New Eltham Conservative Club v Hazel

When assessing compensation for unfair dismissal, an Employment Tribunal must consider not only whether the employer has proved on the balance of probabilities that employment would have ended lawfully in any event, but also any material chance of that occurring. A compensatory reduction may reflect a chance of dismissal or earlier termination even where the employer has not proved that outcome on the balance of probabilities.

The procedural-futility aspect of Polkey is distinct from the compensatory assessment. A tribunal must not refuse a compensatory reduction merely because it has rejected an argument that consultation would have been futile.

The claimants, a married couple employed jointly as residential club stewards, were dismissed in December 2009. The Employment Tribunal rejected the employer’s case that the dismissals were by reason of redundancy and held that they were unfair. It found, however, that the employer faced serious financial difficulties and that dismissing the claimants produced the largest savings. It also observed that some other substantial reason might potentially have been advanced, although no such case had been run.

At a remedies hearing, the Tribunal awarded compensation on the basis that the employment would have continued until Mr Hazel’s retirement. The employer appealed, contending that the Tribunal had failed to assess the chance of a lawful dismissal or earlier termination.

1. Appeal allowed. The remedies decision erred in awarding compensation on the basis that employment would continue until retirement without considering whether there was a chance of an earlier lawful dismissal or termination.

2. The applicable approach was that set out in Software 2000 Ltd v Andrews, [2007] IRLR 568. A tribunal must assess loss by considering the material and reliable evidence, while recognising that uncertainty and speculation are inherent in the exercise. It may find that dismissal would have occurred in any event on the balance of probabilities, that there was a lesser chance requiring a proportionate reduction, that employment would have continued for a limited period, or that it would have continued indefinitely.

3. The Tribunal addressed only whether the employer had established, on the balance of probabilities, that the claimants would not have remained employed. It did not then consider the lesser possibility that their employment might have ended at the dismissal date or before retirement. The liability findings, including the employer’s financial problems and the possible availability of a some other substantial reason case, supplied sufficient material for that assessment.

4. The Tribunal also conflated the procedural-futility issue in Polkey v A E Dayton Services Ltd, [1987] IRLR 503, with the distinct question whether compensation should reflect the chance of an earlier lawful dismissal. A compensatory Polkey reduction, potentially up to 100 per cent, does not require proof that consultation would have been futile.

5. The question of compensation was remitted to the same Tribunal. It was to decide the matter on further submissions, orally or in writing, but without receiving further evidence.

• Employment Appeal Tribunal: allowed the employer’s appeal and remitted compensation to the same Tribunal.
• Employment Tribunal: held the dismissals unfair and, at the remedies hearing, assessed compensation on the basis that employment would have continued until Mr Hazel’s retirement.