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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Gover & Ors v Propertycare Ltd [2006] EWCA Civ 286 (28 March 2006)
Cite as: [2006] 4 All ER 69, [2006] ICR 1073, [2006] ICR 1128, [2006] EWCA Civ 286

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Neutral Citation Number: [2006] EWCA Civ 286
Case No: UKEAT/0458/05/ZT


Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :



- and -



Mr John Cavanagh QC and Mr Martin Budworth (instructed by Messrs Horwich Farrelly) for the Appellants
Mr John Bowers QC and Mr Mark Trafford (instructed by HomeLet Legal Services) for the Respondent
Hearing dates : 8 March 2006



Crown Copyright ©

    Lord Justice Buxton :


  1. The Employment Tribunal [ET] from which an appeal in these proceedings was brought to the EAT held that all of the claimants had been unfairly directly dismissed with effect from 1 November 2001. The employer, as for broad convenience I will call the respondent, sold lettings insurance and related products to landlords. The claimants were sales agents, and appear to have considered themselves as self-employed. Changes in their terms, in particular in relation to commission rates, were sought to be unilaterally imposed by the employer in a period leading up to October 2001. The ET expressed its reasons for finding that the process was repudiatory of the claimants' contracts in a number of ways, which I can fairly represent by extracts from §§ 63, 67, 106 and 129 of the ET's determination:
  2. "Simply as a boldly stated issue about whether the halving of the commission rates was justified we have no hesitation in finding that they [sic] were not…..We repeat that the most unimpressive feature of the Respondent's case on all these issues was the one-sided nature of all the business dealings between the parties in those final months….the kind of swingeing reduction in the April-September scheme would have been a fundamental breach of a contract of employment….In the overall picture of the repudiatory behaviour by the Respondents culminating we find in an unreasonably arbitrary employment package administered in a totally unreasonable fashion without even lip service to any established concept or consultation we found particularly unimpressive and reprehensible the very tight timetable administered to the claimants to consider their positions….the whole process of termination of employment was unfair, confrontational, based on erroneous employment law principles and lacking in sympathy and understanding at [sic] any semblance of good industrial practice and procedure"
  3. The claimants repaired with reasonable promptitude to the ET, but there then arose a dispute as to whether they were indeed employees and, if so, of whom. That issue was considered by the ET over a period of three days in December 2002, it holding that they were employees, and of the present respondents. A successful appeal was taken to the EAT, which in November 2003 remitted the issue to a different ET. The second ET reconsidered the issue promptly, over four days at the end of 2003. Its determination was not, however, issued until 9 May 2004, when it confirmed the decision of its predecessor that the claimants were employees of the respondent. That cleared the way for a merits hearing, which occupied 12 days in February to May 2005, by then three and half years after the events complained of.
  4. The ET concluded as to dismissal in the terms already indicated. But it went on to find that even if the employers had as the result of proper consultation and advice proposed terms that would have been reasonable in the sense of not being in fundamental breach of the employment relationship, the employees would still not have accepted those terms. Accordingly, all that the employees had lost as a result of the employer's fault was employment during the period when consultation should have taken place, which the ET found to have been four months, with an added period of two weeks notice. Compensation for the unfair dismissal was accordingly limited to an amount relevant to that period. The appeal to the EAT, and the further appeal to this court, complain of that limitation.
  5. The appeal in this court took a most unsatisfactory course, which raised questions as to the court's jurisdiction. In order to explain that, procedural, issue it is necessary first to summarise in brief terms the case that was sought to be put on appeal. A fuller account of and commentary on the case will be found later in the judgment, when I address the substance rather than the admissibility of the arguments.
  6. The appellants' case summarised

