Appeal No. UKEAT/0143/04/RN

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 16 August 2004

Before
HIS HONOUR JUDGE MCMULLEN QC
MS K BILGAN
MR S YEBOAH

MS J EVANS	APPELLANT

CAPIO HEALTHCARE (UK) LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MISS L BUSCH
(of Counsel)
Instructed by:
Messrs Shoosmiths Solicitors
Quantum House
Basing View
Basingstoke
Hampshire RG21 4EX	
For the Respondent	MRS L GOLDMAN
(of Counsel)
Instructed by:
Messrs Borneo Linnells Solicitors
Dixon House
77-97 Harpur Street
Bedford MK40 2SY	

SUMMARY

Unfair Dismissal

ET wrongly used Polkey principle following unfair dismissal finding going to the heart of the unfairness, and after a finding that Respondent’s attempt to find alternative work was a fig leaf, i.e. a sham.  Constantine v McGregor Cory Ltd [2000] ICR 938 and Dixon v Ferguson Seacabs Ltd EAT/591/00 applied.  Remission to same Tribunal.

HIS HONOUR JUDGE McMULLEN QC

1.	This case is about the application of the principle in Polkey v A E Dayton Services Ltd [1988] AC 344 HL in the assessment of compensation for unfair dismissal.  The judgment represents the views of all three members who pre-read the relevant papers.  We will refer to the parties as Applicant and Respondent.

Introduction

2.	It is an appeal by the Applicant in those proceedings against the decision of an Employment Tribunal sitting over four days at London (Central), Chairman Professor A C Neal, registered with Extended Reasons on 9 December 2003.  The Applicant was represented there and here by Miss Lisa Busch of Counsel.  The Respondent was represented here by Mrs Linda Goldman there by different Counsel.

3.	The Applicant claimed unfair dismissal and made other claims which failed and are not pursued on appeal.  We say nothing more of them.  The Respondent contended that the Applicant was dismissed for redundancy and the handling of the matter was fair.

The Issues

4.	The essential issues as defined by the Employment Tribunal, relevant to the appeal, were as follows:
“15.	The Tribunal therefore now turns to the question which would fall to be considered in the normal course of looking at an “unfair dismissal” complaint.  Thus, dismissal by the Respondent having been conceded, the issues for the Tribunal are (i) what was the reason, or, if more than one, the principal reason, for the dismissal of the Applicant? and (ii) having regard to that reason, was the dismissal fair or unfair having regard to the test set out in section 98 (4) of the Employment Rights Act 1996 in conjunction with the ACAS Code of Practice No. 1?
16.	The Respondent, upon whom it falls to satisfy the Tribunal as to the reason or principal reason for the Applicant’s dismissal, maintains that her dismissal was by reason of “redundancy”, within the meaning of section 98 (2) of the Employment Rights Act 1996…
18.	The next question for the Tribunal, therefore, is was the decision of the Respondent to terminate the employment of the Applicant by reason of redundancy reasonable or unreasonable?  That is the familiar test set out in section 98 (4) of the Employment Rights Act 1996.  The statutory test has been applied having regard to the provisions of the ACAS Code of Practice No. 1 – and, in particular, the guidance contained in Paragraph 9 of the Code of Practice.”

5.	The Tribunal decided that the Respondent unfairly dismissed the Applicant but, as we hold for reasons given below, it applied the Polkey principle and in so doing it reduced the compensation that the Applicant would be awarded to nil.  A basic award was not considered, probably because the Applicant had already received a redundancy payment unaffected by statutory capping.  The Applicant appeals against the decision in relation to the remedy.

6.	Directions sending this appeal to a full hearing were given at a preliminary hearing by Silber J and members when the Notice of Appeal was ordered to be substantially amended and consequential directions were given.

The Legislation

7.	The relevant provisions of the legislation are the Employment Rights Act 1996 section 98 which includes redundancy as a potentially fair reason for dismissal.  Fairness is dealt with by section 98 (4) which provides as follows:

“(4)	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 on 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.”

