Employment Update: Unfair selection for redundancy and discrimination; Level of compensation

By Employment Group


Unfair selection for redundancy may amount to unlawful discrimination; the reverse burden of proof applies to all discrimination claims; ‘Polkey’ deduction may apply to limit compensation; effect of failure to follow procedure on a substantial compensation claim.

The EAT has recently had to consider a range of topical and important redundancy issues in the case of Chagger v Abbey National and Hopkins.
Unfair selection for redundancy

The claimant alleged that he had been unfairly selected for redundancy because of his colour and had won £2.8 million compensation from the employment tribunal on the basis that, at the age of 40, he would never get a comparable post in the financial sector again.

The tribunal was easily satisfied that the selection process was unfair.

The claimant did not get on well with his immediate line manger. When his manager was told to make cost savings, his immediate response was to suggest that he could dispense with one of two employees, of whom the claimant was one. The manager asked the claimant if he was interested in voluntary redundancy, which he was not. The manager marked the two candidates for redundancy on a series of ‘competencies’ on which the claimant got a slightly lower score than his colleague. He was then told he was at risk of redundancy and two weeks later he was dismissed. The statutory dismissal procedure was not followed at all.

The employment tribunal was easily satisfied that the dismissal was unfair.

Selection on racial grounds

However, the claimant’s case went further than that. He said that he had been selected because of his colour. If the reverse burden of proof (see below) applied, the employer had to show that there was another reason for his selection. All that the employer had said was that the dismissal was fair, and this argument had already been rejected by the tribunal. It followed that the tribunal had to accept the claimant’s case and award him compensation for race discrimination – which is uncapped by statute, hence the size of the award.

The employer appealed to the EAT. Three important legal issues were considered –

  • Does the reverse burden of proof apply in cases of discrimination on grounds of colour or nationality? Discrimination on grounds of colour and nationality is covered by the Race Relations Act but not expressly in the EC Equal Treatment Directive 2000/43 which reversed the burden of proof in discrimination cases nor in the Race Relations Act (Amendment) Regulations 2003 which implemented the Directive in the UK. Previously (in Okonu v G4S Security) the EAT had said that this means that the reverse burden of proof does not apply in colour or nationality cases. In this case, the EAT says that this was wrong. Someone complaining of a 'colour bar' will inevitably be complaining of discrimination on grounds of racial or ethnic origin and so the reverse burden of proof should apply.

  • On compensation –

    • When awarding compensation for loss of earnings, the tribunal was wrong to think that in a discrimination case it could not apply a Polkey-type deduction to allow for the possibility that the claimant might have been fairly dismissed if the dismissal had been handled differently.

    • The tribunal could only award compensation for loss of earnings, not for 'stigma' of having taken his employer to tribunal which might affect his chances of getting another job.

    • The tribunal had made use of the Ogden tables - which provide a formula for calculating damages for future loss of earnings in personal injury cases. It had applied the formula for a 25-year period to compensate the claimant (currently aged 40) for loss of earnings to retirement age. The EAT says that, while tribunals may use the Ogden tables, before awarding compensation they must allow for contingencies such as the claimant finding alternative employment in the future.

  • Because the figure it had awarded in compensation was so enormous, the tribunal only made a 2% uplift under Section 31(3) of the Employment Act 2002 for the employer's failure to follow the statutory disciplinary procedure. It indicated that, if the compensation figure had been smaller, the uplift would have been 10-20%. The claimant appealed and said this was what they should have awarded but the EAT says it is acceptable for a tribunal to take into account the size of the award before deciding how much to penalise the employer.

Points to note -

  • Employers should appreciate that, in carrying out a redundancy exercise, if they do not follow a fair procedure, they risk discrimination claims as well as claims of unfair dismissal. In this case, the EAT considered that, if a fair procedure had been followed, the dismissal could have been fair. Furthermore, the discrimination claim might not have succeeded had the claimant’s manager not made it so obvious that he just didn’t get on with him.

  • It is good to have confirmation from the EAT that the same rules should apply in all discrimination claims, but employers should note that applying the reverse burden of proof means that, once the claimant has raised the possibility that he or she was treated differently on unlawful grounds, if the employer cannot show that there was another, lawful, reason for their treatment, the tribunal must accept the claimant’s argument.