  7. In making the deduction that it did, the ET saw itself as applying a doctrine to be found in Polkey v AE Dayton Services [1988] 1 AC 344 [Polkey]. Put shortly for the moment, the House of Lords held in that case that after a finding of unfair dismissal compensation for that dismissal can be reduced to account for a chance that the employee would have been dismissed in any event. In order to address the possibility of such a reduction, the ET has to consider what would have happened if the unfair dismissal had not occurred. The appellant contended that such an approach, leading to the reduction in compensation that we have seen, was not open to the ET in this case, for two separate reasons.
  8. First, as a matter of law, the Polkey principle did not apply when the dismissal would have been unfair in any event, such that whatever fair procedure and consultation had been adopted no employer could dismiss for the reason that this employer adopted. Therefore, and possibly as a sub-set of the main contention, it was not open to the ET to consider whether the employer could have subsequently dismissed fairly for a reason different from that of the actual dismissal. Although Mr Cavanagh QC did not put it like this, the first dismissal irretrievably poisoned the wells against any reduction of compensation. This was said to be such a case. The ET had found, not merely that the offer of the original package was procedurally flawed, but also that an offer of that package by any means at all could never be fair. The employer could therefore not save himself by claiming that he could have fairly offered a different package, and fairly dismissed the claimants when they did not accept it.
  9. Second, the ET's findings as to what would have happened after proper consultation and advice were not open to it. The complaint was put in a variety of ways, but included lack of evidence on which the findings could be based; and that the exercise launched the ET on a sea of unreliable speculation, that indeed contradicted findings made at the stage of considering the fairness of the dismissal.
  10. The jurisdiction of this court and its application in this case

  11. Both sides told us that we were constrained by the observation of an extremely strong constitution of this court in Hennessy v Craigmile [1986] ICR 461 at p 470 D-E:
  12. "It is too often forgotten that, in the context of appeals from the Employment Appeal Tribunal, this Court is a second-tier appellate court. It may, and usually does, obtain considerable assistance from the judgment of the Employment Appeal Tribunal, but its concern is with whether the decision of the Industrial Tribunal was right, not with whether the Employment Appeal Tribunal was right."

    I would be less than frank if I did not express some reserve about that guidance, both from the point of view of jurisdiction and from the point of view of the management of the business of this court. As to authority, this court's jurisdiction to hear this appeal, coming as it does from a statutory tribunal, is only to be found in section 37(1) of the Employment Tribunals Act 1996, which provides for an appeal from the EAT on a question of law only. I do not see how we can in any realistic sense be hearing an appeal from the EAT if we are only concerned with whether the ET was right. As to the business of this court, the assumption that we in effect repeat the exercise already performed by the expert EAT of reviewing the decision of the ET tends in practice to impose on this court an exercise that is inappropriate both in its nature and in its extent. It was no doubt with this jurisprudence in mind that the parties, if left to themselves, would have required two days of this court's time, and have read to us no fewer than twenty-seven authorities.

  13. In the present case these are not merely formal concerns, because the first of the appellants' complaints, §6 above, only appeared in the case on the morning on which the appeal opened. It was clearly not taken before the EAT, proceedings in which the appellants were represented by leading counsel, though not by Mr Cavanagh. It only came to the court's attention when a document setting out some but by no means all of the considerations attaching to it was handed to us literally as we walked into court. Mr Bowers QC told us that he had received the document the previous evening. It was as much of a surprise to him as it was to us. It was suggested that failure to take the point before the EAT was irrelevant because our task was to review the ET. That contention further reinforces my concern about the guidance given in Hennessy, and is a contention to which, if it should arise before me as a matter of decision, I shall wish to give the most careful scrutiny.
  14. That however is not this case, because the appellants have a preliminary difficulty, that whether or not we in principle simply ignore what happened in the EAT the jurisdiction of the court is constrained by what is in the grounds of appeal and in the grant of permission. Mr Cavanagh said that the point was to be found in the third sentence of ground 4:
  15. "The effect of the application of Polkey in this case is to construct the world as it plainly never would have been and to imagine employers as behaving in a way in which it was manifest they never would behave"

    That was a hopeless submission. The terms of that sentence assume what the argument put to us denies, that the Polkey jurisprudence was potentially applicable, but complain that that jurisprudence was wrongly applied. That is the second issue, §7 above, and not the first issue with which we are now concerned. And, in any event, it has been the practice for all of my time in the law, and no doubt for many years before that, that even if only as a courtesy to the court a departure from the case as put in the court below is clearly identified and permission sought for it.

