S Mogane v Bradford Teaching Hospitals NHS Foundation Trust (No 2)

The appeal concerned how an enhanced redundancy payment already received by a claimant should be treated when calculating a compensatory award for unfair dismissal that is subject to a Polkey reduction. The Employment Appeal Tribunal held that the tribunal must assess the claimant's actual loss, apply the Polkey percentage reduction, and then deduct the full excess of any redundancy payment over the basic award under section 123(7) of the Employment Rights Act 1996. The court concluded it is not just and equitable to include in the loss figure an enhanced redundancy payment that the claimant has already received, and the EAT was bound by the Court of Appeal decision in Digital Equipment Co. Ltd v Clements (No.2) that the excess redundancy payment reduces the compensatory award rather than forming part of the assessed loss. The EAT also distinguished MacCulloch on its facts and endorsed the policy underpinning section 123(7) as explained in Rushton.

The claimant commenced employment in July 2016 and was dismissed for redundancy in April 2020. The Employment Tribunal at first instance dismissed her claims. On liability the EAT allowed the claimant's appeal ([2022] EAT 139; [2023] IRLR 44), finding the claimant had been unfairly dismissed because she had been treated as a pool of one when a pool of two should have been considered; the matter was remitted to the tribunal for remedy. At the remedy hearing (Employment Judge Ayre) the parties agreed the claimant's total loss of earnings was £58,371.85, she had received an enhanced redundancy payment exceeding the statutory entitlement by £17,431.88, and there was no failure to mitigate.

The tribunal applied the Polkey principle and found a 50% chance that, had a fair selection been carried out, the claimant would still have been dismissed. The tribunal reduced the agreed loss figure by 50% and then deducted the full enhanced redundancy excess pursuant to section 123(7), resulting in a compensatory award of £11,754.05. The claimant appealed to the EAT on two grounds.

• Ground 1: the claimant argued the loss figure prior to any deduction should have been 50% of the loss of earnings plus 50% of the enhanced redundancy payment (i.e. treating the enhanced payment as part of the counterfactual loss in the dismissal world), with the section 123(7) deduction applied afterwards. The EAT rejected this: it is not coherent to include in assessed loss a payment the claimant actually received; the Polkey counterfactual is the earnings the claimant would have continued to receive; including the redundancy payment would aggregate incompatible counterfactuals and overstate loss. The court also held that this approach would conflict with the effect and policy of section 123(7) and the Court of Appeal's ruling in Digital Equipment.
• Ground 2: the claimant argued that the section 123(7) deduction should itself be pro rated by the Polkey percentage (so only 50% of the enhanced payment would be deducted). The EAT held it was bound by Digital Equipment to reject that submission and accepted the tribunal's ordering of steps: assess loss, apply Polkey reduction, then deduct the full excess under section 123(7).

The EAT dismissed the appeal, explaining why inclusion of a redundancy payment already received in the assessed loss is conceptually and legally wrong, and reaffirming the binding effect of Digital Equipment and the policy reason for section 123(7) as reflected in Rushton.

The appeal is dismissed. The EAT held that the tribunal must calculate actual loss, apply any Polkey reduction, and only thereafter deduct the full excess of an enhanced redundancy payment under section 123(7) ERA 1996. It is not just and equitable to include in assessed loss an enhanced redundancy payment that the claimant has already received, and the court was bound by the Court of Appeal in Digital Equipment to reject attempts to pro-rate the section 123(7) deduction.

Liability appeal to the EAT allowed ([2022] EAT 139; [2023] IRLR 44) and the matter was remitted to the Employment Tribunal for remedy. The present appeal to the EAT from the remedy decision is dismissed ([2025] EAT 68).