAT guidance on amount of compensation in unfair dismissal cases

17 October 2014 #Employment

The EAT has provided some guidance on making “Polkey” deductions. This is the deduction in compensation a tribunal will make in an unfair dismissal claim if it finds that the employee would have been dismissed in any event even if a fair procedure been followed.

In Contract Bottling Ltd v Cave and another UKEAT/0100/14, the EAT overturned an employment tribunal`s assessment of a 20% Polkey deduction in respect of two employees who were found to have been unfairly dismissed as a result of an unfair redundancy procedure where all administrative staff were placed into one pool. The tribunal had initially found that no Polkey deduction was justified, but had not provided sufficient reasons. Following an appeal to the EAT, the tribunal decided on remission that it was appropriate to reduce the compensatory awards of each employee by 20%.

On a second appeal, the EAT found that the tribunal had, once again, failed to provide adequate reasons. It appeared that they had "plucked a figure in the air". The EAT decided to make its own assessment of the applicable deduction, on the basis of the available evidence. It substituted its own decision that each employee`s compensatory award should be reduced by 33%, to take into account the chance that they would have been fairly dismissed at some stage.

Pondering hypothetical scenarios

The case confirms that the question of whether an employee may have been dismissed fairly will necessarily involve a number of "imponderables". The tribunal will need to speculate as to the likelihood of various hypothetical scenarios. The fact that there will be no definite answers does not mean that a tribunal should not grapple with the issue as best it can.

A Polkey assessment should be thought of as an art, not a science. It involves a predictive exercise about which there can be no absolute certainty. However, evidence is needed to inform the prediction. It is important that a tribunal spells out what factors it takes into account in determining why it adopts a particular percentage. This is where the tribunal fell down in the present case.

Reduction may be a percentage or a reduction in compensation period

Although it has become conventional to express a Polkey reduction in percentage terms, it can also be expressed as a period of time, by deducting, say, a number of weeks from the period which the tribunal finds is the full period of loss looking to decide the probability of a past event having happened. It is seeking to determine the likelihood of a future event occurring.

The percentage needs to reflect not only the chance that a fair dismissal would have occurred, but also when that would have occurred. For example, a 50% risk that an employee would lose their job at some stage during a 12-month period following dismissal does not justify a 50% reduction from the whole year’s salary if it is thought that this would have occurred, if at all, only after six months. They would remain entitled to full salary during the first six months, and so the correct percentage reduction would be 25%.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
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