Gover & Ors v Propertycare Ltd

An employment tribunal assessing compensation for unfair dismissal may reconstruct what would probably have happened if the employer had acted fairly. A reduction is permissible where a later fair dismissal would have occurred for a different reason. The principle is an application of the requirement in section 123(1) of the Employment Rights Act 1996 to award compensation that is just and equitable by reference to attributable loss.

The tribunal must decide, using evidence, industrial experience and practical judgment, whether it can sensibly reconstruct the counterfactual course of events. An appellate court should intervene cautiously because that assessment is principally one of impression and judgment for the specialist tribunal.

The appellants were sales agents whom the employment tribunal found to be employees of Propertycare Ltd. The tribunal held that the employer had constructively and unfairly dismissed them by seeking to impose substantially altered commission and contractual terms without adequate consultation.

The tribunal nevertheless found that, after four months of proper consultation, the employer would have offered lawful but unattractive terms. The appellants would have rejected those terms and could then have been fairly dismissed. Compensation was therefore limited to the consultation period and two weeks’ notice.

The Employment Appeal Tribunal upheld that assessment. The employees appealed, principally contending that the tribunal lacked sufficient evidence to reconstruct the hypothetical course of events. They also sought to advance a new argument that the principle in Polkey could not apply where a later fair dismissal would have rested on a different reason.

1. Appeal dismissed unanimously. The new argument concerning the permissible scope of the Polkey principle was neither contained in the grounds of appeal nor within the permission granted. The Court refused permission to amend the grounds or enlarge the appeal at the hearing. That issue therefore failed in limine.

2. Buxton LJ nevertheless considered the new argument obiter. Section 123(1) of the Employment Rights Act 1996 requires a compensatory award that is just and equitable, having regard to loss attributable to the employer’s action. The principle stated in Polkey v AE Dayton Services [1988] 1 AC 344 is a broad application of that statutory requirement. It is not confined to cases where a fair dismissal would later have occurred for the same reason as the actual dismissal.

3. The decision in O’Donoghue v Redcar & Cleveland BC [2001] IRLR 615 demonstrated that compensation may be reduced where an unfair dismissal motivated by an impermissible reason would eventually have been followed by a fair dismissal for another reason. Differences in the certainty with which a tribunal can reconstruct the alternative course of events are differences of degree, not legal kind.

4. The tribunal’s operative task was to decide whether the available evidence and its industrial experience enabled it sensibly to reconstruct what would have happened had the employer acted fairly. That was an exercise of impression and judgment. An appellate court should be slow to substitute its own assessment.

5. The tribunal had heard extensive evidence, recognised the unusual difficulty of the exercise and made findings about the likely consultation, revised package, employee response and eventual dismissals. Its conclusions were a permissible working hypothesis derived from the evidence and industrial experience, rather than impermissible speculation. It therefore made no error of law.

1. Court of Appeal (Civil Division): By [2006] EWCA Civ 286, unanimously dismissed the employees’ appeal and upheld the limitation of compensation.

2. Employment Appeal Tribunal: HH Judge McMullen QC and members upheld the tribunal’s approach to reconstructing the likely course of events and found no error of law.

3. Employment Tribunal: Found that the claimants had been constructively and unfairly dismissed. It limited compensation to four months’ loss and two weeks’ notice because, following proper consultation, the claimants would have rejected revised lawful terms and been fairly dismissed.