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Show me the money! – How does the Employment Tribunal work out compensation?

Published 13 December 2012

When it comes to the question of compensation employees are often over optimistic and employers are sometimes over pessimistic.  The purpose of this article is to examine compensation for Unfair Dismissal claims.

There are 2 main parts to a tribunal’s order of compensation; the Basic Award and the Compensatory Award.

Basic award

The Basic Award is calculated in the same way as a statutory redundancy payment. It is made up of

  • One and a half weeks' pay for each year of employment after age 41.
  • One week's pay for each year of employment between ages 22 and 40.
  • Half a week's pay for each year of employment under the age of 22.

A cap of 20 years is placed on the period of continuous service. The amount of a week's pay is capped at £430.

Compensatory Award

It is important to remember that compensation for Unfair Dismissal is to compensate the employee for losses of income and is not a method of punishing the employer. The amount of calculation is to 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 insofar as that loss is attributable to action taken by the employer".

In assessing the claimant's losses arising from their unfair dismissal the tribunal will look at:

  • Past loss: from the effective date of termination to the date of the remedies hearing.
  • Future loss: a projection of loss from the date of hearing to such point in time in the future as the tribunal finds just and equitable with reference to the claimant's circumstances.

The calculation of future losses ends when the employee finds new work that pays the same or more than the job he or she was dismissed from.  So, for example, if he finds a new job that pays the same or more as the old job his or her losses are 4 weeks pay.

The maximum compensatory award is £72300.  This is reviewed every year.

Loss of statutory rights

This is part of the compensatory award and is to compensate the employee for loosing statutory rights as a result of the dismissal.  The most obvious statutory right that is lost is the right to bring Unfair Dismissal proceedings against the new employer because if the employee obtained their new job after 6th April 2012 they will have to work continuously for the new employer for 2 years before they can bring an Unfair Dismissal claim against them.  The amount involved is typically £250 or £300.

Adjustments to the compensatory award.

  • It would have happened anyway.

The amount awarded must be that which is "just and equitable" based on the loss arising out of the unfair dismissal. In a case called “Polkey”  the House of Lords stated that the compensatory award may be reduced or limited to reflect the chance that the claimant would have been dismissed in any event and that the employer's procedural errors accordingly made no difference to the outcome. This is called a “Polkey Reduction”

  •  Contribution to dismissal

If the tribunal finds that the employee’s conduct contributed to his / her dismissal it may reduce the compensation accordingly.  An example of this is where the employee assaults another employee in the workplace and is dismissed without any proper procedure being followed.  The dismissal is unfair but the employee’s contribution to dismissal is 100%.

  •  Failure to mitigate.

The employee is required to mitigate his loss by looking for alternative employment and applying for any benefits he may be entitled to.  So, if the employee cannot show that he has made attempts to look for alternative employment the tribunal will reduce the compensation and may reduce it to nothing.  It is therefore important that employees keep records of jobs applied for.

  •  Failure to comply with the ACAS Code

The tribunal has a discretion to reduce the compensatory award by up to 25% if the employee has failed to comply with the requirements of theACASCode of Practice e.g. by failing to make use of the internal appeal procedure.  Likewise if the employer has failed to comply with the requirements of theACASCode the tribunal may increase the award by up to 25%.

  •  Deduction of any redundancy payment

If the employer has made a redundancy payment that is set off against the Basic award.  If the payment made is greater than the statutory redundancy payment the enhanced element reduces the compensatory award.

  •  Recoupment of state benefits

This is not strictly an adjustment of the compensatory award because the tribunal does not take receipt of state benefits into account in calculating the compensation for the period between dismissal and the remedy hearing.  If someone has received state benefits the tribunal is required to identify the amount of the award that relates to the period between dismissal and the hearing.  The Government will then send a “recoupment notice” to the employer specifying how much of the award is to be paid to the government to repay state benefits paid.  The balance is then paid to the employee. So far as future losses are concerned the tribunal can take account of any benefits it believes will be paid in reducing that element of the award.

Practical Tips for Employees.

  • Be clear about the basis of the claim from the beginning.  Compensation will not be awarded for allegations falling outside of the proceedings and which the tribunal has no jurisdiction over.
  • There is no requirement to specify the amount claimed at the outset but start working this out as early as possible.  The tribunal will make an order that you      submit a Schedule of Losses. It must be worked out on the basis of actual      losses.
  • Keep records of jobs applied for and in due course put these all together so that you prove to the tribunal that you have tried to mitigate your losses.
  • Keep records of state benefits received since dismissal.
  • The question of remedy will not necessarily be postponed to another date and will probably be heard immediately after the decision on Unfair Dismissal has been made.  Be ready to present information on remedy.

Practical Tips for Employers.

  • Consider what the claimant is entitled to claim.
  • When the Claimant’s Schedule of Losses is received go through it carefully and be prepared to produce a counter schedule showing what you believe the true losses are and what adjustments should be made.
  • Ask the Claimant to produce evidence of attempts to mitigate losses. For example, job applications made.
  • Establish if the Claimant is in receipt of state benefits.
  • Attend the hearing ready to argue against the Claimant’s assessment of losses and to point out areas where the award should be adjusted.

Tony WilkinsonLLB; LLM;
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Sharp Young and Pearce LLP
959 0055

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