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A guide to unfair dismissal awards

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Unfair Dismissal Awards

In a successful claim for unfair dismissal an employee can be awarded both a basic award and a compensatory award. This guide provides a basic breakdown of the awards, including other factors which may be considered by the tribunal.

Basic Award

A basic award is a fixed sum calculated using a statutory formula. In calculating the basic award, the following factors are considered: –

  • Complete years of employment up to the date of the dismissal;
  • The employee’s age at the date of dismissal; and
  • Their weekly pay before the deduction of tax and national insurance (known as the gross weekly pay).

Only complete years of employment will be considered and an employee can only claim up to 20 years; this is regardless of whether they have been employed for longer.

Once the above 3 factors have been determined, the basic award can be calculated using the following formulas: –

  • 1.5 weeks’ pay for each complete year of employment whilst the employee was aged 41 or over.
  • 1 weeks’ pay for each complete year of employment when the employee was between the ages of 22 and 40 inclusive.
  • half a week’s pay for each complete year of employment when the employee was below the age of 22.

The gross weekly pay is capped at £538 for dismissals taking place on or after 6th April 2020, and for dismissals on or after 6th April 2019, the cap is £525 per week. These caps apply regardless of whether the gross weekly pay was in excess of this.

Reductions to the Basic Award

  • A tribunal may reduce the basic award if it finds the employees conduct before the dismissal was such that it would be just and equitable to reduce it. The tribunal’s wide discretion enables it to reduce the basic award by anything from zero to 100%.
  • Where an employer has offered to reinstate the employee, a tribunal can take into consideration any unreasonable refusal to accept the offer of reinstatement when it comes to calculating the basic award.
  • For dismissals arising due to redundancy, the tribunal will reduce the basic award by the amount of any redundancy payment already paid.

Compensatory Award

Compensation may be awarded in addition to the basic award. This award provides a remedy for other losses an employee has suffered as a result of the dismissal. The overriding intention is to put the employee back into the position they would have been financially, had they not been unfairly dismissed. Without a statutory formula, it is more difficult to calculate the compensatory award but the following heads of loss should be considered: –

  • Losses since being dismissed. This will include loss of earnings together with any other associated benefits offered to the employee. This may include, by way of a non-exhaustive list; pension contributions, bonuses, car allowance or health insurance. This will usually be calculated from the date of dismissal up to the date of the remedy hearing.
  • Future losses. A claimant who has not yet secured alternative employment by the date of the remedy hearing, or whose new salary or benefits package is less favourable, will have ongoing future losses they can claim. The tribunal will need to determine a reasonable cut-off date which will usually be assessed based on a reasonable date the claimant can be expected to return to work. 
  • Loss of statutory rights. The tribunal may award a nominal sum to compensate a claimant for loss of their statutory rights. Most employment rights require a minimum service of 2 years so, once dismissed, these statutory rights are lost. Typical awards average around £300 – £500.
  • Loss of Pension Rights: The tribunal will consider two types of pension loss, to include the state pension rights and the loss of occupational pension rights.  This is a complex area and expert evidence is often required in order to quantify this loss.

The compensatory award in most cases is subject to a statutory upper limit or “cap.” The current statutory cap for the year 6th April 2020 to 5th April 2021 is £88,519.

Increases and Decreases to the Compensatory Award

Once the compensatory award has been calculated, the tribunal will consider whether the award should be subject to any increase or decrease. Two of the reasons why the award may be increased are: –

  • The employer failed to follow the ACAS Code of Practice on disciplinary and grievance procedures. In such circumstances, the compensatory award may be increased by up to 25%.
  • The employer failed to give a written statement of the terms and conditions of employment. Failure to give a written statement of particulars can result in an additional payment of between 2 and 4 weeks gross pay.

In contrast, the tribunal also has discretion to reduce the compensatory award and may do so if they are satisfied that any of the following apply: –

  • The employer failed follow a fair procedure when dismissing an employee, but the employee would still have been dismissed in any event (commonly referred to as a Polkey reduction).
  • The employee is partly to blame for the dismissal (contributory fault).
  • The employee’s attempts to mitigate their losses to find new work are insufficient.
  • The employee failed to attend a disciplinary or appeal meeting without good reason.
  • Credit will also need to be given for any state benefits received by the employee such as Employment and Support Allowance (previously Incapacity Benefit) or Universal Credit.

As can be seen above, the damages arising from an unfair dismissal claim can be significant and employers should try and mitigate these claims where possible. Should you require any legal advice on unfair dismissal claims then please contact the legal team at Monarch Solicitors on 0161 820 8888 or at [email protected].

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