  16. That this point was not in issue was also the understanding of Keene LJ when granting permission for this appeal. He said:
  17. "properly arguable that the employment tribunal indulged in speculation about what would have happened and went beyond the limits indicated in King v Eaton (No 2) and other authorities."

    Those observations are unmistakably directed at and only at the second of the appellants' points. They demonstrate not merely that the first point was never taken in the grounds, but also that the appellants do not have permission to pursue it in this court.

  18. I am not minded to grant the appellants indulgence on this point. The judges of this court now spend many hours pre-reading material before the appeal opens. The purpose of that is, amongst other things, to save the parties cost by reducing the time that has to be spent in court by their (on the evidence of the appellants' bill of costs in this case, expensive) lawyers. It makes a mockery of that process if appellants continue to consider that they are free to arrive at the door of the court with a completely new case, and take up the time of the court in an attempt to elucidate the nature and details of the case viva voce.
  19. I would not grant the permission that was never asked for to amend the grounds of appeal. I would not grant the permission that was never asked for to extend the ambit of the permission to appeal to this court. The first of the appellants' issues therefore falls in limine. However, because I, wrongly, allowed the court to be drawn into an examination of the substance of the issue I will say something about it, however obiter those observations will be.
  20. Polkey

  21. As my Lord Richards LJ pointed out in the course of argument, all rules on this aspect of compensation for unfair dismissal spring from section 123(1) of the Employment Rights Act 1996:
  22. "the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer"

    To that observation Mr Bowers added a plea that we should not add to the already excessive number of technical rules in this area. I respectfully and strongly agree with both of those observations. My first and overriding difficulty about the appellants' first point is that, at least as explained to us, it would introduce some very technical and verbally sophisticated rules into a decision-making process that should be a matter for the commonsense, practical experience and sense of justice of the ET sitting as an industrial jury.

  23. The so-called "Polkey principle" is most conveniently to be found in the speech of Lord Bridge of Harwich, [1988] 1 AC at p365D, approving observations of Browne-Wilkinson J in Sillifant v Powell Duffryn [1983] IRLR 91. If the likely effect of taking appropriate procedural steps is considered at the stage of assessing compensation,
  24. "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"

    It was that principle that the ET saw itself as applying in this case. It is necessary to set out their approach in their own words:

