Lambe v 186K Ltd

The Court of Appeal held that the appellant's dismissal was for redundancy within the meaning of ERA 1996 section 139(1)(b) and that the Employment Tribunal was entitled to find the employer's commercial decision reasonable. The Tribunal rightly concluded there had been procedural unfairness because of inadequate consultation, but applied the Polkey principle to limit compensation by finding that an additional reasonable consultation period (seven weeks) would not have avoided dismissal. The Court upheld that approach, applying the guidance in Polkey together with the practical yardstick drawn from King v Eaton (No 2) and O'Dea, and rejected arguments that the Tribunal's reasoning was impermissibly speculative. However, the Court found that the Tribunal and the EAT had failed properly to identify and decide the discrete pension entitlement issue arising from the appellant's choice to take pay in lieu of notice and remitted that issue to the Tribunal for rehearing under ERA 1996 section 123(1).

Background and parties. The appellant, an accountant employed as a corporate finance manager by 186K Ltd between 8 May 2000 and 8 February 2002, claimed unfair dismissal following his redundancy. The respondent accepted a defect in the implementation (insufficient consultation) but maintained the dismissal was for genuine redundancy and argued that the outcome would have been the same after a reasonable consultation period. The matter proceeded from the Employment Tribunal (Reading) to the Employment Appeal Tribunal (dismissed at a preliminary hearing) and thence to the Court of Appeal.

Nature of the claim and relief sought. The appellant sought a finding of unfair dismissal and compensation. He also alleged he had been misled about pension rights when he accepted pay in lieu of notice.

Issues before the court.

• Whether the dismissal was a genuine redundancy (ERA 1996 section 139);
• Whether procedural unfairness (insufficient consultation and defects in selection) meant the appellant should receive greater compensation than the respondent's proposed seven weeks' pay (Polkey analysis);
• Whether the appellant was misled about pension entitlements and any loss attributable to the dismissal (ERA 1996 section 123).

Court's reasoning. The court accepted the Tribunal's factual findings that market downturn produced a diminution in need for the appellant's specific role and that the employer reasonably transferred a more experienced officer into the corporate finance function; accordingly the dismissal was by reason of redundancy. On remedy the court endorsed the Tribunal's use of the Polkey approach: where procedural failings occurred the tribunal must assess what would, on the balance of probabilities or as a lost chance, have happened had proper procedure been followed. The Court endorsed the pragmatic test in King v Eaton (No 2) as read with O'Dea and held that the Tribunal did not impermissibly engage in speculation in concluding seven weeks' further consultation would not have saved the appellant's employment. On the pension point the Court found the Tribunal and EAT had failed to identify and address the issue properly as a distinct head of loss; that error of law required remittal for rehearing to determine whether loss of pension entitlement resulted from the dismissal and, if so, the appropriate remedy under ERA 1996 section 123(1).

Appeal allowed in part. The Court of Appeal upheld the Tribunal’s findings that the dismissal was by reason of redundancy and that the Tribunal was entitled to limit compensatory relief by applying the Polkey approach, but allowed the appeal to the limited extent of remitting the separate pension-entitlement issue to the Employment Tribunal for rehearing because the Tribunal and EAT failed properly to identify and decide that discrete head of loss.

Appeal from the Employment Tribunal (Reading) decision dated 25 September and 17 December 2002 (decision sent 20 January 2003) to the Employment Appeal Tribunal (EAT/0141/03/TM), where the appellant's appeal was dismissed at a preliminary hearing on 21 May 2003; permission to appeal to the Court of Appeal was granted and the Court of Appeal handed down judgment ([2004] EWCA Civ 1045) on 29 July 2004.