8.	Compensation is dealt with by section 123 (1) which provides as follows:

“(1)	Subject to the provisions of this section and sections 124, 126, 127 and 127A (1), (3) and (4), 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.”

There may be a reduction in compensation for what is known as contributory fault, under section 123 (6):

“(6)	Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding.”

A slightly different wording applies to a basic award under section 122 but they usually go hand in hand.

9.	The Tribunal directed itself by reference to those relevant provisions and mentioned but did not cite section 123(1).  It did not cite section 123 (6) or section 122.  It also cited Polkey.

The Facts

10.	The Tribunal found
	
	“3.	It is not in dispute, and the Tribunal finds, the Respondent is a provider of hospital services in relation to which the Applicant was employed to be responsible for human resource management matters, being based at the Florence Nightingale Hospital, Lisson Grove.  The corporate structure of the Respondent is such that the “Florence Nightingale Hospitals”, where the Applicant was employed, are a wholly-owned subsidiary of the Respondent Company, “Capio Healthcare (UK) Ltd”.  In turn, this United Kingdom operation forms part of a group operated by a Swedish-own parent, “Capio AB”.”

11.	The Applicant was employed by the Respondent as a Personnel Manager at a salary of almost £38,000 a year, from 23 May 1994 until the relationship ended by her dismissal with money in lieu of notice on 31 January 2003.  The Respondent is a substantial organisation.  The Applicant had been employed at the Florence Nightingale Hospital in Lisson Grove North London.  In 2001 Capio AB Group took over the hospitals together with another group and formed a differently named group.  The leading light in Human Resources was Graham Kershaw, its Director, and the Managing Director of the Florence Nightingale Hospitals was Eric Millard.

12.	Mr Kershaw was appointed to his position in 2002 and quickly produced a human resources strategy in the light of a review.  There were two versions.  An original version contained negative comments and proposed the shutting down of the Human Resources Department at Florence Nightingale; and a second revised version omitting those comments and that proposal.  There were meetings involving human resources professionals and in due course advertisements were placed internally and externally for these people.

13.	The Applicant applied for a post of Group Human Resources Manager.  She attended an interview but was unsuccessful for reasons which were given to her in early November 2002.  She requested a copy of the strategy document and by mistake was sent the original version, that is the one with negative comments and proposals.

14.	The Applicant raised a number of formal grievances against the principal actors in this drama, Mr Kershaw and Mr Millard, on 14 November 2002.  The grievance was heard by video conference link and they were rejected on 16 December 2002.  The following day, 17 December 2002, a meeting took place between Mr Millard and the Applicant:

“5	(xii)	For this purpose, Mr Millard met with the Applicant on 17 December 2002, and extensive notes were drawn up both by the Applicant and on behalf of and by Mr Millard recording what took place then.  Mr Millard described his plans to the Applicant, and also indicated that he was seriously considering taking out the human resource management function from Lisson Grove – at least, in the form to which the Applicant had hitherto been accustomed.  The meeting was a difficult one – Mr Millard described it as “difficult, angry, emotional.”  It is clear that the Applicant was extremely upset and that the news of proposed changes came as a great shock.  It is also clear that some stressful words were exchanged;
(xiii)	Mr Millard, having informed the Applicant of his thoughts but not yet having decided that there would definitely be a redundancy of the Applicant, felt that the matter needed to be revisited shortly thereafter…”

15.	At the Applicant’s insistence a further meeting was conducted on 18 December when the following took place:

“(xv)	In the event, somewhere towards the end of the meeting Mr Millard formed the view that he really did not feel that there was much further he could go.  In the course of his evidence Mr Millard made it clear that he felt that the Applicant should have been putting forward some kind of constructive suggestion for future progress.  However, he could not see that they were going to get into a discussion of any options that might be available – in his words, it would “just get into a spat”.  Both parties therefore eventually decided that they should schedule another meeting, noting that the Christmas holiday period intervened at this stage.  A date was duly set for them to meet again on 2 January 2003.”

