In this article...

• The facts
• The decision
• What does it mean for me?

When an employer finds himself in the unfortunate position of having carried out a procedurally flawed dismissal, he may be able to avoid liability for unfair dismissal or obtain a reduction in compensation by arguing that the dismissal would have occurred in any event. Chloe Edwards examines recent case law and gives guidance on what an employer needs to do to marshal evidence in preparation for a tribunal hearing.

The landmark case of Polkey v A E Dayton Services Ltd established that an employer’s failure to carry out a fair dismissal procedure will generally result in a finding of unfair dismissal, save in the highly exceptional case where carrying out a fair procedure would have been futile.

In a move to reverse the effect of Polkey, the Employment Act 2002 created a new provision (section 98A(2) Employment Rights Act 1996 (ERA)) whereby, assuming the employer has complied with the statutory minimum disciplinary procedures introduced in October 2004, a failure to follow a procedure in relation to the dismissal does not by itself make the dismissal unfair if the employer can show that he would have dismissed the employee in any event. In that situation the dismissal will now be fair, despite the procedural error.

The Polkey case also established that, where a flawed procedure renders a dismissal unfair, tribunals should look at what would have happened had a fair procedure been followed. If the employee might have been dismissed in any event, the compensatory award for unfair dismissal will be reduced to reflect that possibility (a “Polkey reduction”).

In the recent case of Software 2000 Ltd v Andrews and ors the EAT provided guidance on the interaction of section 98A(2) ERA and Polkey reductions and looked at what evidence the tribunal needs to be able to predict what would have happened had a procedurally defective dismissal been conducted in a fair way.

The facts

Software 2000 Ltd (“Software”) was a company specialising in printing and imaging software. On 15 July 2005, Software’s employees were warned of potential redundancies. Employees were placed in selection pools and assessed against a matrix system which adopted both objective and subjective criteria. The managers who conducted the assessment were told about the marking system but the majority were not instructed on how the assessment should be carried out or what the criteria meant.

The four claimants were given the lowest scores in their pools. On 27 July, they received letters informing them of their assessment results and inviting them to individual consultation meetings. On the same day – before the meetings took place – they were told that there were no suitable vacancies and were escorted from the premises. They received letters on 9 August informing them that they had been made redundant.

The claimants alleged that their dismissals were unfair because Software had adopted an unfair procedure in identifying them for redundancy. Software argued that the dismissals were fair under section 98A(2) ERA because, had a fair procedure been adopted, the claimants would have been dismissed in any event, or, in the alternative, that a Polkey reduction should apply.

The tribunal held that the dismissals were unfair. Software could not rely on section 98A(2) because the selection process was fundamentally flawed. The assessment had been carried out by a large number of managers without proper guidance. The tribunal also rejected the argument that a Polkey reduction should be made because it was impossible to say from the evidence that the claimants would have been dismissed had a fair procedure been followed. Software appealed to the EAT.

The decision

The EAT noted that section 98A(2) ERA and the question of a Polkey reduction run in parallel and often involve consideration of the same evidence, but the two matters must not be conflated. Even if a tribunal concludes that the evidence is too speculative for section 98A(2) to apply, it must go on to consider the question of a Polkey reduction.

Having considered the evidence, the tribunal may reach one of four conclusions.

	If the employer satisfies the tribunal on the balance of probabilities (i.e. shows a greater than 50 per cent chance) that the employee would have been dismissed even if a fair procedure had been followed, then the dismissal is fair under section 98A(2) ERA
	If the tribunal finds that there was a chance of a fair dismissal, but falling short of 50 per cent, then the tribunal must find that the dismissal was unfair but apply a Polkey reduction to the compensatory award
	If the dismissal is unfair but the evidence shows that the employee would have been dismissed for another reason in the relatively near future, the tribunal must limit compensation accordingly
	Exceptionally, the evidence may be so unreliable that the tribunal will be unable to make a sensible prediction as to what might have been. In these circumstances, the tribunal must assess compensation on the basis that employment would have continued indefinitely.

In this case, the tribunal had properly applied section 98A(2) ERA but had failed to consider whether there was any reliable evidence relevant to the possibility of a Polkey reduction. The EAT therefore remitted the case to the same tribunal for reconsideration.