In the case of Zebrowski v Concentric Birmingham Ltd UKEAT/0245/16 the EAT considered the correct approach to reducing compensation following unfair dismissal, in particular: when was it appropriate for the Tribunal to limit the award to a period rather than reduce by a percentage.
The Claimant was employed by the Respondent from 2009-2015. The Respondent ran a specialist fluid engineering business. The Claimant worked on the shop floor and was required to move between production cells. In 2011 the Claimant started with a bad cough. This progressed and he was ultimately diagnosed with occupational asthma in February 2015. He resigned in April 2015.
The Claimant had raised a grievance in November 2014 stating that the Respondent was in breach of its statutory duty to provide a safe working environment and protect him from harassment. The Respondent had not provided him with health and safety information including a risk assessment and had subjected him to a detriment.
The Respondent argued that the dismissal was fair and the reason relied on was the Claimant’s conduct in refusing to accept health and safety information which showed that there was no issue over air pollution or any other health and safety concern. They asked the Tribunal to make a deduction to compensation on Polkey grounds and/or on the basis of s.123(6) ERA 1996 (reduction for contributory conduct).
Employment Tribunal Hearing
The Tribunal dismissed several of the Claimant’s claims but held that the Claimant had been constructively dismissed and that the dismissal was unfair. They found that the Respondent had failed to take reasonable steps to protect the health and safety of the Claimant in relation to the lack of proper risk assessments. This amounted to a breach of the implied term of mutual trust and confidence.
The Tribunal considered that the Respondent had failed to show that its reason for dismissing the Claimant was a potentially fair reason. The Tribunal went on to find that if a fair procedure had been followed, there was a 60% chance that the parties would have been unable to resolve the issues relating to the Claimant’s health concerns and his working environment and that his employment would in any event have terminated fairly by way of resignation/dismissal within two months of the original date of termination. On that basis, any award pursuant to s.123 should be reduced accordingly.
The Tribunal then limited compensation to two months from the date of dismissal.
Employment Appeal Tribunal
The Claimant appealed on the grounds that the judgment was contradictory, as it stated that compensation would be reduced by 60% and then further went on to state that there was a 60% chance that the employment would not have continued beyond two months had a fair procedure been followed. In any event, the Claimant argued that the Tribunal had found that the dismissal was substantively unfair (rather than just procedurally unfair) and on that basis, he was entitled to resign and was not obliged to engage further with the Respondent. The Claimant’s second ground of appeal was that the Tribunal had not explained why two months was the appropriate period.
The EAT held that the Tribunal’s approach to assessing compensation, following its finding that an employee had been constructively dismissed, was ambiguous.
The EAT followed the approach of the Court of Appeal in O’Donoghue v Redcar & Cleveland Borough Council  IRLR 615 and held that it was only open to a Tribunal to limit compensation to a period (rather than make a percentage reduction) if the Tribunal considered that there was a 100% chance that dismissal would have occurred by the end of that period. Instead, where dismissal was not certain, the Tribunal should first find the Claimant’s fully proved losses subject to mitigation, and then reduce that sum by 60% (or whatever appropriate reduction applied). That loss will extend into the future and will not be limited to the two months after dismissal.
The matter was remitted back to the Tribunal for it to explain, before assessing the appropriate compensation, which basis for calculation it had chosen and then assess compensation accordingly.
This case provides a helpful reminder of when it is appropriate for a Tribunal to reduce damages to a fixed period. Only in circumstances where the Tribunal finds that after a certain period, there would have been a 100% chance of dismissal, will this be the appropriate approach to take.
Change to the Discount Rate for Personal Injury Damages
The Government has announced that the discount rate applicable to personal injury awards has been reduced from 2.5% to -0.75%.
The rate had been set at 2.5% since 2001, and the new rate will come into effect on 20th March 2017, following amendments to current legislation.
The discount rate is applied to lump sum compensation payments in order to take into account the interest which the claimant can expect to earn by investing the money.
The rate applies to awards for future losses. Such awards arise in the Employment Tribunal where an employee has a serious long term medical condition and is being awarded a sum of money for long term loss of earnings. The discount rate is applied to reflect the early receipt of such earnings.
The reduction in the rate means that awards for long term loss of earnings for personal injury in discrimination and detriment cases will in effect increase.
This reduction in the discount rate will see compensation payments rise and in turn, this will have an impact on any employer who is ordered to pay such an award.
A consultation will be launched before Easter to consider options for reform, including whether reviews should be carried out more frequently and whether the rate should be set by an independent body, rather than the Lord Chancellor.
The change to the rate reflects more accurately, the level of interest a claimant could expect to receive on any such award if invested, and is therefore a fairer basis for calculation for claimants.
The change is likely to have a very substantial impact on the biggest awards and settlements. Some commentators suggest that in the largest cases awards might double.
No surprise then that the insurance industry is now lobbying ferociously for the government to backtrack on the reform. Watch this space – we predict that the new rate won’t last.