16.	Following that date of 2 January 2003 another meeting took place where the Tribunal found as follows:

“(xvi)	At the meeting which eventually took place on 2 January 2003, Mr Millard confirmed that the Applicant was to be made redundant from her position with the Respondent.  Mr Millard also stated to the Applicant that he was obliged to make known to her possible alternative employment.  He indicated that there might be one post in the northern region of Liverpool.  The Tribunal also finds that Mr Millard expressed a view that he did not think the Applicant was likely to be interested in that post.  In the upshot, indeed, the Applicant did not apply for the Liverpool post, although, as requested by the Applicant, Mr Millard forwarded details of that post to her on 9 January 2003.”

17.	The Tribunal made further findings about those two meetings and addressed the statutory legal issues as defined by its earlier depiction of them.  It decided first that the requirements of section 139 (1) (b) (ii) of the Employment Rights Act 1996 were satisfied in which there was a situation, which is generally described as a redundancy situation, for the needs of the Respondent’s business for employees to carry on work of a particular kind, namely the administrative human resource management activities at Lisson Grove were diminishing at that stage and were expected to cease or diminish in the future.  The Tribunal considered both the provisions of section 98 (4) and paragraph 9 of the ACAS Code of Practice No. 1.

18.	Dealing first with the meetings on 17 and 18 December the Tribunal found that initially Mr Millard’s approach was “completely unimpeachable”.  But then he indicated to the Applicant that he was minded:

“20.	…to take out the layer of human resource function at Lisson Grove in which role the Applicant had been performing her tasks, but he did not make a decision at that stage and the Tribunal accepts that, as at 17 December 2002, he had not decided to make the Applicant redundant.”

19.	The Tribunal then turned to the meeting on 18 December which took place earlier than Mr Millard felt appropriate.  Nevertheless, due to the Applicant’s concern about her position, the meeting took place.  The Tribunal made the following finding:

“21.	…the Tribunal is not satisfied that it was appropriate for Mr Millard to expect the Applicant to come up with options for consideration.”

For on that date it will be recalled Mr Millard had decided that the Applicant would be made redundant.

20.	The position was recorded by the Tribunal as follows:

“22.	We also find that Mr Millard formed a view during that meeting that there was no forward progress to be made.  His own words summed up his impression that there was no point going further: “We were not going to engage in a discussion on the options, it would only get into a spat”.  The Tribunal further finds that, on a balance of probabilities, Mr Millard made his mind up that the Applicant would be redundant somewhere towards the end of that meeting on 18 December 2002.
23.	The Respondent submitted that there was consultation – “albeit quick”.  This rather sums up the situation.  In the view of the Tribunal, the decision to terminate the employment of the Applicant by reason of redundancy was made without adequate consultation in these circumstances.  That was unreasonable within the meaning of the statutory test in section 98 (4) of the 1996 Act.
24.	Furthermore, as regards the consideration of whether there might be some form of alternative employment available for the Applicant, the Tribunal is of the view that the Respondent’s behaviour was, once again, unreasonable within the sense of section 98 (4) of the 1996 Act.  We have limited ourselves to the period from 17 December 2002 onwards in relation to considering this issue of “suitable alternative employment”, and we find that there was no meaningful attempt on the part of the Respondent to undertake and discharge this obligation which clearly rested upon them.  The best that can be said is that a “fig leaf” suggestion concerning a post in Liverpool was put forward on 2 January 2003 – but, by this time, matters had already taken their inevitable course.”

In that context having assessed all of the criteria in section 98 (4), we hold, the Tribunal decided that the dismissal was unfair.  

