Appeal No. UKEAT/054/04/DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 20 April 2004
Judgment delivered on 28 June 2004

Before
HIS HONOUR JUDGE PETER CLARK
MR D CHADWICK
MS J DRAKE

PHOTO CORPORATION (UK) LTD	APPELLANT

MISS T L TRUELOVE	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR P NICHOLAS
(of Counsel)
Instructed by:
Dechert LLP
2 Sergeants Inn
London EC4Y 1LT	
For the Respondent	MR M BLOOM
(Solicitor)
Messrs Hegarty & Co
Solicitors
48 Broadway
Peterborough PE1 1YW	

SUMMARY

Unfair Dismissal - 
Compensation

Polkey deduction - decision on remission - whether Meek-compliant - whether ET assessment unsustainable on facts found.

HIS HONOUR JUDGE PETER CLARK
1	This is an appeal by Photo Corporation(UK) Ltd, the Respondent before the Sheffield Employment Tribunal, against that Tribunal’s further remedies Decision, promulgated with Extended Reasons on 10 September 2003 (the second Decision), following remission by the EAT in appeal EAT/0080/03/RN.  We shall refer to the parties by their descriptions below, the Applicant being Miss Truelove.  Since this is the second appeal from decisions of the same Tribunal, chaired by Miss H A McWatt, we should begin with a history of the matter.

2	The Applicant was employed by the Respondent, which provides mobile photography studios, from September 1986 until her resignation, effective on 17 April 2002.  She was the Area Manager for the North East Region.  

3	Following termination of her employment she presented a complaint of constructive unfair dismissal and breach of contract to the Tribunal on 30 May 2002.  The claims were resisted and came on for hearing before Miss McWatt’s Tribunal on 30 October 2002.  It seems that the Applicant also raised a claim of sex discrimination, but that was dismissed by the Tribunal and no longer concerns us.  

4	By a Decision promulgated with Extended Reasons on 19 November 2002 (the first Decision) the Tribunal reached these conclusions:
(1) The Applicant was constructively dismissed on 17 April 2002.
(2) The reason for dismissal was some other substantial reason (SOSR).
(3) Dismissal for that reason was unfair.
(4) Compensation for that unfair dismissal did not fall to be reduced under the Polkey principle.
(5) Compensation totalling £34,250 was recoverable by the Applicant.  Included in that overall figure was an item for injury to feelings in the sum of £2,500.  In the course of the earlier appeal proceedings it was conceded by the Applicant that that head of loss was not recoverable.  We are therefore not concerned with the ongoing Dunnachie question in this case (shortly to be resolved by the House of Lords).  That concession was recorded in an Order of His Honour Judge McMullen QC, seal dated 9 September 2003 in the earlier appeal.  

5	Against that Decision the Respondent appeals.  The full hearing of that appeal took place before a division presided over by Judge McMullen, sitting on 11 April 2003.  The appeal raised the following issues:
(1) Whether the Tribunal had been entitled to conclude that the Applicant was constructively dismissed;
(2) if so, whether they were wrong to find that it was unfair; 
(3) if not, whether the Polkey principle was properly applied (the Polkey point).  

Initially a decision was given in favour of the Applicant on all three issues.  However Mr Nicholls, appearing on behalf of the Respondent as he did before us, then pointed out that the EAT had decided the Polkey point, by reference to an authority, King -v- Eaton (No 2) [1998] IRLR 686, without giving the advocates an opportunity to make submissions about that case.  In these circumstances the EAT decided to review their decision just given and having done so, after further argument, allowed the appeal solely on the Polkey point and remitted that issue back to the same Tribunal chaired by Miss McWatt.  

