Employment & Pensions Blog: The Polkey Principle and the Importance of a Fair Procedure: Zen Internet v Stobart

Where a Claimant’s dismissal is found to have been procedurally unfair, Respondents should ask the Employment Tribunal to apply what is known as the ‘Polkey’ principle. Coming from a 1987 case of the same name, the Polkey principle sets out that the compensation in unfair dismissal claims can be reduced where the employer can show that the employee would have been dismissed anyway, even if a fair procedure had been followed. How much the compensation is reduced by depends on the facts of the case, but it can reduce the compensation to zero. 

The Polkey principle was the subject of a recent Employment Appeal Tribunal (EAT) decision which provides important clarification on how it should be applied by Tribunals.  

Background

Zen Internet Limited is as a broadband provider that was established in the 1990s. Mr Stobart was initially brought in as Chairman of the Board but he was appointed the CEO in 2018. After a long history of profitability, Zen went through several years of losses under Mr Stobart’s leadership between 2020 and 2023. The Board lost trust and confidence in Mr Stobart’s ability to return the business to profit, and it voted to terminate his employment and his last day of employment was 31 March 2023.

The Employment Tribunal 

Mr Stobart brought an unfair dismissal claim against his former employer.  

Zen defended the claim on the basis that they terminated Mr Stobart’s employment for a fair reason – poor performance, and for some other substantial reason, the substantial reason being their loss of trust and confidence in him.  

Whilst Mr Stobart accepted there were issues with how the company performed under his leadership, he argued that the company didn’t follow a fair procedure when terminating his employment. Specifically, he wasn’t properly warned that the performance concerns could lead to dismissal, with many of his performance reviews being a mix of profitability concerns and positive comments, and he wasn’t given a chance to improve. 

The Employment Tribunal agreed that Mr Stobart had been unfairly dismissed. Whilst there was a fair reason, poor performance, the Tribunal agreed that a fair process hadn’t been followed. The company’s policies mirrored the ACAS Code of Practice, both of which applied to all employees regardless of their seniority. Zen had an obligation to formally establish the facts, inform Mr Stobart of the problem, arrange meetings where he could put his case forward, decide upon an outcome and allow him to appeal. As Zen had done none of those things, his dismissal was procedurally unfair.  

However, the Employment Tribunal applied the Polkey principle (above) and held that, whilst the procedure was unfair, it was likely Mr Stobart would have been dismissed anyway from no later than 31 May 2023. Therefore, any compensation to Mr Stobart was to be reduced accordingly.  

The EAT

Zen appealed against the way the Employment Tribunal had applied the Polkey principle. In considering when Mr Stobart would likely have been dismissed if a fair process had been followed, Zen argued that the Tribunal had wrongly started from the date he was dismissed (31 March 2023) and looked for a likelihood of dismissal date in the future, but what they should have done is look at when the performance concerns were first raised, and consider from that point when Mr Stobart would likely have been dismissed if a fair process had been followed.  

The EAT agreed with Zen, giving the following example: 

“Take a case where a dismissal for misconduct is rendered unfair only because of an unreasonably long investigative and disciplinary process, beset by delay. In such a case, had the employer behaved differently and fairly, the process would have concluded with the same outcome but at a date sooner than in actuality. The employee would not have lost out financially because in the hypothetical fair scenario, the employment would have ended earlier. In my judgment there is no good or principled reason why the Tribunal should have to shut its eyes to what it assesses would have occurred had the employer behaved differently and fairly, even if some or all of those actions would have occurred before the actual decision to dismiss.”

Looking at the example, where a dismissal is procedurally unfair because the process has been protracted and taken too long, it is illogical to apply Polkey on the basis that a fair dismissal would have occurred at some point in the future if the process had taken even longer. The EAT’s decision therefore makes perfect sense: the Polkey assessment should look back to when the matter was first raised and assess, from that point onwards, when a fair dismissal would have taken place if a fair procedure been followed.

Comment

The EAT’s decision in this case is noteworthy in several respects: 

• No matter how senior the member of staff, they have the right to a fair procedure during any disciplinary or capability process.  
   
• Whilst ‘some other substantial reason’ is a fair reason for dismissal, Employment Tribunals don’t generally like it if you try and disguise a conduct or capability dismissal as something else. Here, Zen tried to argue the dismissal was for some other substantial reason, but the Tribunal disagreed and found this was a plain and simple poor performance dismissal.
   
• Perhaps most importantly, the EAT’s decision that when doing a Polkey assessment of when an employee is likely to have been dismissed if a fair process had been followed, Tribunals should both look backwards for a date in the past as well as forwards for a date in the future.

If employers or employees require assistance with any Employment Tribunal matters, please contact a member of our Employment Team.