LRD guides and handbook May 2013

Law at Work 2013

Chapter 10

The statutory cap

The statutory cap (currently £74,200) is to the compensatory award only. Applying the statutory cap is the last step in the calculation, after assessing the amount of the loss and taking into account any payments made by the employer and any percentage adjustments required for, for example, contributory fault or failure to comply with the Acas Code. The basic award is in addition to the compensatory award and any additional award (see above).

If the sum awarded remains unpaid 42 days after the tribunal decision, interest is payable on amounts outstanding.

If the employer is insolvent, the Secretary of State for Department for Business, Innovation and Skills (BIS) assumes responsibility via the National Insurance Fund, but only for some of the money due. The Secretary of State will cover the basic award for unfair dismissal, arrears of pay (to a maximum of eight weeks) and holiday pay (six weeks maximum). But in these cases a “week’s pay” is calculated as for the basic award for unfair dismissal with a maximum of £450 (2013-14). The employee receives a net sum after tax and other deductions (Titchener v Secretary of State for Trade and Industry [2002] IRLR 195). Contractual lay-off pay is not payable by the Secretary of State (Benson v Secretary of State ([2003] IRLR 748)).

A payment by the Secretary of State breaks continuity. This means that even if employees later transfer to a new employer, they will have lost their right to include previous service for the purposes of any tribunal claim. If the Secretary of State fails to make a payment, a claim should be made to a tribunal within three months. Any other money owed by the employer will be a debt — either priority or unsecured — in the insolvency. For more advice, consult the government Insolvency Service at: www.insolvency.gov.uk (See also Chapter 12: TUPE).

A payment received as compensation for unfair dismissal under a compromise agreement is tax free up to £30,000, even if the employee is re-instated, as long as it is genuinely compensation for loss of the job rather than earnings or a payment for services (HM Inspector of Taxes v Clayton [2005] IRLR 108).