The two main elements in unfair dismissal awards are the basic and the compensatory award. The figures that form the basis of these awards are changed annually every April
1. The Basic Award:
This is calculated on the length of service and is a fixed formula which is almost identical to the redundancy entitlement:
Calculation: [AGE FACTOR] X [SERVICE] X [WEEK’S PAY]
AGE: For any service where employee was 41 or over the factor is 1.5
For any service between the ages of 22 and 41, the factor is 1
For any service below the age of 22, the factor is 0.5
SERVICE: Only full years are counted. Subject to a maximum of 20 years
WEEK’S PAY: Subject to a maximum of £489 (from 6th April 2017)
The maximum basic award from 6th April 2017 is, therefore:
1.5 x 20 x £489=£14,670
The Compensatory Award:
The compensation award is based on what is just and equitable in the circumstances. Taking into account the financial loss suffered as a result of the dismissal including expenses and benefits. The award is net (after tax). Employees will benefit from the tax-free allowance on termination, currently £30,000.00.
Awards above £30k are grossed up and the employee receives the net amount and the employer bears the income tax due.
The maximum compensatory award as from 6th April 2017 is the lower of: I. £80,541 or b) 52 x by a week’s pay (this is based on a real week’s net pay which isn’t capped)
The court will consider the following:
- Loss of Wages: From dismissal to the date of the hearing. If the employee is given notice then from the end of the notice period to the hearing
- Future Wages: The tribunal will estimate how long it will take an employee to obtain a new job. If an employee has a new job he/she will not receive this award. If the employee earns less in his/her new job then the tribunal will award a figure for the time it is likely to take to rise to their original wage.
- Loss of Perks: Company car, health care etc.
- Loss of Employment Protection: the employee will start from zero and will have to work 2 years’ continuous service to gain unfair dismissal protection.
- The Way Dismissed: if the employee was dismissed in such a way that they will find it harder to find employment e.g. close knit community then the tribunal may award something for the damage done.
- Loss of Pension Rights: The losses under this heading can be very high
If an employee is a member of a defined contribution scheme the loss is calculated by looking at the loss of employer contribution using the simplified approach below. If an employee is a member of a defined benefit scheme or final salary scheme, there are two alternative methods:
The simplified approach and the substantial loss approach:
The simplified approach involves three stages
- In the case of a final salary pension, the loss of enhancement of the pension already accrued because of the increase of salary which would have occurred had a dismissal not taken place.
- In all cases, the loss of rights accruing up to the hearing.
- The loss of future pension rights.
The substantial loss approach
By contrast, uses actuarial tables. These assess the current capitalized value of the pension rights which would have accrued up to retirement and make a percentage reduction for any likelihood that the employee would have left employment before the retirement date. The substantial loss approach is usually used for long serving employees, nearing retirement age.
Increases in compensation
A tribunal may increase a compensation award by up to 25% where an employer has unreasonably failed to comply with a statutory code such as the ACAS code of practice. It is worth noting here that where an employer has ignored proper procedures in dismissing an employee compensation can be increased if that failure is also a breach of the ACAS Code.
Deductions can be made from the award in the following circumstances:
- Where an ACAS code applies and the employee has unreasonably failed to comply with it an award can be decreased by up to 25%. This usually means failing to appeal or lodge a grievance.
- Where a tribunal finds a dismissal unfair it may still reduce the award payable by any amount if it is satisfied that had the employer followed the correct procedures it was likely that the dismissal would have been fair. The Polkey Reduction is either a percentage reduction for the chance of dismissal occurring or a number of weeks’ additional pay if the dismissal was inevitable. The number of weeks will equate to the length of time an employee would have remained on the payroll had a fair dismissal procedure been carried out. The basic award can be reduced by any redundancy payment the employee has received.
- Any payments made by the employer to the employee by reason of the dismissal can be deducted.
- Deductions can be made if the employee has made no effort to find a new job.
- If an award is made and the employee has received state benefit, for example, job seekers allowance or employment support allowance, a recoupment notice will be issued. The employee will receive the net award after the amount of state benefit paid out is paid back to the state by the employer.
- Employees do not have to account for other payments received like redundancy protection insurance or income protection.
Unfair dismissal with unlimited compensation
If an employee has been unfairly dismissed for the following then the tribunal can award such an amount as it considers just and equitable. The award is not subject to the statutory maximum:
- Whistleblowing – i.e. making a protected disclosure
- Discrimination – on the grounds of race, sex, disability, sexual orientation, religion or belief, age, gender reassignment, marriage and civil partnership, pregnancy or maternity
- Health and Safety issues – where you unfairly dismiss someone for taking action on health and safety grounds
Unfair dismissals with unlimited compensation
There are some special cases where you get a set minimum basic award. However, they are rare as they only apply if you have been dismissed for working as a health and safety representative, or trade union representative.
Reinstatement means to be put back in the same job. Compensation is given for loss between dismissal and reinstatement. If the employee requests reinstatement the employer can refuse but only where it is reasonable to do so. This maybe the case where mutual trust and confidence has been shattered. An unreasonable refusal by the employer to reinstate where it would be practicable to do so may lead to an additional award being given in addition to the basic and compensatory award.
This consists of returning the employee to a similar job or to a similar job with an associated employer. This is subject to the same tests as reinstatement. If a tribunal is considering this they need to consider the feasibility of returning to work and the availability of jobs at the date of hearing.
The additional award
Where a tribunal has ordered reinstatement or re-engagement and the employer has unreasonably failed to comply the tribunal must make an additional award. The additional award is between 26 and 52 weeks’ pay on top of the basic and compensatory awards.
Disclaimer: These guides are for guidance only and should not be treated as a substitute for specific legal advice on your own situation
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© PJHLAW MARCH 2017
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