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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Cox v London Borough Of Camden [1996] UKEAT 1053_95_2401 (24 January 1996) URL: http://www.bailii.org/uk/cases/UKEAT/1996/1053_95_2401.html Cite as: [1996] UKEAT 1053_95_2401

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BAILII case number: [1996] UKEAT 1053_95_2401

Appeal No. EAT/1053/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 24th January 1996

Judgment delivered on 16th April 1996

HIS HONOUR JUDGE J ALTMAN

MISS C HOLROYD

MRS P TURNER OBE

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R J COX          APPELLANT

LONDON BOROUGH OF CAMDEN          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised 29th April 1996


 


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APPEARANCES

For the Appellant MR P O'BRIEN

(Representative)

For the Respondents MR M MULLINS

(of Counsel)

The Borough Solicitor

London Borough of Camden

Camden Town Hall

Euston Road

London NW1 2RU


 


JUDGE ALTMAN: This appeal concerns one aspect of the calculation of compensation for unfair dismissal upon which there appears to be no reported decision. Two deductions are sometimes made in this calculation. These are first, the deduction of the whole or part of any payment which was made by the employer on termination of employment, described here as the "termination payment" and, secondly, the deduction which takes account of the finding that even if the employer had not acted unfairly there was still a measurable risk that the result would have been the same and that dismissal would have followed. This is often termed the "Polkey deduction", it having been approved by the House of Lords in the case of that name.

Which deduction is to be made first in the process of calculation? The deduction for a termination payment is a matter of simple subtraction, whereas the "Polkey deduction" is of a percentage. As a result, if the termination payment is deducted first, the net amount of compensation will be greater. This issue can therefore be crucial to the calculation of the amount of a compensatory award in cases where both deductions fall to be made.

THE DECISION OF THE INDUSTRIAL TRIBUNAL

The hearing before the tribunal lasted three days in June 1995, extended reasons being promulgated on 10th August 1995. The Applicant complained of unfair dismissal. He was dismissed for redundancy in the course of a "re-structuring" exercise. The tribunal, whilst rejecting some of the substantive grounds upon which the Application was based, found that in selecting him for redundancy the Respondents acted in contravention of an agreed procedure under Section 59 of the Employment Protection (Consolidation) Act 1978 and that the dismissal was procedurally unfair under the provisions of Section 57. This was because the Applicant was given only 6 instead of 14 days to choose between dismissal with enhanced redundancy terms and the Respondents' redeployment procedures. The Tribunal's decision on liability is not challenged and it is unnecessary to recite the facts and issues relating to that further. The Chairman stated:

"13. The Applicant had never contested that redundancies were due nor that his old post was properly made redundant. In those circumstances we decided unanimously that this was a case of procedural unfairness with no element of substantive unfairness in it."

The Chairman then went on to deal with remedy. He stated:

"15. We ... were perfectly satisfied that even if he had had 14 days instead of 6 days to consider going into redeployment, the chances of him actually doing the latter were slight. Therefore, following Polkey, we came to the view that there was only a 5% chance of him retaining any sort of employment with the Council. We therefore determined to reduce the award of compensation by 95%.

16. We regarded the basic award as already having been paid in the Council's severance terms. The Applicant received from them a further £18,000 or so.

17. He claimed losses of some £231,000. We did not need to go into these because, applying a loss of 95% to that figure he would only have losses of around £11,000, and from that would have to be deducted the £18,000 he had already received. In those circumstances we made no order for compensation nor any order in his favour."

So as to understand the "termination payment" in this case we looked at the respondents' calculation which shows:

"A SEVERANCE PAYMENT

4 weeks at £615.67 = £ 2,461.68

B REDUNDANCY PAYMENT

24 weeks at £615.67 = £14,776.09

C NOTICE PERIOD (if applicable)

12 weeks maximum at £615.67 = £ 7,388.04"

By his grounds of appeal, the Appellant (the applicant below) contended that the Tribunal erred in law, when calculating the compensatory award under Section 74 of the Act, in deducting any of the termination payment that exceeded the statutory redundancy entitlement, but this ground was abandoned.

