Zen Internet v Stobart: procedural fairness and Polkey deductions in capability dismissals

The Employment Appeal Tribunal has clarified the extent to which employers must follow procedural steps when dismissing senior employees for capability reasons, whilst also establishing stricter requirements for tribunals assessing compensatory awards under the Polkey principle.

Mr Paul Stobart served as Chief Executive Officer of Zen Internet Limited from October 2018 until his dismissal in March 2023. His departure followed concerns about his capacity to achieve profitability targets he had himself projected in a five-year strategy plan prepared upon appointment. The employment tribunal found the reason for dismissal was capability but concluded the dismissal was procedurally unfair. Zen had failed to follow its own procedures, which mirrored the ACAS Code, particularly regarding formal fact-finding, notification of concerns, meetings to address the issues, and appeal rights.

Applying the Polkey principle, the tribunal determined that had Zen acted fairly, Mr Stobart would have been dismissed "a little over two months following the 17 March 2023 Board meeting and certainly by no later than 31 May 2023". This assessment formed the basis for reducing the compensatory award. Zen appealed both the finding of unfairness and the Polkey calculation.

Deputy Judge Marcus Pilgerstorfer KC, sitting in the Employment Appeal Tribunal, allowed the appeal in part. On the substantive fairness issue, the appeal was dismissed. Zen had argued there was no absolute requirement for particular procedural steps in capability cases, relying on established authorities including James v Waltham Holy Cross UDC, Polkey v A. E. Dayton Services Ltd, and Burns v Turboflex Ltd. Whilst accepting this general proposition, the judge found the tribunal had not imposed any such absolute requirement. Rather, it had correctly directed itself on the law, properly considered Mr Stobart's senior position, and had not substituted its own decision for that of the employer.

The Polkey assessment, however, was deemed inadequate on two grounds. First, the tribunal had wrongly confined its consideration to the period from 17 March 2023 onwards, ignoring the earlier crystallisation of capability concerns on 24 February 2023. Second, and more significantly, the tribunal failed to provide adequate reasons for concluding that a fair dismissal would have occurred by 31 May 2023. The judgement simply stated this conclusion without identifying any evidential factors or considerations justifying that specific timeframe.

Deputy Judge Pilgerstorfer emphasised that whilst the Polkey exercise necessarily involves speculation and broad-brush assessment, tribunals must engage with the evidence and construct their hypothetical scenarios from that evidence rather than pure speculation. The reasons given must identify, at least in short form, the critical features of the evidence supporting the conclusion reached. In this case, the tribunal's reasoning amounted to little more than a bare conclusion.

The matter was remitted to the same tribunal for reconsideration of the Polkey issue. The judge rejected suggestions that the decision was "totally flawed" or that there was any real risk of bias upon remission. The tribunal had committed an honest misapplication of the legally required approach but had not expressed views suggesting a genuine rethink would be impracticable. Given that the same tribunal had heard the evidence and remained seized of remedy issues, proportionality favoured remission to the original panel.

The decision serves as an important reminder that whilst senior employees may require less procedural protection than others, employers cannot dispense with fair procedures entirely. Equally significant is the emphasis on tribunals providing sufficiently reasoned Polkey assessments, even where the exercise necessarily involves hypothetical scenarios and uncertainty about what might have transpired.