Polkey v AE Dayton Services Ltd [1987] UKHL 8

"If redundancy becomes necessary, management in consultation, as appropriate, with employees or their representatives, should: (i) give as much warning as practicable to the employees concerned . . . ; (iii) establish which employees are to be made redundant and the order of discharge; . . ."

"at the end of the day we have no alternative but to find that in this case had they acted in accordance with the code of practice, as interpreted in the recent case [Williams v. Compair Maxam Ltd [1982] ICR 156 ], the result would not have been any different, and we have therefore unhappily to reject this application."

"Where the employer has fulfilled the requirements of subsection (1), then, subject to subsections 58 to 62, the determination! of the question whether the dismissal was fair or unfair, having regard to the reason shown by the employer, shall depend on whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee; and that question shall be determined in accordance with equity and the substantial merits of the case."

"With respect to the tribunal, we think that it erred in holding that an unfair procedure which led to no injustice is incapable of rendering unfair a dismissal which would otherwise be fair. The question in every case is whether the employer acted reasonably or unreasonably in treating the reason as sufficient for dismissing the employee and it has to be answered with reference to the circumstances known to the employer at the moment of dismissal. If an employer thinks that his accountant may be taking the firm's money, but has no real grounds for so thinking and dismisses him for this reason, he acts wholly unreasonably and commits the unfair industrial practice of unfair dismissal, notwithstanding that it is later proved that the accountant had in fact been guilty of embezzlement. Proof of the embezzlement affects the amount of the compensation, but not the issue of fair or unfair dismissal."

"We are unable to accept the submission that 'the circumstances' are limited to those directly affecting the ground of dismissal, in the sense submitted by [counsel for the employers], 'The circumstances' embrace all relevant matters that should weigh with a good employer when deciding at a given moment in time whether or not he should dismiss his employee. The subsection [section 24(6) of the Industrial Relations Act 1971] is focusing the tribunal's attention upon 'the dismissal', that is, the dismissal on March 2. The question they have to ask themselves is whether on March 2 the employers were acting reasonably in treating redundancy as a sufficient reason for dismissing the employee on that date. The tribunal are entitled to take into account all the circumstances affecting both the employers and the employee at the time of the dismissal. In the present case, no doubt the time would have come when the employers would have to dismiss the employee for redundancy for the good of the company as a whole, but the tribunal were fully entitled to take the view that that moment had not yet arrived by March 2. The employers had not yet done that which in all fairness and reason they should do, namely, to make the obvious attempt to see if the employee could be placed somewhere else within this large group. The position is somewhat analogous to the case of a warning. An employer may have good grounds for thinking that a man is not capable of doing his job properly, but in the general run of cases it will not be reasonable for him to regard that lack of capability as a sufficient reason for dismissing him until he is given a warning so that the man has a chance to show if he can do better. So in this case there was a redundancy situation but there was no compelling reason why the axe should fall until the employers had done their best to help the employee. It is therefore with satisfaction that we find that there is nothing in the wording of section 24(6) of the Act of 1971 which compels us to take the view that behaviour which we think most people would consider manifestly unfair is nevertheless to be deemed fair under the Act. If the employers had made all reasonable attempts to place the employee in the group and had failed, then the time might have come when it would be reasonable for them to regard the redundancy as a sufficient reason for the dismissal, but until that moment had come the tribunal were entitled to take the view that it was not reasonable to dismiss for redundancy and accordingly that it was unfair."

"It [paragraph 6(8) of Schedule 1 to the Trade Union and Labour Relations Act 1971] appears to me to direct the tribunal to focus its attention on the conduct of the employer and not on whether the employee in fact suffered any injustice."

"It does not follow that non-compliance with the code necessarily renders a dismissal unfair, but I agree with the view expressed by Sir John Donaldson in Earl v. Slater & Wheeler (Airlyne) Ltd. [1973] 1 W.L.R. 51 that a failure to follow a procedure prescribed in the code may lead to the conclusion that a dismissal was unfair, which, if that procedure had been followed, would have been held to have been fair."

"even if, judged in the light of the circumstances known at the time of dismissal, the employer's decision was not reasonable because of some failure to follow a fair procedure yet the dismissal can be held fair if, on the facts proved before the industrial tribunal, the industrial tribunal comes to the conclusion that the employer could reasonably have decided to dismiss if he had followed a fair procedure."