The Appellant also contends that the Tribunal erred in making the 95% "Polkey deduction" before deducting the "termination payment". On behalf of the respondents Mr Mullins argues that to do so was in accordance with both principle and authority. Thus this appeal has been concerned solely with the issue as to whether the deduction of such amount of any termination payment as is over and above the statutory redundancy entitlement should be made before or after the "Polkey deduction".

THE STATUTORY PROVISIONS

In dealing with this issue, we look first at the words of the statute, to construe them strictly.

Compensation for unfair dismissal is governed by Section 74 of the Act. In Addison v Babcock Fata Ltd [1987] ICR 805, Lord Donaldson described this section as "a comprehensive code" for calculating compensation, pointing out that the amount of the award is governed by statute and nothing else. There is no discretion to award or deduct any amount in a way which is not within the terms of the section. I set out the section to the extent necessary for this appeal.

"74-(1) ... the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.

(2) The said loss shall be taken to include-

(a) any expenses reasonably incurred by the complainant in consequence of the dismissal, and

(b) subject to subsection (3), loss of any benefit which he might reasonably be expected to have had but for the dismissal.

(3) The said loss, in respect of any loss of any entitlement or potential entitlement to, or expectation of, a payment on account of dismissal by reason of redundancy, whether in respect of Part VI or otherwise, shall include only the loss referable to the amount, if any, by which the amount of that payment would have exceeded the amount of a basic award (apart from any reduction under [section 73(7A) to (9)]) in respect of the same dismissal.

(4) In ascertaining the said loss the tribunal shall apply the same rule concerning the duty of a person to mitigate his loss as applies to damages recoverable under the common law of England and Wales or of Scotland, as the case may be.

(5) ...

(6) Where the tribunal finds that the dismissal was to any extent contributed to by any action of the complainant it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding.

(7) If the amount of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy, whether in pursuance of Part VI or otherwise, exceeds the amount of the basic award which would be payable but for section 73(9) that excess shall go to reduce the amount of the compensatory award.

(8) ... "

Within Section 74 there are two types of total sum, each made up of constituent amounts, namely "loss" and "compensatory award", and the section defines both. It seems to us that this distinction is fundamental to any construction of the section.

The "compensatory award" is defined in subsection 1. For reasons to which I return later, it is perhaps best termed the "initial compensatory award". It is:

"such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant ..."

It follows that in order to arrive at the initial compensatory award it is necessary first to calculate the loss. "Loss" is not defined, but includes items referred to in subsection 2. It does not include any amount already awarded for redundancy and included in the calculation of the basic award (subsection 3), and it is subject to deduction due to any failure by the complainant to mitigate his loss (subsection 4).

Once the "loss" has been calculated under the section the tribunal will then "have regard" to it and come to the figure it regards as "just and equitable" so as to arrive at the "initial compensatory award". The tribunal does not award the loss, but need only "have regard" to it. This section thus gives a discretion to tribunals in the award of compensation which goes beyond pure calculation.

In this way the compensatory award under subsection 1 - the "initial compensatory award" - is arrived at. But the section goes on to provide in particular for two further deductions. Subsection 6 provides for a deduction where action of the complainant has caused or contributed to the dismissal, and subsection 7 provides that where the actual redundancy payment made (sometimes called an enhanced redundancy payment) exceeds the statutory amount, that excess will be deducted. But unlike any other deduction provided for in the subsection, these deductions are from the compensatory award provided for in subsection 1. For this reason I termed that compensatory award the "initial compensatory award" for until any deduction is made under subsection 6 or 7, the final compensatory award under the section has not been arrived at. Thus the thread of the section is to arrive at the "loss", to then determine the compensatory award under subsection 1, and only then to deduct any amount for contributory conduct and enhancement of redundancy pay.

DECIDED CASES

The calculation of compensation for unfair dismissal has been the subject of very many cases stretching over the whole history of this remedy. In setting out principles for the calculation of loss in Norton Tool Co v Tewson [1972] ICR 501, Lord Donaldson emphasised that he was not laying down absolute principles of law. He said at page 504:

"... The common law rules and authorities on wrongful dismissal are irrelevant ... The Industrial Relations Act 1971 ... has created an entirely new cause of action, namely, the "unfair industrial practice" of unfair dismissal ... The amount [of the award of compensation] has a discretionary element and is not to be assessed by adopting the approach of a conscientious and skilled cost accountant or actuary. Nevertheless, that the discretion is to be exercised judicially and upon the basis of principle.

