Zen Internet Limited v Paul Stobart

In a capability dismissal, warnings and an opportunity to improve are normally important elements of fairness. They are not, however, absolute legal requirements. Under Employment Rights Act 1996, section 98(4), fairness depends on all the circumstances. A departure from those procedural steps will be fair only in the rare case where the employer could reasonably regard them as futile or of no useful purpose.

A tribunal must assess the employer’s procedure by the range of reasonable responses and must not substitute its own view. In assessing compensation under section 123(1), the Polkey counterfactual is not confined to events after dismissal. The tribunal must consider what would probably have occurred had the employer acted fairly from the point at which the relevant concern arose, and must give sufficient reasons for any predicted date of fair dismissal.

The respondent was Zen Internet Limited’s Chief Executive Officer from 2018 until his dismissal, for capability, on 31 March 2023. Zen considered that he lacked the capacity to return the company to sustainable profitability. The Employment Tribunal found that capability was the principal reason for dismissal, but held the dismissal procedurally unfair because Zen had not followed its procedures or afforded him a fair process.

The Tribunal found that a fair procedure would almost certainly have resulted in a fair capability dismissal by 31 May 2023. Zen appealed the unfairness finding and the Polkey assessment. The live issues were whether the Tribunal had treated procedural steps as mandatory in every capability case and whether it had lawfully assessed the period of compensable loss.

1. Appeal allowed in part. The appeal against the finding of unfair dismissal was dismissed. The appeal against the Polkey finding was allowed. The date on which a fair dismissal would have occurred was remitted to the same Employment Tribunal.
2. Under Employment Rights Act 1996, section 98(4), there is no absolute rule that every capability dismissal requires a warning and an opportunity to improve. Those steps are normally expected, and their omission will usually make a dismissal fall outside the range of reasonable responses. Exceptionally, their absence may be fair where the employer could reasonably conclude that they would be utterly useless or futile. Seniority is relevant context but does not create a separate rule.
3. The Tribunal had not imposed an absolute procedural requirement. Read fairly and as a whole, its reasons showed that it had considered the Chief Executive’s seniority, his awareness of profitability concerns, and the particular circumstances. Its finding of unfairness rested on Zen’s failure to undertake a meaningful process, including an investigation and an opportunity for the employee to make representations and appeal. Those steps had practical utility. The Tribunal had correctly directed itself on the range of reasonable responses and had not substituted its own view for Zen’s.
4. For compensation under section 123(1), the Polkey exercise asks what would probably have happened had the employer acted differently and fairly. It is not legally confined to the period after notice or dismissal. The Tribunal should consider the particular unfairness found and may need to assess events from when the relevant concern arose.
5. The Tribunal’s conclusion that a fair dismissal would have occurred by 31 May 2023 was flawed. It appeared to confine the counterfactual to events after the board meeting of 17 March 2023, despite the finding that the loss of confidence had crystallised on 24 February 2023. It also gave no adequate evidential explanation for selecting 31 May. More than one outcome remained possible, so substitution was inappropriate.

• Employment Appeal Tribunal: Allowed Zen’s appeal on the Polkey issue, dismissed its appeal against liability, and remitted the Polkey assessment to the same Employment Tribunal: [2025] EAT 153.
• Employment Tribunal: Found that the respondent had been unfairly dismissed for capability. It held that a fair dismissal would have occurred by 31 May 2023. The judgment was sent to the parties on 3 May 2024.