The Employment Rights Act 2025 provides that any agreement preventing a worker from making...
The Basis for 'Polkey' Reductions
How Does a Tribunal Assess a Reduction in Compensation for 'Polkey'?
Even if there is a finding of unfair dismissal against an employer, it is open to the Tribunal to conclude that even if a fair procedure had been followed, then the employee would still have been dismissed. The Tribunal can reduce the compensation to take this into account and this is called a ‘Polkey’ reduction.
In Contract Bottling Limited v Cave and McNaughton the EAT has confirmed that when a Tribunal makes a Polkey reduction, it must identify sufficient reasons for that reduction and the factors that it takes into account in reaching that decision.
Contract Bottling Limited had been insolvent and was brought out of administration by Mr Thornton and Mr Bell. There were 47 employees and it was decided that there was an urgent need to reduce staffing costs. They chose to do this by reducing the number of administrative staff and after two voluntary redundancies, ten employees were placed in a pool, four of whom were dismissed.
The pool of employees included a range of jobs with a variety of different skills and roles including the Claimants who were the Accounts Manager and Administrative Supervisor. In addition the pool included an Account Engineer, Warehouse Manager and two employees in the sales department. The Employment Tribunal found that the employer failed to appropriately consider similarly skilled jobs, had not considered any form of objective selection criteria and the manager carrying out the scoring had a complete lack of knowledge of the candidates, so judged their skills entirely subjectively without any real basis. The Tribunal also found that the employer had failed to appropriately consider offers from the Claimants to accept a lower salary as an alternative to redundancy.
The Tribunal also decided that there was no evidence to suggest that if a fair procedure had been followed, that dismissals would have taken place in any event or that there were any factors which would support a reduction in the compensation which would be due to the Claimants.
On appeal, the EAT said that this was a genuine redundancy situation and on the facts there was evidence to suggest a chance of dismissal had a fair process been followed. The case was remitted to the same Employment Tribunal to consider the evidence and whether there ought to have been some Polkey reduction.
In its judgment, the Tribunal suggested that there should be a 20% reduction in compensation without providing any explanation for its conclusion. This decision was appealed again to the EAT.
The EAT allowed the appeal, deciding that the Tribunal should have provided clear reasoning to show why it had adopted the figure of a 20% reduction, including setting out the specific evidence that it had when reaching its decision.
In reaching its decision, the EAT confirmed that it is not enough to simply provide a mathematical reason as that fails to take into account the other material evidence, equally, the EAT made it clear that where an Employment Tribunal has set out a reasoned decision, “there can be no legitimate ground for criticising a particular percentage unless it is manifestly less than or more than the percentage which might have seemed proper”.
The EAT noted and had sympathy for the Employment Tribunal’s complaint that it did not have sufficient evidence to allow it to be more precise with the percentage it chose. This case therefore serves as an important reminder that when an employee challenges the procedural fairness of a dismissal, an employer should provide as much evidence as possible to the Tribunal to demonstrate that the employer would have dismissed an employee in any event.