21.	In a separately headed chapter of its reasons it then turned to remedies.  It recalled that it had had the advantage of written legal submissions from both Counsel during the course of its hearing.  The Tribunal then said this:

“28.	In considering the evidence before us, the Tribunal has had particular regard to the strategic plans put forward by Mr Millard in the Autumn of 2002 for the organisation, to the evidence about the relationship of that part of the operation for which Mr Millard was the Managing Director and the Group operations based in Bedford, and to the relevant resources available to and sought by the various parts of the organisation.  On a balance of probabilities, the Tribunal is unanimously of the view that the Applicant would have been made redundant in any event.
29.	We have, however, gone on to ask ourselves whether there was any prospect that the Applicant might not have been made redundant according to the same time-frame as that which actually took place.  In particular, we have asked ourselves whether there should have been, and could realistically have been, a “proper” period of consultation, and/or a search for possible options for other jobs which might have taken the Applicant past the effective date of termination of 31 January 2003.  In that regard, we are unanimously of the view that such would not have been possible.
30.	In the course of asking ourselves these questions, the Tribunal has borne in mind the evidence of the Applicant on the last morning of the hearing, to the effect that she was happy and it suited her for Mr Millard to make what she recognised, with her experience in employment procedures, was a “complete hash” (as she described it) of the procedure being adopted in relation to her own redundancy.  We also find that there was absolutely no enthusiasm on the Applicant’s part to enter pro-actively into the sort of search for alternative employment which might, theoretically, have been undertaken.
31.	Taking all of these matters into account, and having regard to the provisions of section 123 of the Employment Rights Act 1996, the Tribunal is unanimously of the opinion that it would be just and equitable to reduce the amount of the Applicant’s compensatory award to nil.”

The Applicant’s case

22.	The Applicant submitted that the Employment Tribunal had erred in law in that the Tribunal should not in the first place have considered Polkey at all since this matter related not to a procedural defect but to a defect going to the heart of the decision-making of the Respondent.  Failure to consult and failure to seek alternative employment were at the very heart of this employment.

23.	Secondly, the finding by the Tribunal that the offer of a possibility of work in Liverpool was a fig-leaf and this is the same as a sham.  There was a misdirection in law in the passage which we have cited at the end of paragraph 28.  The decision was perverse in the light of the findings against the Respondent on consultation and on alternative work; and in the context of a redundancy, it was unfair to criticise the Applicant for what apparently was her lack of pro-activity in considering alternative work.  There was compelling evidence that there may not have been a dismissal had the matter been handled correctly and dealt with in substance as an unfair dismissal.

24.	It was accepted that the findings of fact were not challenged in this appeal, for this had been related to Silber J’s EAT and repeated to us.  But what was essentially in issue was the inference drawn from the primary finding that the dismissal would have taken place in any event by the end of January 2003.

25.	It was contended that it was open to the Applicant to say that the decision by the Tribunal to base its decision upon Polkey could be challenged.

The Respondent’s case

26.	On behalf of the Respondent, it is contended that the Tribunal’s decision was Meek compliant: Meek v City of Birmingham [1987] IRLR 250 CA.  No issue arises as to that in these proceedings.  The Applicant was a HR professional and had been involved in some of the proceedings internally and knew what the scope was for alternative work.  She had been involved in looking at work within the organisation and elsewhere.

27.	The Applicant on appeal was seeking to overturn the decision on redundancy under the guise of a complaint of perversity.  The Respondent had acted correctly in offering a Liverpool post on 2 January 2003 and the Applicant had not taken up the opportunity when given full details of it a week later.

28.	The passage in paragraphs 29 and 30 does not relate to an assessment by the Tribunal of section 123 (6) relating to contributory fault, for none had been claimed by the Respondent.  This case turned entirely upon Polkey.  It was entirely appropriate where loss of a job was inevitable for a Tribunal to make a deduction of 100% which it is common ground this paragraph indicates.

29.	There was no challenge to the finding of redundancy on economic grounds, for the closure of the Human Resources layer in which the Applicant worked at Lisson Grove and thus the substantial facts of the Tribunal decision should be undisturbed.

The legal principles

30.	The legal principles appear to us to be as follows.  Generally, a decision to make a person or persons redundant on economic grounds cannot be challenged successfully in unfair dismissal proceedings: see James W Cook & Co (Wivenhoe) Ltd v Tipper & Others [1990] IRLR 386.

