Contract Bottling Ltd v Cave & Anor

A Polkey deduction forms only one part of the assessment of compensation for unfair dismissal. It concerns the chance that the employer would fairly have dismissed the employee, not the wider questions of mitigation or the employee’s future choices.

The assessment is predictive and inevitably broad-brush. A tribunal must nevertheless engage with the available evidence and give intelligible reasons for the percentage selected. It must consider both the likelihood of a fair dismissal and when it would probably have occurred. A mathematical redundancy ratio may provide a starting point, but it will rarely decide the issue where other evidence bears on the employee’s prospects.

The Employment Tribunal had found the respondents’ dismissals unfair because of serious defects in their selection for redundancy. Its initial refusal to make a Polkey deduction was overturned on an earlier appeal, which held that there was evidence of a genuine redundancy situation and remitted the issue.

On remission, the Tribunal reduced each compensatory award by 20%. The employer appealed, contending that the Tribunal had not explained either its percentage or its reference to contradictory evidence. The central issue was whether the 20% deduction was adequately reasoned and, if not, what deduction should be substituted.

1. Appeal allowed. The Tribunal’s 20% Polkey deduction was insufficiently reasoned. It did not explain why that percentage followed from the evidence, identify the contradictory evidence on which it relied, or deal with the employer’s material submissions.

2. A Polkey assessment concerns the prospect that the employer would have effected a fair dismissal. It is distinct from the assessment of mitigation, alternative employment and other reasons why loss might not continue. The inquiry is predictive rather than a determination of a past fact.

3. The assessment must balance the chance that employment would have continued against the risk that it would not. It may be expressed in weeks or as a percentage. Where expressed as a percentage, it must reflect both the likelihood of fair dismissal and its probable timing. Thus, a risk that would arise only later in the anticipated loss period cannot simply be deducted from the whole period.

4. The Tribunal must explain, so far as practicable, the factors supporting its assessment. Absolute precision is not possible, and an appellate challenge to a percentage will ordinarily succeed only if it is manifestly inappropriate or unreasoned. A numerical redundancy ratio may be a starting point, but not a complete answer where other evidence is available.

5. Exercising the Tribunal’s powers by agreement, the EAT substituted a 33% deduction. Four of ten administrative employees had been dismissed and the new accounting system increased the respondents’ risk. Their offers to accept reduced pay, the employer’s use of a more expensive finance director, uncertainty about the wider pool, and the likely timing of a fair process reduced that risk below 40%.

• Employment Appeal Tribunal: Allowed the employer’s appeal from the remitted compensation decision and substituted a 33% Polkey deduction.
• Employment Tribunal, Middlesbrough: On remission, reduced each compensatory award by 20%.
• Employment Appeal Tribunal: On 23 April 2013, held that the dismissals were redundancies and remitted the Polkey issue because the original refusal of a deduction was inadequately reasoned.
• Employment Tribunal, Middlesbrough: On 8 February 2012, found the dismissals unfair because of defects in the redundancy-selection process.