Howard & Palmer Ltd v Colebrook & Anor

When assessing compensation after an unfair dismissal, an Employment Tribunal must not refuse a Polkey assessment merely because the outcome of a fair process is uncertain. If its findings establish misconduct capable of justifying summary dismissal, it must assess the chance that the employer could fairly have dismissed the employee, including the timing of any dismissal during a notice period.

Contractual repudiatory misconduct does not automatically establish a fair statutory dismissal. Fairness remains a separate question under Employment Rights Act 1996, section 98.

A director’s duty to inform the company of a potentially harmful competing activity is fact-sensitive. In this case, the appeal concerning the directors’ duties failed because the Tribunal had found that they lacked knowledge of meaningful competition before resigning as directors.

Two former directors and employees were dismissed following allegations that they had assisted a third party to establish a competing pharmaceutical business. The Employment Tribunal upheld their unfair-dismissal claims because the disciplinary process was fundamentally flawed. It rejected the first claimant’s notice-pay claim, having found that he had breached his employee duty of loyalty by assisting recruitment for the prospective competitor.

The employer appealed on two narrow grounds. It contended that the Tribunal had failed to address breaches of fiduciary duty before the claimants resigned as directors. It also challenged the Tribunal’s refusal to make a Polkey deduction for the first claimant despite its finding that his misconduct could justify summary dismissal.

1. The appeal was allowed in part. The first ground, concerning the alleged breach of fiduciary duty by both claimants while directors, was dismissed. The second ground succeeded in respect of Mr Everett only. The case was remitted to the same Employment Tribunal to determine whether, for what period, and in what amount, a Polkey deduction should be made.

2. The Tribunal’s Reasons had to be read as a whole. Although it initially expressed scepticism about the claimants’ asserted lack of knowledge, it ultimately found that they did not know before their resignations that the proposed new business would compete meaningfully with their employer. On that finding, there was no demonstrated breach of the duty to inform the company of harmful competing activity, even taking the principle in British Midland Tool at its widest.

3. The President added that, if the legal issue had required determination, the extent of a director’s duty to inform depends on the circumstances. The duty cannot be treated as an absolute obligation to report every possible competitive threat. The claimants’ involvement in a potential new business could have placed them under a higher duty than a director who merely encounters speculation, but the Tribunal’s factual finding disposed of the issue.

4. The Tribunal’s findings about Mr Everett were inconsistent. It found both that his disloyal conduct amounted to a repudiatory breach capable of summary dismissal and that it lacked material to assess whether a fair dismissal would have occurred. The latter conclusion could not stand. Uncertainty is inherent in a Polkey exercise and does not justify declining to assess the evidence.

5. On remission, the Tribunal must assess the likelihood that the employer, acting fairly, could have obtained and presented sufficient information to dismiss Mr Everett during his outstanding notice period. A contractual right to dismiss summarily is not itself determinative of fairness under section 98 of the Employment Rights Act 1996. Any reduction must reflect the timing and likelihood of a fair dismissal, with compensation before that point considered under section 123.

• Employment Appeal Tribunal: appeal allowed only on the Polkey issue concerning Mr Everett and remitted to the same Employment Tribunal.
• Employment Tribunal, Cardiff: Reasons delivered on 14 July 2014. The Tribunal upheld both unfair-dismissal claims, dismissed Mr Everett’s notice-pay claim, and made no Polkey deduction for him.