Polkey v A.E. Dayton Services Ltd
Polkey v A.E. Dayton Services Ltd [1988] AC 334
Facts
The employee, Dennis Polkey, was one of four van drivers employed by A. E. Dayton Services Ltd. since 1978. In 1982, his employers decided to replace the four van drivers with two van salesmen and a representative to reduce overheads and reorganize the business. Polkey was among three van drivers selected for redundancy, as only one was considered suitable for the new roles. He was dismissed without prior warning or consultation, informed abruptly, and handed a redundancy letter. The industrial tribunal found this to be a "heartless disregard of the provisions of the code of practice". However, the tribunal dismissed Polkey's complaint of unfair dismissal, concluding that even if there had been consultation, the outcome (redundancy) would not have been different.
Held
The House of Lords allowed Polkey's appeal, ruling that the industrial tribunal had applied the wrong legal test.
The central question under section 57(3) of the Employment Protection (Consolidation) Act 1978 is whether the employer acted reasonably or unreasonably in treating the reason for dismissal as sufficient, based on circumstances known at the time of dismissal. It is not whether the employee would have been dismissed anyway if proper procedure had been followed.
A failure to consult or warn does not automatically render a dismissal unfair, but this depends on whether the employer could reasonably have concluded that such steps would have been "utterly useless" based on the information available at the time of dismissal.
The "British Labour Pump principle," which allowed for such hypothetical speculation, and all decisions supporting it (including W. & J. Wass Ltd. v. Binns), were overruled.
The case was remitted to a differently constituted industrial tribunal for re-consideration using the correct legal question.
Comment
This judgment firmly establishes that the fairness of a dismissal is determined by the employer's conduct and knowledge at the moment of dismissal, and not by facts or speculation discovered retrospectively.
It reinforces the importance of procedural fairness in dismissals; employers are generally expected to follow appropriate steps like warning, consultation, and fair selection, as these are integral to acting reasonably. Only in rare or exceptional circumstances can these steps be reasonably dispensed with.
The ruling clarifies the distinction between the fairness of a dismissal (liability) and compensation. An employee may be found to have been unfairly dismissed due to procedural failings, even if they might still have been dismissed had proper procedures been followed. In such cases, compensation might be reduced (e.g., to nil or by a percentage reflecting the chance of dismissal), but the dismissal itself is still deemed unfair.in the case Polkey v. AE Dayton Services Ltd, this reduction has continued to be known as the Polkey reduction. A decrease in the amount of compensation awarded to an employee who successfully sued their employer for unfair dismissal. This reduction is meant to represent the probability that the employee would have been terminated in a fair manner regardless of the outcome of the lawsuit.
Following Polkey's proposal to construct a need for procedural fairness in dismissal, an effort was made in 2002 to change the Employment Rights Act 1996 in order to provide a legislative foundation for procedural fairness. This was done in response to Polkey's recommendation. This effort at legislative codification was overturned by the government in 2008, and they have since gone back to relying on the case law that was established in Polkey.