... The object is to compensate, and compensate fully, but not to award a bonus ..."

In Rao v Civil Aviation Authority [1994] ICR 495, and in calculating compensation, the Tribunal had made two deductions; a percentage deduction because of contributory conduct and a further percentage deduction for the chance that after a certain date a fair dismissal would in any event have taken place; a form of "Polkey deduction". In his judgment Sir Thomas Bingham MR made clear that the "Polkey deduction" is made under Section 74(1):

"That subsection, as it seems to me, concentrates attention on the calculation of the loss which the employee has suffered as a result of the dismissal. It seems to me fully to justify the approach which the tribunal took in this case of assessing what chance there was that the employee's employment would have continued beyond 8th March 1988 had he not been unfairly dismissed. It was, I think, an approach fully justified by a passage in the judgment of Browne-Wilkinson J in Sillifant v Powell Duffryn Timber Ltd [1983] IRLR 91, 96 which was quoted with approval by Lord Bridge of Harwich in Polkey v A E Dayton Services Ltd [1988] ICR 142, 163. The passage that was there approved reads:

"There is no need for an `all or nothing' decision. If the industrial tribunal thinks there is a doubt whether or not the employee would have been dismissed, this element can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment.""

Accordingly, it is clear from this judgment that the "Polkey deduction" falls to be made when the tribunal is makings its calculation under subsection 1. The Court does not specifically address the issue we are asked to consider, namely whether under that subsection this factor is part of the "loss" calculation or part of the "just and equitable" calculation within the subsection.

Furthermore, Sir Thomas Bingham MR at page 501 deals with the order in which deductions are to be made under the section:

"It would, however, seem to me appropriate that those making this calculation should first of all assess what is the amount of the loss which the employee has sustained under subsection (1) and thereafter, and in the light of that finding, make their decision as to the extent to which the employee caused or contributed to the dismissal and on the question of what reduction it would be fair and equitable to make having regard to that finding."

It seems to us that those words "in the light of that finding" are crucial. This point is amplified in the judgment of Staughton LJ on page 502:

"It may turn out that the deduction which is just and equitable under section 73(7B) of the Act of 1978 is not the same as that which is just and equitable under section 74(6). The reason for that could be that in the case of section 74 there would already have been a deduction under subsection (1), by reason of the tribunal's conclusion as to the likelihood that the employee would not have remained further employed in any event. That can affect what is just and equitable under subsection (6)."

From this decision of the Court of Appeal we deduce the following. The "Polkey deduction" applies at the stage of the calculations which are made under Section 74(1), and deductions under that subsection are to be made before deductions under later subsections. Further the order in which deductions are made may be important for two reasons. The first is that it may make a purely mathematical difference, as where one deduction is a simple subtraction and the other a percentage deduction. The second (as explained in the above passage from the judgment of Staughton LJ) is that where a discretion is being exercised on the same principles as apply when calculating a deduction of a percentage for contributory conduct, the amount of the percentage may not be based solely on the purpose for the particular deduction (in Rao the contributory conduct), but may also be affected by the other deductions that are made and, by implication, the final amount that is going to be arrived at. Whilst this has not, to our knowledge, been spelled out before in decided cases, it surely reflects the reality of the situation. Tribunals will often, no doubt, consider the different figures which will follow from applying different percentages before they decide finally on the appropriate percentage deduction. This does seem to reflect the words of the section. Subsection 6, which provides for contributory conduct, does not require the deduction of such amount as represents simply the contributory conduct, but rather such amount as is just and equitable "having regard" to its finding as to such conduct.

