A tribunal cannot cure an unfair dismissal by imagining that the employer might have followed a better procedure. In a recent decision, the Employment Appeal Tribunal (EAT) confirmed that, when assessing a Polkey reduction, tribunals must consider what the employer would actually have done if it had followed a fair process, not what it could have done under different rules. The case also raises an interesting question about how progression-based performance models fit within the framework of unfair dismissal law.
Background
The claimant worked as a manager for a consulting business that operates an "up or elsewhere" performance model. It expected employees to progress towards the next grade within the organisation's structure. Failure to do so could be treated as underperformance, even if the employee was performing their current role satisfactorily.
The claimant had periods of absence and a phased return to work linked to endometriosis. Around the same time, and again nine months later, her manager rated her as "not progressing". After the second assessment, the business invited her to a meeting to discuss her performance, after which it dismissed her with pay in lieu of notice. She appealed unsuccessfully and brought claims of unfair dismissal and discrimination arising from disability.
ET decision
The employment tribunal (ET) found the dismissal unfair. It found that the business had not followed its own disciplinary and appeals policy. It expressed surprise that the employer applied this policy given it was not a misconduct issue. There had been no proper investigation and the decision-makers were not independent.
The more unusual issue arose at the remedy stage. The ET decided to reduce the claimant's compensation by 100% under Polkey. A Polkey reduction reflects the chance that a claimant would have been dismissed even if the employer had followed a fair process. Compensation is reduced to reflect the loss actually caused by the unfairness. In this case, the ET reasoned that the business had in substance followed a reasonable process. It considered that if the business had instead operated a policy that aligned with the process it had actually used, it would still have dismissed the claimant fairly at the same time. On that basis, the tribunal concluded that the unfairness caused no loss.
The ET rejected the disability discrimination claim, finding that the claimant did not meet the statutory definition of disability.
EAT decision
The EAT held that the ET's approach to Polkey was wrong in law. The EAT accepted the basic Polkey principle: a tribunal may reduce compensation where the employer proves that, even if it had followed a fair procedure, it would still have dismissed the individual. However, the tribunal must assess, on the evidence, what this employer would have done. It is not enough to consider what a reasonable employer could have done, or what procedure might have justified the outcome in theory.
Once the ET had found that the unfairness lay in the organisation's failure to comply with its own disciplinary and appeals policy, the correct question was straightforward: what would have happened if the business had actually complied with that policy? Instead, the ET asked a different question. It assumed a hypothetical world in which the business had a different policy, one that aligned with the flawed process it had actually used. There was no evidence to suggest that the business would have done that.
The EAT said that was not a lawful Polkey analysis. It would effectively give the employer a "second bite of the cherry", allowing it to justify the dismissal by reference to a hypothetical procedure it had never adopted. The EAT therefore sent the matter back to the tribunal to reconsider the Polkey reduction on the correct basis.
On the disability discrimination claim, the EAT was critical of the ET's approach, describing it as "wholly inadequate". The ET had failed to consider the medical evidence and the claimant's impact statement, instead making irrelevant comments about the experience of other women with endometriosis for whom it is mild or symptomless. This serves as a reminder that employers should always consider the impact of a condition on the particular employee with whom they are dealing, rather than relying on knowledge of how that condition might affect others.
Progression-based culture
The EAT also commented on the employer's progression-based performance model. When imposing the 100% Polkey reduction, the ET had treated the model as fair and had assumed that dismissal would have occurred on capability grounds. However, the EAT questioned whether that analysis was necessarily correct.
Capability generally concerns whether the employee can perform the role they are employed to do. A progression-based model may sit uneasily with that concept if the concern is not that the employee cannot do their present job, but that they are not yet ready for promotion. In those circumstances, the issue may relate less to the employee's ability to perform their existing role and more to the role they would perform if promoted.
The EAT did not rule out the possibility that a dismissal linked to lack of progression could be fair. However, it indicated that there is a genuine legal question about whether such cases naturally fall within capability where the employee is still competent in their existing role. Such cases may instead fall within some other substantial reason, but this would still require careful analysis of whether the "non-progression" reason justified dismissing an employee holding the position that they held.
Key takeaways
The decision is a reminder that Polkey reductions depend on what the employer would actually have done if it had followed a fair procedure. A tribunal cannot justify the dismissal by imagining that the employer might have adopted different rules or a more suitable process after the event.
For employers, this reinforces the importance of following internal procedures carefully. Where an employer fails to comply with its own policies, it may not only face a finding of unfair dismissal but may also struggle to argue successfully that the outcome would inevitably have been the same.
The case also highlights a potential legal tension with progression-based performance models. Where the concern is that an employee is not progressing to the next level rather than failing in their current role, capability may not always be the most straightforward legal basis for dismissal. Employers operating "up or elsewhere" models should ensure that their policies, processes and reasoning clearly support the potentially fair reason relied upon.