31.	Where redundancy is in contemplation, there are elementary standards of fairness including the duty to consider alternative work and to warn and consult: see Williams v Compare Maxam Ltd [1982] IRLR 83, especially paragraph 30:

“30.	If there had been consultation on the criteria, a reasonable employer would not have insisted on the criteria in fact adopted.  The so-called criteria in this case lack any real objective element: the retention of those ‘who, in the opinion of the managers concerned, would be able to keep the company viable’.  Such a criterion is entirely subjective and, as Mr Hennessey in his evidence accepted, was applied subjectively.  The purpose of having, so far as possible, objective criteria is to ensure that redundancy is not used as a pretext for getting rid of employees who some manager wishes to get rid of for quite other reasons, e.g. for union activities.  The danger of purely subjective selection is illustrated in this very case.”

32.	The Tribunal’s exercise in assessment of damages is described in Mallett v McMonagle [1970] AC 166, a judgment of the House of Lords on appeal from the Northern Ireland Court of Appeal, per Lord Diplock at 176E to G:

“The role of the court in making an assessment of damages which depends upon its view as to what will be and what would have been is to be contrasted with its ordinary function in civil actions of determining what was.  In determining what did happen in the past a court decides on the balance of probabilities.  Anything that is more probable than not it treats as certain.  But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards.”

33.	When a dismissal is made unfair by reason of what are conveniently described as procedural defects, it is open to a Tribunal to find unfair dismissal and to reduce the compensation awarded by a percentage to reflect the chance that dismissal would have occurred had the procedure been carried out correctly: see Polkey (above).

34.	There may be cases where the application of the Polkey principle is inappropriate and we accept the analysis given by Ms Busch in her Skeleton Argument:

“10.	By contrast, the EAT has repeatedly recognised, in cases involving dismissal by reason of redundancy, that the failure of an employer to comply with the procedural steps for effecting a fair redundancy, such as the requirement that a fair selection process must be adopted, and that consultation should be engaged in, constitutes substantive unfairness which does not allow for the making of a Polkey reduction (see King v Eaton Ltd (absence of proper consultation); Steel Stockholders (Birmingham) Ltd v Kirkwood [1993] EAT 515 (choice of pool/adoption of appropriate selection criteria); and John Johnstone v Smart Graphics Ltd (failure to consult prior to decision to dismiss)).  In particular, a Tribunal should not even enter into the question of whether a Polkey reduction should be made in circumstances where e.g. a selection or consultation process attending an unfair dismissal is, on the evidence, “a sham” (Dixon v Ferguson Seacabs Ltd (EAT/591/01, paras 8-9).”

35.	In addition, although a percentage deduction may be made, it need not always be made.  Where the likelihood of dismissal is assessed in percentage terms, it depends on the probability of dismissal occurring, and it must be set out expressly.  It would be wrong to apply simply a balance of probabilities leading to an all or nothing finding: see Constantine v McGregor Cory Ltd [2000] ICR 938:

“37.	This gives rise to the question: is the balance of probabilities the right test?  The objection to it is that it seems to lead to an all-or-nothing finding.  If the tribunal is, so to speak, 51 per cent certain that an employee would in any event have been dismissed after two weeks it awards only two weeks’ pay.  The case is thus evaluated as if that man had no chance at all of staying for longer than 14 days, and yet, consistent with such a finding he could have had a 49 per cent chance of doing so.  The balance of probabilities leads to a degree of unreality and to compensation that is not truly tailored to the particular loss suffered.  That is why Lord Bridge adopted Brown-Wilkinson J’s observation in Sillifant v Powell Duffryn Timber Ltd [1983] IRLR 91, 96, when he came to the point in Polkey v A E Dayton Services Ltd [1988] ICR 142, 163.  There, Lord Bridge said in that situation, which is the situation of assessing compensation, as Browne-Wilkinson J put is in Sillifant’s case, at p.96, para. 22:
“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”.”
36.	Where there is blameworthy conduct there may be a reduction under section 123 (6): Nelson v BBC (No 2) [1980] ICR 110 CA

Conclusions

37.	We reject the arguments of the Respondent and have decided the appeal should be allowed.  We largely uphold the submissions of the Applicant.  We will take them in the following sequence.