6	Pausing there, it is now necessary to look back at the material findings made by the Tribunal and set out in their first Decision.  These are set out in paragraph 4 of their Reasons.  The Applicant, who had worked for the Respondent for fifteen years, was a top performer, had an unblemished record and was regarded as dedicated, loyal and trustworthy.  She became involved in a relationship with a former colleague who left the Respondent in January 2002.  He was her partner.  On 15 April 2002 he began new employment with a competitor of the Respondent.  On 17 April the Applicant was telephoned in her car and asked to attend a meeting with her manager and the group commercial manager at an hotel.  She did so.  At that meeting she was told that she was relieved of her duties with immediate effect.  The reason given by the Respondent was their concern about her relationship with her partner, who had now joined a competitor, and her access to the Respondent’s confidential information.  They did not want that material “inadvertently” to fall into his possession.  

7	At paragraph 4G the Tribunal record that the Respondent told the Applicant that they would attempt to find a role for her in their business, provided she could not have access to confidential information.  They also record (and, since it comes within their fact-finding section, presumably accepted) evidence given on behalf of the Respondent that none of the Respondent’s management could see any way in which the Applicant could continue in her present role.  Then these findings:
“H  It was clear from the evidence of both sides that within the company structure there was no comparable role for the applicant.
I   The respondents proposed three alternatives, all of which would amount to a demotion and all of which were clearly unsuitable for one reason or another.  The applicant could not make any alternative suggestions.  
In the absence of any suitable alternative in reality the applicant’s employment would have to end, however reluctantly for both parties.”

Finally, the Respondent indicated that her suspension would be lifted should her relationship with her partner or his new employment end.  The Tribunal was not surprised that the Applicant was upset by that suggestion. 

8	The Tribunal found (Reasons paragraph 5) that the Applicant was unfairly constructively dismissed for SOSR, that is, the Respondent’s understandable concerns about a leak of confidential information.  The unfairness lay in the fact that there was no proper consideration or discussion with the Applicant as to how this risk could be controlled or avoided.  The manner of her dismissal was “substantively” unfair; no procedure whatever was followed on 17 April 2002 and what was done was entirely unacceptable in terms of good industrial relations practice.  The Respondent had not begun to properly or fully assess the reality of their concerns and/or how they could be overcome before concluding that her role as Area Manager was no longer a possibility.  At paragraph 6 they simply said:
“The tribunal concluded the applicant was unfairly dismissed and entitled to an award of compensation with no reduction applicable either in terms of time or a percentage (re Polkey).”

9	Against that background we return to the previous EAT Review Decision.  The basis on which the EAT remitted the Polkey point back to Miss McWatt’s Tribunal is to be found at paragraphs 48 - 54 of the judgment given on 11 April 2003.  We set that passage out in full:

“48	In the light of those judgments”
[previous authorities cited earlier]
“ it seems to us that the correct approach to the findings in this case was to take the evidence given, as we have said, jointly, to mean what it said; that the Applicant would have been dismissed.  The unfairness in this case relates to the way in which the matter was handled on the day.
49	In the light of the joint evidence about the inevitability of the dismissal, the Tribunal was wrong in paragraph 5 (iv) to decide that there was no evidence upon which it could form an assessment and so did not do so for the purposes of Polkey, upon which submissions had been made to it.
50	As a matter of language, it seems to us that the Tribunal would have been bound to go back to its findings and would have come to a very low percentage of the chance of the Applicant surviving the realisation by the employer of its real concerns about the leak of information.
51	Thus, it appears to us that the Tribunal was in error in failing to link its finding to the correct application of Polkey.  This was a case in which the Tribunal should have considered the inevitability of the dismissal of the Applicant.  What figure it would have attached to that assessment is a matter for it, unless submissions are made to us for us to do so.
52	One conclusion which the Tribunal might have reached would have reflected how dedicated, trustworthy and full of integrity the Applicant was and how reluctant the Respondent was to see her go.  She was entitled to twelve weeks’ notice and no doubt these responsible employers would have wished to see her go with that plus benefits associated with a period of three month’s notice.  We note, as the Tribunal did, for it has given us the figures, that she had a company car and she was paid a bonus.
53	Again, those are matters which the Tribunal ought to have considered, for in any case where the Tribunal is to consider a Polkey reduction, it is to consider when the dismissal would have occurred, and that would require a further consideration.
54	Our conclusion is that the finding of unfair dismissal is upheld.  The compensation is to be sent back to the Tribunal to determine on the application of the Polkey principle to its finding what reduction it should order and to decide when such dismissal would have occurred.”

