Howells School v Gerrard

In assessing compensation for unfair dismissal where a fair procedure might have led to retention or alternative employment, an Employment Tribunal must complete a two-stage inquiry. It must first assess the chances of each hypothetical outcome. It must then determine the terms, including pay, of any employment which would probably have been offered and accepted.

The compensatory award compares actual post-dismissal earnings with earnings in that hypothetical employment. It cannot assume that pre-dismissal pay would have continued where the evidence shows that financial constraints would have reduced it. A Polkey deduction does not reduce a separate award for failure to provide written terms of employment.

The claimant, a yard manager at the respondent school’s equestrian centre, was dismissed for redundancy without consultation. The Employment Tribunal at Mold held the dismissal unfair. It assessed a 20% chance that she would have been dismissed after a fair procedure and awarded compensation calculated by reference to her pre-dismissal net pay over 102 weeks.

The employer appealed the loss-of-earnings award. It contended that, although the Tribunal had assessed the chance of retention, it had not determined the salary the claimant would have received in the financially constrained business. The claimant cross-appealed on the basis that the Polkey reduction had wrongly been applied to the award for failure to provide written terms and conditions.

1. Appeal allowed. The Tribunal had correctly addressed the first Polkey question by finding a 20% prospect of dismissal following a fair procedure. It had, however, failed to answer the separate and necessary question of what employment and salary the claimant would have had if retained.
2. Compensation for loss of earnings requires comparison between actual events and the hypothetical events that would have followed a fair procedure. Where retention or alternative employment is a possible hypothetical outcome, the Tribunal must determine its terms and pay. Pre-dismissal earnings are irrelevant if they would not have continued.
3. The Tribunal’s own findings supplied the answer. The equestrian centre was undergoing significant financial reduction. Salaries had been cut, staff had reduced from four to one, and the sole regular employee earned £7,200 annually. Over the two-year compensatory period, the highest possible hypothetical earnings were therefore £14,400.
4. Those hypothetical earnings were less than the earnings which the Tribunal found the claimant could reasonably have made by mitigation. There was accordingly no compensable loss of earnings, even before crediting redundancy payments and actual interim earnings. Remittal was unnecessary because the factual findings admitted only that result.
5. The claimant’s cross-appeal was conceded. The 20% Polkey deduction could not be applied to the separate £1,384.60 award for failure to provide written terms and conditions. The EAT substituted a total award of £3,021.21.

• Employment Appeal Tribunal: Allowed the employer’s appeal and substituted a total award of £3,021.21.
• Employment Tribunal, Mold: Found the claimant unfairly dismissed and awarded £7,958.09.