An employer facing a claim for unfair dismissal at tribunal will often ask how much it is likely to cost if he or she loses the case. The answer — inevitably — is “it depends”. This article by Lynda Macdonald, freelance employment law advisor and trainer, aims to explain the principles involved when a tribunal considers what remedy to order in respect of someone who has been unfairly dismissed. A follow-up article will explain the principles involved in the calculation of compensation for unlawful discrimination.
The primary remedies in a successful claim for unfair dismissal are reinstatement and re-engagement. The employment tribunal has the power to order that the employer reinstate the claimant in his or her former job, or re-engage him or her in comparable or other suitable employment with equivalent status. The tribunal will consider whether it is practicable and just to make such an order and it is open to the employer to argue that re-employment is impracticable. An order will not be made if the claimant does not wish to return to work for the employer. Where an order is made, the tribunal will also require the employer to pay compensation equivalent to the full value of the employee’s pay and benefits for the period between dismissal and re-employment.
If an employer does not comply with a reinstatement or re-engagement order and cannot show that it was impracticable to do so, the tribunal will make an additional award of compensation in favour of the claimant (see below). If, however, the employee fails to comply with the reinstatement or re-engagement order, no additional award is payable.
In practice, very few cases result in reinstatement or re-engagement as most dismissed employees do not want to return to work for the same employer. Most claimants opt instead for compensation.
Compensation for unfair dismissal consists of a basic award plus a compensatory award. In cases where the employer has failed to comply with an order for reinstatement or re-engagement, an additional award will also be made.
The basic award
The basic award (which is assessed on the employee’s gross basic pay on termination) is calculated in the same way as statutory redundancy pay, except that there is no minimum service requirement. The formula is based on the employee’s age, length of service and level of weekly earnings at the date of termination. There is a statutory cap on a week’s pay, currently £489 per week (revised in April each year). There is also an overall cap, currently £14,670. The calculation must include the value of any employer pension contributions (see University of Sunderland v Drossou EAT 0341/16). Once established, the amount of the basic award may be reduced for a number of reasons (see below).
The compensatory award
The compensatory award (calculated net) is an amount based on the employee’s loss of earnings attributable to the dismissal, including all company benefits and pension contributions. The aim of the compensatory award is to put the employee back in the financial position he or she would have been in but for the dismissal. Compensation for injury to feelings is not available in cases of unfair dismissal. The overall limit on the compensatory award is currently £80,541, or a sum equivalent to 52 weeks’ pay, whichever is the lowest.
To calculate the compensatory award, the tribunal will, first, assess the employee’s net losses from the date of the dismissal to the date of the tribunal hearing. Thereafter — if the employee has not found new employment — the tribunal will estimate future losses, based on how long it judges it will take the individual to find new employment at a similar level of income. This can be in any length of time — depending, for example, on market factors and the employee’s skills, state of health and/or age.
It can be seen from the above that if a dismissed employee finds new work very soon after his or her dismissal, the amount of the compensatory award will be low.
The amount payable in a case of unfair dismissal may be increased by up to 25% at the tribunal’s discretion where the employer has unreasonably failed to adhere to the relevant principles of the Acas Code of Practice on Disciplinary and Grievance Procedures. The code applies to dismissals on the grounds of misconduct and poor performance, but not to ill-health dismissals or redundancies. The statutory cap may, not, however, be exceeded.
Similarly, the amount awarded may be reduced by up to 25% if it is shown that the employee unreasonably failed to follow the code (for example, by refusing to attend a disciplinary hearing).
The additional award
The additional award (where payable) is an amount of between 26 and 52 weeks’ pay, subject to the statutory cap, currently £489 per week.
Possible reductions to compensation
The employment tribunal has the power to reduce the employee’s basic award if it considers it just and equitable to do so. Reasons for a reduction include contributory fault on the part of the employee and subsequently discovered misconduct.
The compensatory award may also be reduced where the tribunal considers it just and equitable in any or all of the following circumstances.
Contributory conduct, ie where the employee through his or her own culpable conduct caused or contributed to the dismissal — in exceptionally serious cases, compensation can be reduced to nil.
Where the employer (after the employee’s dismissal but before the tribunal hearing) has discovered that the employee, while still in employment, committed an act of misconduct that would have justified dismissal.
In a case of procedural unfairness, where the employer can demonstrate that the employee would or might have been dismissed anyway even if a fair procedure had been followed.
Where the employer can show that the employee would have been dismissed soon after the actual dismissal (for example, a supervening redundancy situation).
Some or all of the employee’s financial losses were not attributable to the dismissal.
A failure to mitigate, ie where the employer can show that the employee failed without good reason to make reasonable efforts to find new employment.
Finally, any compensation paid to the employee on termination (for example, an enhanced redundancy payment) will be offset against the amount awarded.
There are also potential financial penalties for employers who, in certain circumstances, are found to have breached employees’ rights and also for those employers who fail to pay a claimant the compensation ordered by the employment tribunal. These penalties will be explained in the next article.
Last reviewed 4 December 2017