10	It is important to focus on the precise basis for remission on the last occasion.  We drew the attention of the advocates before us to the Court of Appeal decision in Aparu -v- Iceland Frozen Foods Plc (No 2) [2000] ICR 341.  In that case Mrs Aparu’s complaint of constructive unfair dismissal was dismissed by a Tribunal on the ground that there had been no dismissal.  She appealed successfully to the EAT against that finding, and the case was remitted for reconsideration of the question of dismissal.  Before the remitted hearing took place the respondent employer conceded that she had been dismissed, but wished to argue that such dismissal was nevertheless fair.  The Tribunal permitted the Respondent to amend its Notice of Appearance to raise the fairness defence, without objection by or on behalf of the Applicant.  At the remitted hearing the Tribunal found the dismissal to be fair and again Mrs Aparu’s complaint was dismissed.  An appeal to a division of the EAT on which I sat failed and was dismissed.

11	On further appeal to the Court of Appeal Counsel freshly instructed on behalf of Mrs Aparu took a new point, not argued below.  It was that notwithstanding the failure by the applicant to object to the respondent taking the fairness point, the Tribunal in fact had no jurisdiction to entertain it.  The Tribunal had strayed outside the terms of the original remission by the EAT and its decision was a nullity.  That argument was accepted by the Court of Appeal.  

12	The significance of that principle, on which Mr Nicholls relies, will become apparent when we analyse Miss McWatt’s Tribunal Decision following the remitted hearing, the subject of the present appeal. 

13	It is, if we may respectfully say so, pellucidly clear that the basis of remission by Judge McMullen’s division was that the Tribunal should go back to their original findings in the first Decision and make their assessment under the Polkey principles, as explained in the EAT’s judgment.  That involved two questions: (a) when would a fair dismissal have occurred; and (b) what where the chances that had a fair procedure been followed the Applicant would have retained her employment?  Additionally, the EAT expressed the view that she was entitled to twelve weeks notice pay.  

14	Accordingly, at the remitted hearing held on 14 August 2003 the Tribunal heard submissions only from the parties representatives and no further evidence.  They considered the EAT judgment and lighted on the reference, at paragraph 49, to the “joint evidence about the inevitability of the dismissal”.  That, it seems to us, was a reference back to paragraph 14 of the judgment, which summarised paragraph 4 G - I of the Tribunal’s first Decision Reasons . 

15	The Tribunal was troubled by this characterisation of their earlier findings.  At paragraph 11 of the second Decision Reasons, the Chairman graciously apologised to all parties for the wording of paragraph 4 G - I, which might lead to such interpretation being placed upon it.  In fact the Applicant had not agreed that she could not continue in her post as Area Manager.  

16	Finally, they posed the question (paragraph 21) how “inevitable” was “inevitable” (to use the EAT’s language) and concluded that had full and proper discussions taken place with the Applicant at the appropriate time (15 - 17 April 2002) on the basis of the Respondent looking to retain a long serving and trustworthy, high performing employee that there was a strong possibility of the Applicant retaining her employment.  The Tribunal “guestimated” that possibility (as it can only do) at 66%.  It followed that the Tribunal applied a one third Polkey deduction to the compensatory award (agreed mathematically between the parties) after allowing for: (a) a three week consultation period and (b) twelve weeks notice pay, both unaffected by the Polkey deduction.  