38.	First, as to contribution, we hold that this is inappropriate in this case.  The contention that there should be a reduction in any compensation to be awarded to the Applicant would have to come from the Respondent.  We have before us the written submissions made by previous Counsel on behalf of the Respondent and there is not a word of contribution.  Very properly therefore at the outset in response to our question, Mrs Goldman made clear that her client did not argue for this matter and that the reasons of the Tribunal do not turn upon it.

39.	We were surprised to have submissions made to us, for the Tribunal did not expressly mention section 123 (6), and indeed if it had made a finding on it, it would have done so without giving the Respondent or the Applicant the opportunity to consider it.  We hold that the passages we have cited from paragraphs 29 and 30 do not constitute a finding of contributory fault, pursuant to section 123 (6), for it was not an issue in the case.

40.	We then turn to Polkey.  In our judgment this was not a Polkey case.  The decision not to search for other work in this substantial organisation went to the heart of the unfairness of the dismissal.  In any event, the decision relating to the Liverpool job was a reflection of the view of the Tribunal that it was, as we interpret it to be, a sham.
41.	The finding by the Tribunal indicates that the Respondent was going through the motions and that it was the Respondent’s case that it was not likely that the Applicant would take this position, particularly since those involved in interviewing for it were precisely those against whom she had taken out grievances.  For whatever reason, it was clear to the Respondent that the Liverpool job was not a viable prospect.  We consider that is what the Tribunal means when it finds that this was a fig leaf.  It was a sham within the terms of the judgment in Dixon v Ferguson Seacabs Ltd (above).

42.	We also have considered other reasons why this decision should not be categorised as merely procedural.  The Polkey judgment itself deals with the situation where dismissal would have occurred, not simply in circumstances where there has been a breach of procedure, but in other circumstances such as the business closing down.  In our judgment the defects identified by the Tribunal in the approach of the Respondent to the dismissal of the Applicant were at the heart of its consideration.  It follows that Polkey should not have been the guiding principle, once the Tribunal had decided that there was an unfair dismissal.

43.	In this case the unfairness was the failure between 17 and 18 December to consult the Applicant, before the decision was made on that latter date to dismiss her for redundancy, in any adequate way; and the failure to consider the applicability of other work to the Applicant, notwithstanding that her layer of function at Lisson Grove had disappeared for economic reasons which are not the subject of a proper challenge.  On this ground the appeal is allowed.

44.	If we are wrong about that decision, and Polkey did fall to be applied, in our judgment the Employment Tribunal has misdirected itself.  It has used precisely the terms condemned by Lindsay P in Constantine v McGregor Cory Ltd.  The approach of a Tribunal when assessing Polkey is to consider a percentage chance.  In our judgment the Tribunal was wrong to use the combination of the phrases ‘a balance of probabilities’ and ‘would have been made redundant in any event’, which it is common ground amounts to a finding of a 100% chance that she would not have survived.

45.	It follows that if, contrary to our primary finding, the principles in Mallett v McMonagle and in Polkey were to apply, the essential question for the Employment Tribunal to determine is the hypothetical one of what would have happened had there been a different and fair approach to the dismissal.  

46.	It will be recalled that there was a failure to consider alternative work.  We accept the Applicant’s submission that it was its own case that there were other jobs available: see paragraphs 4, 5 and 7 of the Notice of Appearance.  The only work which had been provided (and it is not clear that it was offered, or offered with any heart) was the Liverpool job, and there is no finding by the Tribunal that all other opportunities had been considered.  Nor, if there were such opportunities, is there an assessment of the chance of the Applicant failing to obtain them.

47.	Thus, this case will be remitted to the same Employment Tribunal for it to hear evidence on compensation with our direction that a reduction in respect of Polkey should not be made.  Nor should a reduction be made for contributory fault: the opportunity was there for that to be argued and we are satisfied that it was not advanced by the Respondent and it may not be advanced at the remitted hearing.

48.	We are grateful to both Counsel for the considerable help which they have given us today.  The appeal is allowed.  [Directions were given for the remitted hearing].