    139. We had to hypothesise about the period during which it would have been reasonable to consult about a totally new contract of employment and what would have been a reasonable period and what would have been the consequences at the end of such a period. This exercise was we found particularly difficult in view of our findings on a whole number of issues about the conduct and behaviour of the Respondents and trying to visualise them theoretically as "reasonable employers".
    140. We took into account our own industrial experience of other industries where fundamental job changes are introduced over a period of time which are not necessarily popular with the workforce. Thus for example the Tribunal panel has had experience of cases where a large workforce in the "care" world has sought to introduce shift working. That kind of exercise in our judgment would usually require particularly in special cases involving no doubt wide ranging changes to family arrangements and issues of that kind a period, say, of at least six months.
    142. We supposed that if the Respondents had taken the question seriously and had taken proper legal advice they could have in due course put together a package which did not amount to a fundamental breach of contract but which would nevertheless have been sufficiently unattractive to the majority of the Claimants.
    143. We suspect that the final package would still have been unattractive to the majority of the Claimants particularly the older members of staff who still hoped to have found (as it appears they had in fact done) a business opportunity for their long term retirement years.
    144. We are satisfied that we had sufficient material before us to reach a conclusion that even the high earning Claimants would have been faced after a period of consultation with a salary plus commission sort of arrangement or indeed even a commission only arrangement on a PAYE basis which would not have been particularly attractive but which would have been justifiable after proper consultation and inquiry.
    145. As we have already referred to above the Claimants always saw themselves as a group and we have no doubt that during such a period of consultation even more so they would have acted as a group and sought to protect the interests of the high earning Claimants and the lower earning Claimants and that consultation would certainly have been justifiably protracted. Equally the Respondents could have justified what the Claimants would have seen as an unattractive final much more fixed rate of income albeit of course with the benefits of employment right protection on the one hand and the obligations of employers duties on the other.
    146. We have come to the conclusion that the correct period for consultation, a radical overhaul of the whole employment contract terms and details would have been a period of four months terminating on 1 February 2002. At that time we are persuaded that the Respondents would have been able to put together a proper contract of employment with proper terms and conditions continuity of service absence of probation period and fair industry standard wages on an employed insurance sales basis.
    147. Equally we are satisfied that it is extremely probable that the higher earning and/or more elderly Claimants would have found that package unacceptable because of their age and their desire to build up a business of their own and that they would not have found that acceptable. The younger/lower paid Claimants we find would have maintained solidarity and also rejected the package. At that point the Respondents we find would have been fairly entitled to dismiss the Claimants for some other substantial reason i.e. non acceptance at that point of a finally worked out and properly consulted package. That dismissal would have been on noticed and therefore our overall conclusion therefore is quite simply that the Claimants are entitled to a basic award calculated quite simply on two years service at the relevant statutory maximum and loss of earnings (subject to any earnings during that period) up to 15 February 2002 i.e. the statutory 2 weeks notice.
  25. Quite apart from the complaint about lack of evidence, see §7 above, the appellants said that that approach was not in any event open to the ET. The argument proceeded as follows. First, there will be cases in which the court has to take into account its knowledge, by the time of trial, that the employee's employment would have terminated in any event at or shortly after the date of dismissal. Examples were the closure of the business; or, as in O'Donoghue v Redcar & Cleveland BC [2001] IRLR 615, where the applicant's behaviour was such that she could and would have been fairly dismissed. Those were not "Polkey" cases. That latter distinction was, as I understand it, based on the contention that in the cases just mentioned the alternative world was not hypothesised, but had actually occurred or was almost certain to occur. By contrast, in a Polkey case the court had to hypothesise at a more uncertain level or, as Mr Cavanagh put it, speculate. That was why it was sometimes called a "what if" exercise. Polkey came into play and permitted that exercise, and only came into play, where the employer had a valid reason for dismissal, but had acted unfairly in his mode of reliance on that reason. The most obvious example was a redundancy situation, where the employee had been unfairly selected. Then, the ET had to and was permitted to ask itself the "what if" question, as indicated in its §139 set out above. That step was, however, only open to it if the reason for the dismissal had been open to the employer in the first place, and the hypothesised future and fair dismissal would have been for that same reason. Those conditions were not fulfilled in this case. The ET's ruling on dismissal, extracted in §1 above, was that the original "package" had been so unreasonable that it would not have been possible to dismiss the claimants for refusing to accept it whatever procedure had been adopted. And the hypothesised eventual fair dismissal would not have been for the same reason as the actual dismissal, failure to accept the original package, but for a different reason, failure to accept a different package.
  26. I cannot accept either that the law is as thus set out; or that, if it is so limited, this case does not fall within it.
  27. As to the law, first, there is no authority for the propositions advanced. True it is that in Polkey the House spoke of the establishment of the reason for dismissal as a preliminary to consideration of how things might have happened otherwise. But the passages to which we were referred contain no limitation as to the nature of the reason for dismissal such as was contended for before us. And the argument is inconsistent with the decision of this court in O'Donoghue v Redcar & Cleveland BC [2001] IRLR 615. There the reason for dismissal was animus on the part of the employer, a reason that could never be legitimate. This court, specifically applying Polkey, upheld a reduction of compensation on the ground that the employee would eventually have been dismissed for a different reason, inappropriate behaviour. It is not open to the appellants to exclude this authority because it was not a "Polkey case", because it plainly was seen by this court to be such. And the distinction on which the contention rests between the degree of certainty with which the alternative worlds could be stated in O'Donoghue on the one hand and in Polkey cases on the other is at best a difference of degree and not of legal kind. Unless O'Donoghue was decided per incuriam (and that was never nor could it be suggested, because Mr Cavanagh said that the case was rightly decided) the case is fatal to the appellants' argument.
  28. Second, and more generally, the principle recognised in Polkey is not narrowly limited to the facts of that case, as the appellants sought to suggest, but is merely an example of the general application of the requirements of section 123(1). The rigid rule sought to be drawn from that case does not follow from the observations in the case and is quite inconsistent with the statutory obligation that underpinned it. By contrast, a broad principle of the type recognised in Polkey, of which the application in that case is only an example, does respect the statutory guidance.
  29. As to the present case, the fragility of the constructions sought to be put on its facts underlines the artificiality of the rule contended for by the appellants. First, it was said that the case is taken outside Polkey because the ET had found that the original dismissal could never have been fair: unlike, for instance, a genuine redundancy situation that was however unfairly managed. It is true that some parts of the ET's exposition give credence to that view. But the more realistic analysis of what they said is that the whole process was unfair because the nature of the terms originally proposed demanded extensive consultation. That is quite different from a discrete finding of an unacceptable reason for dismissal divorced from any question of procedural fairness, such as was made for instance in O'Donoghue. Second, it was said that the hypothesised dismissal would have been for a different reason from the actual dismissal. But both cases envisaged refusal to accept terms during a legitimate reorganisation. It is hard to see that there was a difference between them at a level of generality sufficient to found the appellants' argument.
  30. For those reasons, I would in any event reject the appellants' first ground even if it were open in this appeal.
  31. The ET's error on the facts