17	In the present appeal Mr Nicholls does not challenge either the three week award (which seems to us to accord entirely with the approach of Wood P in Mining Supplies (Longwall) Ltd -v- Baker [1988] ICR 676 nor the award of twelve weeks pay in lieu of notice.  Rather, his attack is directed solely to the Tribunal’s finding under Polkey of a 66% chance that, had the Respondent approached the matter properly, the Applicant would have retained her employment.  At the close of his oral submissions we invited Mr Nicholls to summarise the heads under which he directed that attack and he helpfully reduced them to four propositions:
(1) The Tribunal failed to ask the correct Polkey question, namely what would the outcome have been had the Respondent behaved fairly?  That question was to be answered in the light of the Tribunal’s earlier findings of fact, following the EAT remission (see Aparu No 2).  It was not for the Tribunal to rewrite those facts in their second decision.  
(2) There was no evidence before the Tribunal, on the first or second occasions and no findings of fact to support the conclusion that there was a 66% chance that the Applicant would have retained her employment.  The facts as found pointed inevitably to a finding of 100% deduction under Polkey.  There was no prospect of the Applicant retaining her employment on the facts as found.  
(3) The second Decision was not “Meek compliant”.  There was no reasoning by the Tribunal to explain their “guestimate” of a 66% chance of the Applicant retaining her employment had a fair procedure been followed.  
(4) It was not for the Tribunal to “guestimate”.  The requirement was for a reasoned application of the Polkey principle to the facts as found.  That was the basis on which the matter was remitted by the EAT.  

18	We are indebted to Mr Bloom for his equally measured and cogent response.  He pointed out that paragraph 4 G - I of the Tribunal’s first Decision Reasons ought not to be viewed in isolation.  The Reasons must be read as a whole.  It was a matter for the Tribunal to apply its own Polkey assessment to the facts it found.  The EAT left to the Tribunal the question of whether (as well as when) the dismissal would have occurred and to express their findings in percentage terms.  The Respondent called no evidence to support a finding that dismissal would have been inevitable; nor was it conceded by the Applicant, as the Tribunal made clear in their second Decision Reasons.  There is nothing exceptionable in the Tribunal reaching a “guestimate”.  That is an ordinary English word meaning, according to the Oxford English Dictionary “an estimate based on a mixture of guess work and calculation”.  That is precisely the exercise which a Tribunal is required to perform, applying the Polkey principle; an exercise in trying to reconstruct what might have been; a hypothetical question.  In reaching their assessment, with which this EAT should be slow to interfere, the Tribunal specifically took into account the fact that an employer acting fairly would be looking to retain a long-serving, trustworthy, high performing employee.  In short, no error of law is made out and the appeal must fail.

19	At the close of oral submissions it became clear that the parties wished us to proceed on the basis of a straight choice; either dismiss the appeal or allow it and substitute a 100% Polkey deduction.  Having retired to consider the matter we returned to invite submissions on a third possibility; that the appeal be allowed and remitted for re-hearing on the Polkey issue.  That possibility found no support from either party.  Already the case has been heard twice by an Employment Tribunal and twice by the EAT.  The prospect of a fifth hearing, and the attendant further expense and stress, particularly to the Applicant, whose letter to Mr Bloom dated 18 April 2004 he was careful, on instructions, to place before us, and which we have read, was considered neither appropriate nor proportionate.  On that note we reserved our judgment for full consideration.  

20	The fact that the parties themselves require us to decide a case in one of two ways is not, in our view, conclusive.  I have in mind the limitations on our powers under section 35 of the Employment Tribunals Act 1996 pointed out, for example, by the Court of Appeal in Bennett -v- Southwark LBC [2002] ICR 881.  Nevertheless, if we are satisfied that one or other of the options placed before us represent a proper disposal of this appeal, then that is the course we must take.  On reflection we are so satisfied.  We shall adopt the course proposed by Mr Nicholls.  Our reasons for doing so follow.