"Apart therefore from recent Court of Appeal authority and the Lowndes case, the British Labour Pump principle appears to have become established in practice without it being appreciated that it represented a fundamental departure from both basic principle and the earlier decisions. If we felt able to do so we would hold that it is wrong in principle and undesirable in its practical effect. It introduces just that confusion which Devis v. Atkins was concerned to avoid between the fairness of the dismissal (which depends solely upon the reasonableness of the employer's conduct) and the compensation payable to the employee (which takes into account the conduct of the employee whether known to the employer or not). In our judgment, apart from the authority to which we are about to refer, the correct approach to such a case would be as follows. The only test of the fairness of a dismissal is the reasonableness of the employer's decision to dismiss judged at the time at which the dismissal takes effect. An industrial tribunal is not bound to hold that any procedural failure by the employer renders the dismissal unfair: it is one of the factors to be weighed by the industrial tribunal in deciding whether or not the dismissal was reasonable within section 57(3). The weight to be attached to such procedural failure should depend upon the circumstances known to the employer at the time of dismissal, not on the actual consequence of such failure. Thus in the case of a failure to give an opportunity to explain, except in the rare case where a reasonable employer could properly take the view on the facts known to him at the time of dismissal that no explanation or mitigation could alter his decision to dismiss, an industrial tribunal would be likely to hold that the lack of 'equity' inherent in the failure would render the dismissal unfair. But there may be cases where the offence is so heinous and the facts so manifestly clear that a reasonable employer could, on the facts known to him at the time of dismissal, take the view that whatever explanation the employee advanced it would make no difference: see the example referred to by Lawton L.J. in Bailey v. B. P. Oil (Kent Refinery) Ltd. [1980] I.C.R. 642. Where, in the circumstances known at the time of dismissal, it was not reasonable for the employer to dismiss without giving an opportunity to explain but facts subsequently discovered or proved before the industrial tribunal show that the dismissal was in fact merited, compensation would be reduced to nil. Such an approach ensures that an employee who could have been fairly dismissed does not get compensation but would prevent the suggestion of 'double standards' inherent in the British Labour Pump principle. An employee dismissed for suspected dishonesty who is in fact innocent has no redress: if the employer acted fairly in dismissing him on the facts and in the circumstances known to him at the time of dismissal the employee's innocence is irrelevant. Why should an employer be entitled to a finding that he acted fairly when, on the facts known and in the circumstances existing at the time of dismissal, his actions were unfair but which facts subsequently coming to light show did not cause any injustice? The choice in dealing with section 57(3) is between looking at the reasonableness of the employer or justice to the employee. Devis v. Atkins shows that the correct test is the reasonableness of the employer; the British Labour Pump principle confuses the two approaches."

"[Counsel for the employer] submitted that the test in the British Labour Pump case goes further than section 57(3) of the Employment Protection (Consolidation) Act 1978 requires, and submits that it is the statutory test which must be complied with. This in my opinion is strictly correct, and if the employer and the industrial tribunal are satisfied in an exceptional case that no opportunity to explain need be offered and that the employer in the circumstances acted reasonably in accordance with equity and the substantial merits of the case, the test would not apply. But since in the majority of cases fairness would require an opportunity to explain, as indeed many industrial contracts provide, then in such cases the British Labour Pump case provides useful guidelines. It was argued by [counsel for the employee] that the British Labour Pump case was itself not in accordance with the observations of Viscount Dilhorne in W. Devis &. Sons Ltd, v. Atkins [1977] A.C 931, 949-958. That case was dealing with a different point, namely, whether a dismissal can be justified as fair when the fact, or facts, are not known at the time of dismissal but are discovered afterwards. I do not find anything in the speech of Viscount Dilhorne which throws doubt on the reasoning of the decision in the British Labour Pump case."

"For my part I think that once the industrial tribunal made that finding they would have been entitled to say that the employee had not been prejudiced in any way by not being asked to explain his conduct and that the dismissal was fair. The industrial tribunal in fact applied the British Labour Pump Co. Ltd, v. Byrne test and found in favour of the employers. I can find no ground for disturbing that finding. I do not think that any question of law was raised before the Employment Appeal Tribunal. I am satisfied that the decision of the industrial tribunal was not perverse. I see no reason for disturbing it."

"the failure to give the employee any opportunity to explain why he should not be dismissed seems to me to be in the circumstances of this case a denial of natural justice which elimated equity or fair play. There are cases where instant dismissal without an opportunity of explaining would be fair. . . . Then there must be many cases where it is clearly for the tribunal to decide whether, in the words of Stephenson L.J . in W. Weddell & Co. Ltd, v. Tepper [1980] I.C.R. 286, 297, the employers have acted 'without making the appropriate enquiries or giving the employee a fair opportunity to explain himself. . . .' Viscount Dilhorne in his speech in W. Devis & Sons Ltd, v. Atkins [1977] A.C. 931. . . said, at p. 953:

'If, however, the reasons shown appear to have been a sufficient reason, it cannot, in my opinion, be said that the employer acted reasonably in treating it as such if he only did so in consequence of ignoring matters which he ought reasonably to have known and which would have shown that the reason was insufficient.'

