In this case, the EAT held that there is no absolute requirement for an employer to follow particular procedural steps before dismissing an employee for poor performance. The EAT also gave guidance on how Polkey deductions from compensation should be assessed, to reflect the likelihood that an employee would have been dismissed fairly had a fair procedure been followed.
Facts
Mr Stobart was employed as Chief Executive Officer of Zen Internet Ltd (Zen) from 1 October 2018, having previously been Zen's Chairman and a mentor figure to the founder, Mr Tang. His appointment to the CEO role was made on the basis that he could drive improvements in Zen's profitability. However, over the following four years, Mr Stobart failed to deliver these improvements.
Mr Tang raised clear concerns about Zen's profitability and expressed a lack of confidence in Mr Stobart's capability in the CEO role on 24 February 2023. On 17 March 2023, Zen gave Mr Stobart notice of dismissal by email, citing poor performance as the reason. It did not follow any formal process before doing so.
An employment tribunal upheld Mr Stobart's unfair dismissal claim. It found that the reason, or principal reason, for the dismissal was capability (performance). However, it concluded that the dismissal was procedurally unfair. Zen's failure to formally investigate the issue, inform Mr Stobart of the problem, arrange meetings at which he could be accompanied and put his case, and offer an appeal, meant that its decision to dismiss fell outside the range of reasonable responses. The tribunal also held that Mr Stobart's compensation (which would be assessed at a separate remedy hearing) should be subject to a Polkey deduction on the basis that, had Zen followed a fair procedure, Mr Stobart would have been fairly dismissed for capability – likely within two months of the 17 March 2023 board meeting, and certainly by no later than 31 May 2023.
The EAT dismissed Zen's appeal on the fairness of Mr Stobart's dismissal, but upheld its appeal in relation to the tribunal's approach to the Polkey deduction.
On fairness, the EAT held that there is no absolute requirement that in every capability case the employee must be warned of concerns about their performance and given an opportunity to improve before they can be fairly dismissed. However, such procedural steps are the normal expectation, and a failure to adopt such a procedure will usually result in a finding of unfair dismissal. The EAT did not consider it appropriate to lay down a general rule of law to the effect that the need for a warning and opportunity to improve would be less likely for those employed in senior management roles. Each case must be judged on its own facts.
The EAT considered that the tribunal's conclusion that Mr Stobart's dismissal was unfair was not based on any failure by Zen to warn Mr Stobart or give him an opportunity to improve. Rather, the tribunal's finding of unfairness was based on Zen's failure to follow its own process, which reflected the recommendations of the Acas Code of Practice on disciplinary and grievance procedures (the Acas Code). The tribunal had not imposed an absolute requirement regarding the procedural steps that should have been followed, but made permissible findings based on the circumstances of Mr Stobart's case.
On the Polkey issue, the EAT held that there is no rule of law that limits tribunals to looking forward from a particular date (e.g. the date of dismissal, or when notice is given) when considering what the likely outcome would have been if the employer had acted fairly. Where an employer has acted unfairly by moving too quickly to dismiss, e.g. by failing to investigate and hold a disciplinary meeting in a misconduct scenario, there is likely to be a time gap between the actual dismissal decision that was reached unfairly and a dismissal decision which might have been reached following a fair procedure. However, this will not always be the case. For example, where a misconduct dismissal is unfair solely because the employer has taken an unreasonably long time to conduct its disciplinary process, a fair process could well have concluded with the same outcome but at an earlier date. The employee would not have suffered financial loss as a result of their dismissal, because in a hypothetical fair scenario their employment would have ended earlier, and this would be relevant to the tribunal's assessment of any Polkey deduction.
In this case, the tribunal had wrongly confined itself to considering what might have happened after the 17 March 2023 board meeting, when Zen had clearly informed Mr Stobart of its concerns about his capability in the CEO role earlier, on 24 February 2023. The tribunal had also failed to provide sufficient reasons for its conclusion that Mr Stobart's period of loss extended to 31 May 2023. The EAT therefore remitted the Polkey issue to the tribunal for reconsideration.
What does this mean for employers?
This case provides helpful confirmation that there is no absolute requirement for employers to take particular procedural steps in every dismissal for poor performance. Fairness will be judged on the facts of each individual case. However, the EAT emphasised that:
- It would be rare for a performance dismissal to be found fair if the employee was not first warned and given an opportunity to improve
- The Acas Code applies to all employees regardless of their particular job title or status in the employer's organisation.
When managing performance, employers should therefore ensure that they document any performance concerns and communicate them promptly and clearly to the employee, and follow their own procedures when managing – and dismissing for – poor performance. Taking such steps will both help to reduce the risk of a finding of unfair dismissal, and be relevant to any Polkey assessment in the event that the dismissal is found to be unfair.