We were also referred to Derwent Coaches v Kirby [1995] ICR 48, which again deals with the order in which two types of deduction are to be made in calculating compensation under Section 74. However, the Employment Appeal Tribunal was there concerned with the deduction of a payment in lieu of notice and the deduction for contributory conduct. It followed a line of conflicting authority on the issue of which should come first. The Employment Appeal Tribunal was dealing with the situation which can arise if pay in lieu of notice is deducted before a percentage for contributory conduct. The effect is said to be that the blameworthy employee has to give less credit, for the pay in lieu of notice he has received, than would the blameless one. We consider that this line of authority is to be distinguished from the issues we have to consider, because the whole thrust of that case is to give expression to the need to act fairly between an employer who has made a proper termination payment and an employee who is blameworthy. No such priority exists here. It is in the context only of the other deduction being for contributory fault that the decision is authority for the proposition that credit for pay in lieu of notice should be given at the end of the calculation. The decision in Derwent is also to be further distinguished. It was concerned with the deduction for contributory fault under subsection (6), and whether payment in lieu of notice was to be deducted before or after the operation of that particular subsection; whereas this appeal is concerned with the first stage of the calculation, under subsection (1) and before any consideration of either subsection (6) or of any deductions which fall to be made after what I have termed the "initial compensatory award". The Derwent case does not purport to be authority for any general proposition that pay in lieu should always be last, whatever the other deductions may be.

Further the decision in Derwent may fall to be reconsidered in the light of judgments of the Court of Appeal in Rao. These were not referred to the Employment Appeal Tribunal in Derwent. Indeed it may be that the report of Rao had not been published at the time of Derwent, although the judgment of the Employment Appeal Tribunal in Rao was referred to in argument. However, as it seems to us that Derwent is distinguishable for the reasons I have given, it is unnecessary for us also to consider whether that case does fall to be reconsidered in the light of that part of the decision in Rao which is to the effect that there is a two stage process of calculation of compensation and that subsection (1) should be completed before going on to subsection (6) or (7). In any event the flexibility which tribunals have, of the kind described by Staughton LJ in the passage set out above, enables them to give such credit, for any payment in lieu of notice as is appropriate in a case where there is contributory conduct, whatever the technical order may be in which the deductions are made.

THE ARGUMENTS OF THE PARTIES

In considering the issues in the appeal before us we have had the advantage of full and most helpful argument on behalf of both parties. Mr O'Brien argues that the deduction of the "termination payment" and the "Polkey deduction" both fall to be made at the stage of the calculation of compensation which is provided for in subsection (1). This must be the case for there is no other stage provided for where such deductions can be made. Mr O'Brien then argues that the deduction of the termination payment can only take place as part of the calculation of "loss" under subsection (1). He agues that once this simple calculation of loss has been arrived at, the "Polkey deduction" is made, not as part of the calculation of "loss", but as part of the process of awarding what is "just and equitable" under subsection (1), when "having regard" to the "loss" which has already been calculated. Thus, he argues, the "Polkey deduction" must perforce be made after deduction of the termination payment. The severance payment should be deducted first, as part of the calculation of "loss" and only then should the "Polkey deduction" be made as part of arriving at what is just and equitable. Secondly Mr O'Brien argues that as the deduction of the termination payment is a simple subtraction which yields a net amount, that deduction must be made first, for there is no figure to reduce by a percentage until there is a net figure to so reduce.

Mr Mullins puts the case for the respondents in two ways. First, he says the order in which to make these deductions is a matter for the discretion of the tribunal and that, in this case, it is clear that the tribunal did exercise discretion because of the wording of the decision and because the matter was subject to extensive discussion before the tribunal. Alternatively, he argues that, unless the termination payment is deducted at the end, there is an element of double compensation on the basis that if the gross amount of the termination payment to the employee is later reduced by a percentage in the course of giving credit for it the employee must thereby be getting a benefit over and above his net loss. In this way, it is argued, the employee gets a bonus rather than compensation.

DEDUCTION OF THE "TERMINATION" PAYMENT

We look first at the termination payment in this case. Like many such payments it includes a number of different elements. Before the start of the calculation under Section 74(1), the amount of any statutory redundancy pay will already have been deducted under subsection (3), if appropriate, from the termination payment. Mr Mullins argued that as this was a redundancy case, the balance of the "termination payment" then falls to be deducted under section 74(7), in other words, after any calculation under subsection (1), including the "Polkey deduction". We disagree. Once the amount of statutory redundancy pay has been deducted under subsection (3), subsection (7) applies only to that part of any termination payment that can be described as:

"the amount of any payment made by the employer on the ground that the dismissal was by reason of redundancy."

