Law guide: Employment

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Awards for unfair dismissal

Awards for unfair dismissal

Contents

If an employee is unfairly dismissed, their remedy is reinstatement, re-engagement or compensation.

Reinstatement or re-engagement

In very few cases will the tribunal make an order for reinstatement or re-engagement, and there are numerous complications. It will of course depend on the type of organisation, whether an employee wishes to be reinstated or re-engaged.

One also has to consider whether it is practicable to comply with the order and whether it is just to make the order where an employee has caused or contributed to a dismissal. All the circumstances will be taken into account.

If an employee wants a reinstatement or re-engagement, they must specifically ask for such an order. If a tribunal makes an order for reinstatement, the tribunal will ensure that the order incorporates provision for repayments as well as maintenance of seniority and pension rights. In the case of an order for re-engagement, the tribunal will take into account the nature of employment, remuneration, arrears of pay, seniority and pension rights.

Should the employer fail to comply with the order, it is extremely difficult for the tribunal to enforce such an order. The tribunal will have to look at compensation consisting of various awards.

Compensation

If the tribunal considers that an employee has a well-founded complaint and the tribunal is unable to make an order for reinstatement or re-engagement, it must make an award of compensation that has two elements: the basic award and the compensatory award.

Basic award

  • The basic award is generally calculated in the same way as a redundancy payment, by applying the formula based on age factor, length of service and one week's pay. The same maximum of 20 years' service and in England, Wales and Scotland, £489 for one week's pay applies (as of 6 April 2017). In Northern Ireland it is £500 (as of February 2016). The maximum basic award/statutory redundancy payment is currently £14,670 (as of 6 April 2017) in England, Wales and Scotland, and £15,000 (as of February 2016) in Northern Ireland. However, there are some differences between the basic award and a redundancy payment and they are the following:
  • There is no lower age cut off. In the case of a basic award, they can receive half a week's pay for all years worked under the age of 22.
  • The basic award can be subject to reduction.

Compensatory award

This award is designed to compensate an employee for the loss that they have suffered and includes:

  • Immediate loss of net earnings to which he or she is entitled from the date of dismissal to the date of the hearing or until he or she finds a new job, if earlier
  • Future loss of net earnings to which he or she would be entitled from the date of the hearing until he or she obtains new employment. If he or she is re-employed in an equally well-remunerated job at the date of the hearing, he or she will not be entitled to an award under this heading
  • Loss of pension rights and fringe benefits
  • Loss of the statutory rights not to be unfairly dismissed. This is normally a small payment of approximately £300.
  • Expenses in looking for work, removal expenses etc.
  • Financial loss caused by the manner of dismissal, for example, if there is evidence that the manner of dismissal makes it more difficult for him or her to find future employment

In England, Wales and Scotland, the compensatory award is subject to a maximum of one year of an employee's gross pay or £80,541 (whichever is lowest) for dismissals. In Northern Ireland, it is a maximum of one year of an employee's gross pay or £79,100 (whichever is lowest). Pension contributions, benefits-in-kind and discretionary bonuses will be excluded when calculating the gross annual salary.

Note that not all unfair dismissal claims are subject to this limit, such as whistleblowing claims.

The total award can be reduced if the employee contributed to the dismissal ('contributory fault'). For example, if the tribunal orders the employer to pay £30,000, but at the same time finds that the employee contributed 20% to the dismissal, the claim will be reduced by £6,000 and the employee will receive the difference, namely £24,000. A compensatory award can also be reduced in certain circumstances. The employee will be under a duty to mitigate his or her loss by taking reasonable steps to obtain alternative employment. The employment tribunal will not award compensation for any loss that should have been mitigated but was not.

In practice, the employee should keep records of their job applications to show the tribunal that they have tried to mitigate their loss. Failure to mitigate can reduce the compensation but not the basic award.

If the employee fails to take advantage of an internal appeal procedure, a tribunal can deduct two weeks' compensation for such failure. Similarly, if the employee secures an alternative job by the time of the hearing, wages from the new job will be taken into account.

Costs

If your employee represents themselves at an Employment Tribunal then they will be able to claim from you a fixed hourly rate for their preparation time (e.g. time spent preparing for a hearing). They can also claim the costs incurred for paying their witnesses' expenses. However, they must apply for such an order before they can claim any costs.

Employee's conduct

The basic award may also be reduced by such sum as is just and fair, having regard to the employee's conduct before dismissal. The compensatory award should be a sum that the tribunal considers to be just and fair, having regard to the loss that the employee has sustained as a result of the action taken by the employer.

These reductions most commonly apply where the employee contributed to the dismissal. In such a case the tribunal may well reduce the basic and compensatory awards by such proportion as the tribunal considers just and fair in all the circumstances.

If the employee has substantially contributed towards their dismissal, then the award of compensation will correspondingly be reduced by a larger percentage, and of course if the employee was wholly responsible for the dismissal, no compensation will be payable at all.

A tribunal is entitled to take into account misconduct discovered after dismissal, and reduce both the basic and compensatory awards. However, conduct subsequent to the dismissal is not relevant to the proceedings.

Note that under Employment (Northern Ireland) Order 2003, which applies to Northern Ireland only, if an employer can prove that, on the balance of probabilities (i.e. a greater than 50% chance), it would have dismissed the employee anyway even though it did not apply a fair procedure when deciding to dismiss him or her, then the dismissal will still be fair and no compensation may be payable. However, if the employer is unable to prove this to the tribunal, but can show that there was still a chance that the employee would be have been dismissed, then the tribunal may take this into account by reducing the amount of damages that it awards to the employee.

Employment Tribunals in England, Wales and Scotland can rely on previous judgments (called case law) to apply the same law.

If the employee receives a payment instead of notice such as a one-off payment or a contractual redundancy payment, this will be taken into account in assessing compensation. This should be deducted after a tribunal has reduced the award on the grounds of contributory fault or a procedurally unfair dismissal.

Recoupment of social security benefits

Specific regulations allow the Government to recoup jobseeker's allowance and income support paid to an employee. The tribunal calculating the compensatory award will not deduct these benefits, but the Employment Tribunals Act 1996 (or Industrial Tribunals (Northern Ireland) Order 1996) makes provision for the following procedure:

  • Where an employee receives jobseeker's allowance or income support between the date of termination of employment and the hearing, the tribunal designates the 'immediate loss of earnings' part of the award as the 'prescribed element' and notifies the Department for Work and Pensions
  • The employer will withhold the 'prescribed element' from the employee until notified by the Department for Work and Pensions of the amount of the jobseeker's allowance and income support to be recouped
  • The amount to be recouped is then paid by the employer to the Department for Work and Pensions any balance of the 'prescribed element' will be paid to the employee

For example, if the tribunal awards the employee compensation of £10,000 and £2,000 represents immediate loss of wages- 'the prescribed element'- the employer will pay to its employee the sum of £8,000 and notify The Department for Work and Pensions that it has retained £2,000. The department then advises that an amount of £1,500 is due in respect of benefits. The employer will pay to the department the amount of £1,500 and the balance of £500.00 will be paid to the employee.