"The question can then be asked: if an employer cannot justify dismissal and if an employee cannot complain of a dismissal on the basis of facts not known to the employer at the time of dismissal, how can it be right for an industrial tribunal to embark on the speculative exercise of examining facts which were not known to the employer at the time of dismissal in order to decide whether a procedural defect made any difference? At first sight, this question appears to require the answer that such an exercise would be contrary to the decision in W. Devis & Sons Ltd, v. Atkins [1977] AC 931 because it would allow an employer to rely on facts not known to him at the time of dismissal, or, where an internal appeal procedure has been put in operation, not known to him at the time when the final decision: to uphold the dismissal was taken. On further analysis, however, it seems to me that an answer on these lines overlooks the crucial distinction between the reason for a dismissal and the manner in which the dismissal is effected."

"It will be seen therefore that a complaint of unfair dismissal will succeed where the employer fails to establish that the reason for dismissal was one of those specified in section 57(2) or where the tribunal reaches the conclusion that even though the employer has fulfilled the requirements of section 57(1) he acted unreasonably in treating the reasons shown by him as a sufficient reason for dismissing the employee. But, on the other hand, a complaint of unfair dismissal will not succeed merely because of the manner in which the dismissal was carried out. A failure to observe a proper procedure may make a dismissal unfair, but this is not because such failure by itself makes the dismissal unfair, but because the failure, for example, to give an employee an opportunity to explain may lead the tribunal to the conclusion that the employer, in the circumstances, acted unreasonably in treating the reason for dismissal as a sufficient reason. The tribunal will look at the practical effect of the failure to observe the proper procedure in order to decide whether or not the dismissal was unfair. Where an employee is dismissed for alleged misconduct and he then complains that he was unfairly dismissed, it is to be anticipated that the industrial tribunal will usually need to consider (a) the nature and gravity of the alleged misconduct; (b) the information on which the employer based his decision; (c) whether there was any other information which the employer could or should have obtained or any other step which he should have taken before he dismissed the employee. Similarly, in a case of alleged redundancy, it is to be anticipated that the industrial tribunal will usually need to consider (a) the information on which the employer based his decision to dismiss the employee as redundant and the method of selection which he used and (b) whether there was any other information which the employer could or should have obtained or any other step which he should have taken before he dismissed the employee. In some cases of misconduct, however, the misconduct may be so grave and the information available to the employer so clear that the tribunal will be likely to conclude that no further inquiries by the employer were necessary .... But in many cases of misconduct, the tribunal will need to consider whether the employer, either in accordance with some disciplinary procedure or otherwise, should have taken steps to obtain further information either from the employee or from elsewhere because such information might throw light on the sufficiency of the employer's reason for dismissal. But the failure to obtain this information does not ipso facto render the dismissal unfair, and it seems to me to be both logical and desireable to require the industrial tribunal to try to evaluate the effect in practice of the failure. Thus, as [counsel for the employees] acknowledged, there may be cases where the evidence of misconduct is not so clear as to justify instant dismissal and which could be capable of explanation, but where, on examination, the employee has no explanation to put forward. In such a case, the failure to seek an explanation from the employee, which fairness would in principle require, will not make any difference. In a case where dismissal is on the ground of redundancy, the matter may have to be looked at rather differently because the system adopted for the selection of the individual for redundancy may be at the very centre of the inquiry when the tribunal comes to determine whether the employer has acted reasonably or unreasonably in treating redundancy as a sufficient reason for dismissing the employee concerned. The decision of the appeal tribunal In Williams v Compair Maxam Ltd. [1982] ICR 156 demonstrates the importance of the use of a fair system. Furthermore, it is to be noted that section 59 of the Act of 1978 contains special provisions rendering dismissal on the ground of redundancy unfair .... But where section 59 does not apply, it seems to me to be proper and indeed necessary for the tribunal to investigate the effect of the failure to consult the employee or to warn him or to hold discussions or as the case may be. In some cases, the facts may show beyond peradventure that no discussions or other steps could have made any difference whatever because the state of the company was so grave. In other cases, the matter will be more evenly balanced. But, for my part, I can see no objection in principle to the tribunal seeking to evaluate the effect in practice of any failure by the employer to observe the provisions of a code of practice or of the guidelines prescribed in cases such as Williams v. Compair Maxam Ltd.. . . . Prima facie, as the reason for dismissal was redundancy, the reason was a valid reason. The failure to consult did not automatically render the dismissal unfair; it was for the tribunal to determine whether that failure showed that the employers had acted reasonably or unreasonably in treating redundancy as a sufficient reason for the dismissal of the employee. For that purpose, they had to look at all the circumstances including the consequences of the failure."

"The industrial tribunal, having inquired into what would have happened if the code of practice had been complied with, came to the conclusion that it would have made no difference. In other words, the employers acted reasonably in treating redundancy as a sufficient reason for dismissing the employee."

"There is no need for an 'all or nothing' decision. If the industrial tribunal thinks there is a doubt whether or not the employee would have been dismissed, this element can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment."