Compensation – Polkey – What you need to know

If an employee is successful with a claim for unfair dismissal the Employment Tribunal will award compensation which they deem to be just and equitable in all the circumstances.

This means that it will not necessarily follow that just because an employee has successfully claimed unfair dismissal that they will receive full compensation. Because it has to be just and equitable the Employment Tribunal will look at the circumstances in full and may make deductions.

One such deduction, which is the focus of this legal update, is known as a Polkey deduction, as it is named after a House of Lords case from 1987,  Polkey v AE Dayton Services Ltd.

What is a Polkey deduction?

A reduction in compensation to reflect the likelihood that there would have been a fair dismissal in any event.

The principle is that an employee should not be compensated over and above what is a true reflection of their loss.

In Mr Polkey’s case, the compensation awarded to him was reduced to reflect the fact that although the employer had failed to take certain procedural steps in implementing his redundancy dismissal, therefore rendering it an unfair dismissal, those procedural steps would not have made a difference to the decision to dismiss him.

So, the dismissal is still unfair in accordance with the principles of unfair dismissal but the Employment Tribunal have applied logic to the situation to assess whether there would have been any difference to the employees circumstances.

At what point will a Polkey deduction be made?

After the Employment Tribunal has ascertained the employee’s losses, i.e. loss of earnings since dismissal, they will then give credit for any sums which the employee received following dismissal, and after this the Polkey deduction is applied.

There may be further deductions which are applied after the Polkey deduction, and which I will cover in another legal update. If you have questions about this in the meantime please do not hesitate to contact me to discuss your circumstances alison@alisoncolley.co.uk .

How will the Employment Tribunal decide what Polkey deduction to apply?

As you would expect there have been a number of cases on this point and the key principles that have developed are:

• The Employment Tribunal must consider the employer’s likely thought processes.
• The Employment Tribunal must have regards to all of the evidence available, not just that submitted by the Employer.
• The Employment Tribunal make an assessment with sufficient confidence about what is likely to have happened, using its common sense, experience and sense of justice.
• Even if the employer has behaved unreasonably an Employment Tribunal must still consider the question of Polkey.
• Deductions can be made when the dismissal is either procedurally or substantively unfair.

What can I do as an employer?

You must submit arguments that Polkey applies and provide evidence to support your argument.

How much will be deducted?

This will depend on the circumstance of the case, as no two cases are the same.

The Employment Tribunal will make either a percentage reduction in compensation or place a limit on the length of future loss.

Deductions can be up to 100% in appropriate circumstances.

Where the sole reason for the dismissal being rendered unfair is a procedural error, it will be rare that no percentage reduction is made.

In a recent case covered in the Employment Law & HR Podcast: Episode 9 the Employment Appeal Tribunal made a Polkey deduction on the basis that the Employer would have made 4 out of the 10 employees redundant in any event and therefore there was a risk that the employee in question would have been dismissed anyway. Compensation was reduced accordingly.

If the tribunal decides that dismissal would have occurred anyway, but a couple of weeks or days later, had a proper procedure been followed, they can reduce compensation by limiting to a period of time. For example an employee is successful in arguing that an employer missed a stage in an absence management procedure, therefore they should have received one extra warning before dismissal. In this case the dismissal may be unfair but the Employment Tribunal could limit compensation to an additional month to reflect the length of time it would have taken for the employer to follow that additional step.

Points to note

Do not rely on the fact that the Polkey deductions will apply and reduce compensation you have to pay for not following proper procedures. There is no substitute for getting it right first time.

But in the event that you do mess things up one way or another you can always argue that that mistake would have made little or no difference to the outcome, and hope that the Employment Tribunal agree and reduce the employees unfair dismissal compensation.