  32. This complaint, summarised in §7 above, has always been part of the case. How the ET should proceed was set out in a passage of the judgment of Lord Prosser in King v Eaton(No 2) [1998] IRLR 686[19], cited with approval by this court in Lambe v 186K [2005] ICR 307[58]:
  33. "the matter will be one of impression and judgment, so that a tribunal will have to decide whether the unfair departure from what should have happened was of a kind which makes it possible to say, with more or less confidence, that the failure made no difference, or whether the failure was such that one cannot sensibly reconstruct the world as it might have been"

    That, when applied to an ET, indicates very strongly that an appellate court should tread very warily when it is being asked to substitute its own impression and judgement for that of the tribunal. I have set out how the ET approached the issue in this case, and despite the lengthy criticisms addressed to that treatment I am not persuaded that they went outside the very wide ambit permitted to them by Lambe.

  34. I am fortified by the fact that I am not alone in that view. It will be recalled that in Hennessy it was accepted that this court would often obtain considerable assistance from the view of the EAT. This is such a case. Judge McMullen QC and his expert colleagues set out §§139-140 of the ET's determination, quoted in §15 above, and then continued:
  35. 26. In that passage the Tribunal is doing what it is engaged to do: to draw upon its own industrial experience of circumstances such as this and to construct, from evidence not from speculation, a framework which is a working hypothesis about what would have occurred had the Respondent behaved differently and fairly. The Tribunal acknowledged that there would have been a radical overhaul of all employment terms. In the passage at para 144, it has made a finding that that would have occurred and if the Claimants had failed to adopt them, as they appeared particularly unattractive, their dismissals would have occurred in any event.
    27. The criticism advanced by [counsel] is that in seeking to construct the hypothesis this Tribunal had so many pieces of the jigsaw missing that the only correct approach was to disallow any kind of Polkey reduction. We do not accept that proposition because the findings based upon a careful analysis of the material which it had before it, and drawing upon its experience, do indicate that it was satisfied that there was material sufficient to make its judgment. It is true that in one place a more tentative approach, using the word "could" rather than "would" appears, but it is overwhelmed by the numerous occasions when the positive "would" is used. Similarly the use of the words "we supposed" and "we suspect" in building the blocks towards the hypothesis shows the way in which the Tribunal was approaching its task correctly.
    28. The Tribunal was engaged in what it described as the "what if?" exercise. The Tribunal made strong criticisms of the Respondent but it is not necessary to describe this process as a procedural flaw or a substantive flaw; all that is necessary, adopting the highlighted extract from Lord Prosser's judgment is that the Tribunal can sensibly reconstruct what would have happened. Here it made its own findings and we see no error in its approach to it.
  36. I respectfully agree. The ET correctly directed itself; and brought its experience to bear on the twelve days of evidence that it had heard. It was well aware, as its analysis shows, of the difficulty and unusual nature of the task, but it did not err in law in embarking on that task. I would dismiss this appeal.
  37. Lord Justice Lloyd:

    25. I agree.

    Lord Justice Richards:

    26. I also agree.

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