So the determining factor is not merely that the dismissal is on the ground of redundancy, but that it is the particular payment itself which has been made on the ground of redundancy. The subsection does not cover payments made on some other basis, at the time of dismissal, just because the particular dismissal happens to be for reasons of redundancy. Otherwise payments which a particular employer would make in all cases in which he dismisses, such as severance payments, would stand to be treated differently and specifically by statute where the dismissal happens to have been for redundancy. It is perhaps useful to remember that when the equivalent provisions were first introduced into the preceding legislation, the Secretary of State contributed one half of any redundancy payment as part of the policy of encouraging mobility of labour. This section made sure, by specific provision as to how both parts of a redundancy payment are to be deducted, that a distinction is drawn between the statutory element, for half of which the State was liable, and the remaining element. Parliament was not concerned with other elements in the calculation of net loss in the same specific way.

Subsection (7) will give rise to the issue as to what part, if any, of a "termination payment" has in fact been shown to have been made on the ground that dismissal was by reason of redundancy. Sometimes it will be easier to determine than others. In this case, and if the parties accept the document setting out the calculation which I summarised above, the task would appear straightforward. For the purposes of this appeal we make no finding, of course, as to the correctness of that document. It will be, of course, an issue of fact for the tribunal in a particular case to apply the definition in subsection (7) to the particular "termination payment".

In relation to subsection (7) we were referred to the decision of the Employment Appeal Tribunal in Rushton v Harcross Timber and Building Supplies Ltd [1993] ICR 230, but that was a case on its own particular facts and is not authority in our view for the proposition that in redundancy cases all ex gratia payments fall to be deducted under subsection (7). In any event we disagree with that general proposition for the reasons stated.

Accordingly we find that where a tribunal, in calculating loss under Section 74, wishes to take account of any "termination payment" made by the employer on dismissal, this will be done as part of the calculation of "loss" under subsection (1). This is subject to the saving that where the dismissal is on the ground of redundancy, the tribunal will first have to deduct from the termination payment any part which is the statutory or enhanced redundancy payment so that they can be taken into account separately under subsections (3) and (7). There may be, of course, situations where some parts of a "termination payment" may not be deductible in calculating loss at all, but this appeal has not considered any such and this judgment does not affect such situations.

DEDUCTION OF THE "POLKEY AWARD"

However, it is less easy to fit the "Polkey deduction" into subsection (1). It has evolved through case law and whilst Parliament made no specific provision for it in Section 74, it still has to be fitted in somewhere in that section in order for it to be taken into account in assessing compensation for unfair dismissal.

We have come to the conclusion that the "Polkey deduction" falls to be deducted from the "loss" as part of establishing what is "just and equitable" "having regard" to that loss and after the "loss" itself has been calculated.

DECISION AND REASONS

We conclude that the "Polkey" award falls to be deducted after deduction under subsection (1) of any "termination payment". Further, even if the "Polkey deduction" should be regarded as part of the "loss" we consider that it should still be deducted after deduction of the "termination payment". We come to this conclusion because it seem to us that the plain words of the statute clearly reflect the merits of the arguments in this area of calculation of compensation, for the following reasons.

1. We look at the case. Polkey v A E Dayton Services Ltd [1988] ICR 142 considered the situation where a dismissal was procedurally unfair, but where, even if a fair procedure had been followed, dismissal would still have resulted. The House of Lords held that in this situation the dismissal would nonetheless be unfair. The House of Lords went on to confirm that when it came to assessing compensation, in a situation where the unfair procedure made no difference, there would be no compensation, because the employee had lost nothing as a result of the unfair dismissal. In such a case the employee will have sustained a loss as a result of the dismissal, but since there is no unfairness this case is authority for reducing the loss to nil. Accordingly it can readily be seen that compensation in this context is related to the question of what, if any, impact the unfairness had on the loss, and is not just for the loss caused by the dismissal itself. Lord Bridge, in the passage quoted above, then provided in his speech for the situation where, although it may not be clear that a fair procedure would have made no difference, there is still a measurable risk that it would have made no difference. This is the situation with which we are concerned. So the "Polkey deduction" (in this case 95%) is a measure of the extent to which there would still have been a dismissal without the unfairness, and the balance of the total (in this case 5%) represents the extent to which, notionally, the unfairness caused the "loss" resulting from the actual dismissal. It must follow that when this process is applied in practice, the "Polkey deduction", as a measure of unfairness, must be applied to the effect of the actual dismissal when measured in terms of the loss which flowed from it. This can only be done by first assessing the net loss from the dismissal itself, and this will, of necessity, have involved subtracting the appropriate amount of any "termination payment" which remains, after deducting any redundancy element. Only then can the effect of the unfairness on the "loss" be shown by making the "Polkey deduction".
2. We look at the statute. The words of subsection (1) are plain. The "loss" is defined. It is "the loss sustained by the complaint in consequence of the dismissal". It is not "the loss sustained by the complainant in consequence of the unfair dismissal". The "Polkey deduction" is not part of the calculation of what was lost as a result of the dismissal. On the contrary, it amounts to a reduction of that loss. It must follow here as well, therefore, that the loss "in consequence of the dismissal" cannot be reduced until it has been calculated, that this calculation involves the deduction of any appropriate part of the "termination payment", and that this must therefore be deducted before the "Polkey deduction".
3. It follows that if the "Polkey deduction" cannot be introduced into subsection (1) as part of the calculation of "loss", it can only form part of the process of assessing what is "just and equitable ... having regard to the loss". To put it colloquially in the context of the case.

