Lambe v 186K Ltd.

Where a redundancy dismissal is unfair because of defective selection or consultation, compensation depends on the loss attributable to the employer’s action. The tribunal should decide whether it can sensibly reconstruct what would probably have happened under a fair process. It may reduce compensation to reflect the chance that dismissal would still have occurred.

It is unhelpful to classify the defect as procedural or substantive. The practical question is whether the evidence permits a reliable counterfactual assessment. Pension loss attributable to the unfair dismissal may fall within the compensatory award under section 123(1) of the Employment Rights Act 1996. A tribunal commits an error of law if it fails to identify and determine a material issue so that the parties cannot understand why they won or lost.

An accountant was dismissed during a substantial reduction in his employer’s workforce. The Employment Tribunal found that his work had diminished and that redundancy was the reason for dismissal. It nevertheless held the dismissal unfair because the employer had failed to undertake adequate consultation. The tribunal awarded seven weeks’ pay after finding that a proper consultation process would not have produced continuing or alternative employment.

The Employment Appeal Tribunal dismissed the employee’s appeal at a preliminary hearing. The employee appealed to the Court of Appeal, challenging the finding of genuine redundancy, the limitation of compensation and the rejection of a claim that he had been misled about the pension consequences of accepting payment in lieu of notice.

The central questions were whether the tribunal had properly applied the statutory definition of redundancy, whether it could reconstruct the likely result of a fair process, and whether it had adequately determined the pension issue.

1. The appeal was allowed only on the pension issue. The finding of genuine redundancy and the limitation of compensation to seven weeks’ salary were upheld. The pension issue was remitted to the Employment Tribunal for rehearing.

2. The facts fell within section 139(1)(b) of the Employment Rights Act 1996. The employer’s requirement for the particular work formerly undertaken by the employee had diminished, while the replacement employee performed a different role suited to anticipated business activity. The speed and defects of the process affected fairness rather than the reason for dismissal.

3. Under section 98(4), the fairness of dismissal is assessed by reference to the employer’s conduct at the time of dismissal. The tribunal must not determine fairness by asking whether a proper process would have produced the same outcome. Where dismissal is nevertheless found unfair, that counterfactual question becomes relevant to compensation under the principle in Polkey v AE Dayton Services Ltd [1988] AC 344.

4. For compensation, it is unhelpful to categorise an employer’s defect as procedural or substantive. The tribunal should instead determine whether the departure from a fair process permits it to reconstruct, with an appropriate degree of confidence, what would probably have happened. If the evidence supports such an assessment, compensation may reflect the chance that the employee would still have been dismissed. If the counterfactual cannot sensibly be reconstructed, such a reduction cannot be founded on speculation.

5. The tribunal had sufficient evidence to find that proper consultation would have extended employment by seven weeks but would not have secured another post. The employee wanted his former job and had rejected an alternative which the tribunal found to be a promotion carrying higher pay. The tribunal could therefore reconstruct the likely outcome and limit the award accordingly.

6. The tribunal did not identify or decide the employee’s actual allegation concerning pension advice. Its reasoning instead rested on further hypotheses about what option he would have chosen after consultation. The Employment Appeal Tribunal did not cure that error. Failure to identify and address an important issue, leaving the parties unable to understand the result, is an error of law.

7. Section 123(1) permits compensation for pension loss sustained in consequence of an unfair dismissal, so far as that loss is attributable to action taken by the employer. The possible availability of a negligence claim against a pension adviser did not remove the tribunal’s jurisdiction. No view was expressed on the merits of the remitted pension issue.

1. Court of Appeal (Civil Division): Allowed the appeal under [2004] EWCA Civ 1045 only in relation to the pension issue and remitted that issue to the Employment Tribunal. The remaining grounds were dismissed.

2. Employment Appeal Tribunal: At a preliminary hearing under paragraph 9(7) of the Practice Direction (EAT – Procedure) 2002, dismissed the employee’s appeal because none of its grounds raised a point of law with a reasonable prospect of success at a full hearing.

3. Employment Tribunal: Held that the employee had been genuinely but unfairly dismissed by reason of the employer’s handling of his redundancy. It awarded seven weeks’ salary and compensation for loss of statutory rights, but rejected the pension claim.