21	Although the use of the word “guestimate” suggests a stab at the answer to the question posed to the Tribunal we see the force of Mr Bloom’s submissions.  The Tribunal is asked to provide a hypothetical answer, but one which is reasoned and based on the facts.  The more telling point made by Mr Nicholls is that the Tribunal provide no clue as to how they have moved from their findings of fact to the 66% assessment.  In that sense the Decision was not Meek-compliant.  

22	Had the matter ended there and the appeal been allowed solely on that ground then we should have felt obliged to remit the Polkey question to a fresh Tribunal for reconsideration.  However, it does not.  

23	The substantive grounds of appeal are the first two points made by Mr Nicholls in his summary.  The so-called Polkey principle, derived from the House of Lords opinions in Polkey -v- A E Dayton Services Ltd [1988] ICR 142, presupposes a dismissal which is, usually, procedurally unfair.  The question is, had a fair procedure been followed would the employee have lost her employment?  The answer may lie anywhere in the scale between a 0 - 00% chance of retaining that employment. 

24	Looking at the Tribunal’s first and second Decision Reasons, what that means on the facts of the present case is that the following specific questions arise: 
(1) if proper and full discussions had taken place between the Applicant and Respondent (over three weeks, in the light of the Tribunal’s award of three weeks pay; second Decision Reasons paragraph 22) would or might a solution have been reached which would:

(a) resolve the Respondent’s concerns over the possible leakage of confidential information to the Applicant’s partner, now working for a competitor, and 
(b) allow her to continue in her old post.
(2) If not, could alternative employment be found for her?

25	Instead of addressing those questions, which we think flow from the first EAT judgment, this Tribunal appears to have been deflected by the use of the expression “inevitability of the dismissal” in paragraph 49 of that judgment.  

26	Assuming that the Applicant made no such concession on the first occasion, the Tribunal was still left with these findings which the Tribunal itself made in the first decision.  
(i) The Respondent had understandable concerns about a leak of confidential information.
(ii) at the time of dismissal the Respondent had not begun to make any real assessment of what they described as a “high risk” of inadvertent disclosure.  However, the Tribunal did not go on to find that, given time, the Respondent would have concluded that the risk was any lower than that.  
(iii)  The Respondent could not see a way in which the Applicant could continue in her current role.  But there is no finding by the Tribunal as to how that view would alter given time.  At paragraph 16 of the second Decision Reasons the Tribunal referred to questions put by Mr Bloom to the Respondent’s witnesses at the first hearing as to computer/management controls which might be put in place.  But there is no finding by the Tribunal that such a course might have allowed the Applicant to remain in post.  
(iv)  It was common ground that there was no comparable role for the Applicant within the company structure.  The Respondent proposed three alternatives, all of them amounting to a demotion and all of them clearly unsuitable.
(v) In the absence of any suitable alternative, in reality the Applicant’s employment would have to end, however reluctantly for both parties.  

27	It seems to us, on those findings by the Tribunal, and in the absence of any further findings of the type identified above, the Tribunal were bound to conclude that, following a three weeks consultation period, there was a 100% chance that dismissal would follow.  

28	We further accept Mr Bloom’s point that if the matter were to be remitted again the Respondent would then be able to call fresh evidence to bolster its case.  That would not be a proper reason for remission.  We must decide the case on the facts as found below.  On those facts, in the absence of any material findings to suggest that there existed any prospect of the Applicant retaining employment with the Respondent following a fair procedure, we shall, for the reasons given, allow this appeal and set aside the Tribunal’s Polkey finding substituting instead a 100% deduction.  The effect on the Tribunal’s award will be that compensation is limited to:
(a) the basic award, £3,750 and 
(b) three weeks pay under paragraph 22; 2nd Decision Reasons, and
(c) twelve weeks notice pay.

29	The parties are invited to agree the final figure for the award on that basis and to notify the EAT of that figure within fourteen days of this judgment being handed down.  Liberty to the parties to apply in the absence of agreement.