"You say you lost `x' as a result of your dismissal. But even if you had been given the full 14 days to consider there's a 95% chance you would still have left. So it wouldn't be just or equitable for your employer to have to pay you everything you lost as a result of the dismissal because you may well have left even if he had given you the full notice. It is only fair that he should pay you that proportion which can be said to represent the consequences of his unfairness. So we are going to award 5% of what you lost as a result of the dismissal, because that represents the unfair part. In other wards there was a 95% risk that the result would have been the same."

This process can only be carried out after calculating the net loss as a result of the dismissal.

4. Even if, as a matter of construction, we are wrong and the "Polkey deduction" is to be construed as part of the "loss" calculation under subsection (1), and we recognise that it may be possible to so argue, we find that the "Polkey deduction" would still fall to be deducted after the "termination payment". In this context I repeat the point made above as to the whole nature and purpose of the reduction. Further, as it is a discretionary matter of calculating a percentage, it gives more flexibility to a tribunal. The final figure is more able to be adjusted in the light of all circumstances if the simple substraction is made first, so that the notional percentage can then operate on all the other figures. This is achieved if it is deducted last.
5. We reject the argument that unless the "termination payment" is deducted after the "Polkey deduction" there is over-compensation of the employee in that the subsequent application of the percentage reduced not only the gross loss of the employee but also the amount of the "termination payment" which has been deducted from it. The argument runs that if the whole is deducted before the "Polkey deduction", then the effect of the "Polkey deduction" is to put some of the "termination payment" back. We disagree. There is not over-compensation, there is proper compensation because the termination payment is part and parcel of the receipts and losses which form part of the calculation of loss. Just because the receipt of a "termination payment" operates as a minus in the calculation whereas the loss of pay , pension, use of car and suchlike operate as pluses in the calculation, that is no reason to treat one differently from the other. Indeed the reverse is the case. It is not a case of over-compensation but, on the contrary, if the "termination payment" is deducted last there will be under compensation. After all in this case the Applicant has been awarded 5% of his loss because he got 6 instead of 14 days in which to select his preferred option. But the result of the tribunal's approach is that he has in the end got nothing for the unfairness of the dismissal; he is no better off than a person who is given the full 14 days. Yet it was the intention of the tribunal to measure the loss of the chance, not to eliminate it. It was surely the purpose of the compensation to put the Applicant in the same position as if he had been given the 14 days - no more for then he would have received a bonus, but no less for then there would have been a penalty. So we can see no argument to support the proposition that there is over compensation. I use the present case as an illustration in this context. We are not to be taken to be indicating what the end result should in fact be if the "Polkey deduction" is made first because we do not know what the Tribunal's calculation of "loss" is, nor have we calculated any deduction under subsection (7) which falls, on any view, to be made after the "Polkey deduction".
6. Similarly, we reject the argument in this context that if an employer makes a "termination payment" he should be given full credit for it. In fact he is generally given full credit for it in the calculation of loss by reason of its being deducted in full at that stage. But the argument goes that full credit should be given at the end, in that part of the process where the final sum for unfair dismissal is calculated after the "Polkey deduction". There is no magic in a "termination payment", even if it is termed an "ex gratia" payment, which sets it aside from all those pluses and minuses which may up an employee's net receipts. Indeed in the world of employer and employee it must be rare that the real reason for such a payment can be represented by a pure translation of the Latin. Whilst there may be no contractual obligation to make the whole of such a payment, employers generally act under commercial imperatives, and indeed a limited company could not properly do otherwise. There are many reasons for such payments, and they are generally a feature of modern industrial life. For example, in this case the respondents offered enhanced termination terms so as to encourage employees to leave; sometimes they may be made because an employer wants to "buy off trouble" cheaply; sometimes they may be made as part of general practice by an employer to encourage employees to work for that type of employer and not go to a competitor, sometimes they may form part of negotiations in which the other party has forgone some claim or argument. We can see no reason why such a payment should not, in general, be treated as anything other than part and parcel of the calculation of loss. In that calculation it will be for the tribunal in a particular case as a matter of fact to decide in the light of any relevant principles of law the extent to which it is to be brought into account, just like all those other factors, in calculating "loss", which fall to be judged in the light of the facts of a particular case.
7. If in this context the "termination payment" were to be accorded some special status in the calculation of compensation for unfair dismissal, so as to ring fence it until the end, Section 74 and only Section 74 was the place to do it. It is noteworthy that, as we have seen, in subsection (7) Parliament did exactly that in respect of that part of the "termination payment" which is represented by the enhanced redundancy payment. Had Parliament intended similar treatment for the whole "termination payment" and in all cases and not just in redundancy, that would have been the place to do it. The inference is that Parliament intended such payments simply to form part of the calculation of the "loss".
8. We find that the order in which these deductions are made is a matter of law and not a matter of discretion on the facts. In any event, we do not accept that the tribunal treated it as a matter for the exercise of discretion as is plain from their decision.

Accordingly, in an unfair dismissal, where deductions fall to be made both in respect of a "termination payment" and also in respect of a percentage to represent the chance that the result would have been the same if the employer had acted fairly, compensation falls to be calculated as follows under Section 74.

9. First any part of the "termination payment" which is statutory redundancy pay will be deducted under subsection (3).
10. Then the loss will be calculated under subsection (1). This will involve deducting the appropriate amount of the "termination payment" not including either any statutory or enhanced redundancy pay. (I say "appropriate" because sometimes there may be reasons for not deducting the whole which do not apply here and which are unaffected by this appeal.)
11. When the "loss" under subsection (1) has been calculated then the "Polkey deduction" will be made as part of the process of ascertaining what is "just and equitable". There may be other adjustments in a particular case under the "just and equitable" head, and it will be a matter for the discretion of the tribunal as to the appropriate order of such adjustments which are under that head.
12. When the "initial compensatory award" has then been calculated under subsection (1) then other adjustments may be necessary particularly under subsections (6) and (7). If a tribunal has to make deductions under both those heads, and this does not arise in this case, we should think that it would best, even though subsection (6) comes first in the section, for it to be deducted last, for only then will there be the opportunity for the flexibility to which Staughton LJ referred in the passage quoted above.

Section 74 is a comprehensive code and a careful examination of the wording of the section provides, in our view, a clear method for calculation which, if followed, both takes account of the respective merits of each constituent part and accords with a just and fair result in practice.

Finally, one matter of practice came to our attention during argument when we had an opportunity of seeing a form called the "IT58A" which is used sometimes by tribunals to calculate compensation. It seems to us that this document in its present form may benefit from re-consideration particularly in relation to two aspects; first, the order in which deductions are made and secondly the way that deductions are made from future loss and then sometimes form the prescribed element for recoupment.

We find that the tribunal erred in law in deducting the "termination payment" after the "Polkey deduction". Also, because of the approach which the tribunal adopted, the Applicant recovered nothing even if his calculation of loss was correct. So it was unnecessary for the tribunal to assess the loss under Section 74. The tribunal considered the issue of liability and set out their reasons, for finding that there was an unfair dismissal and that there was a "Polkey deduction" of 95%, in an immaculately reasoned decision on those issues. From those parts of the decision there has been no appeal. In allowing this appeal we remit this case to the same tribunal to calculate any compensation which may be due in the light of this judgment and in the light of their own findings as to any loss which the applicant sustained.