Compensation

Compensation has two main elements: a basic award and a compensatory award. At an early stage of any tribunal claim, the claimant will need to complete a detailed Schedule of Loss which goes to the employer and the tribunal, explaining what sums are claimed and why.

The basic award is calculated using a formula linked to length of employment and age. The longer the service, the higher the award. Following the age equality legislation, the formula no longer has an upper age limit. The “tapering” provisions which used to reduce compensation once employees reached 64 have also been abolished.

The basic award is calculated as a number of “weeks’ pay” according to age and length of service, as follows:

• aged under 22 — half a week’s pay for each complete year worked under this age;

• aged 22 to 40 — one week’s pay for each complete year worked between these ages; and

• aged 41 and over — one and a half weeks’ pay for each complete year worked from this age onwards.

A “week’s pay” is capped at the statutory maximum of £450 (2013-14). Weekly earnings over this amount are not included in the calculation of the basic award (although they are used to calculate the compensatory award: see below). Below the amount of the cap, the week’s pay is based on gross pay and, where earnings are irregular, is averaged over a 12-week period. Overtime is only included if there is a contractual obligation on the employer to offer it and on the employee to work it (British Coal v Cheesbough [1990] IRLR 148).

The “week’s pay” cannot be less than the National Minimum Wage, even if the employee was not receiving it (Paggetti v Cobb EAT/136/01 ([2002] IRLR 861)).

The maximum number of years of work that can be taken into account is 20.

In cases of dismissal for trade union duties and activities, for carrying out the duties of a health and safety rep, an employee rep, a rep for the purposes of the Working Time Regulations, or of a trustee of a pension scheme, the minimum basic award is £5,500 (2013-14). There may also be an entitlement to an additional award (see below).

If the dismissal is carried out in breach of the Acas Code of Practice on Discipline and Grievance (see Disciplinary procedures), the tribunal has a power to increase or cut its award by up to a maximum of 25%.

The compensatory award (section 123, ERA 96) is intended to cover financial losses resulting from the dismissal. The tribunal has discretion to award an amount that it considers “just and equitable”. However, this discretion does not allow the tribunal to award damages beyond the loss that actually results from the dismissal (Dunnachie v Kingston upon Hull City Council [2005] ICR 1052).

The compensatory award can include:

• expenses resulting from the dismissal;

• net wages from the dismissal date up to the hearing date that the employee would have earned if s/he had not been dismissed. Wages are awarded net of the tax and national insurance contributions that would have been paid if the employee had been working;

• lost pension rights;

• loss of statutory protection: this notional sum is supposed to reflect the loss of the job security that comes from having enough service to bring an unfair dismissal claim. In this recent past, it has been around £300. It should now be a higher amount to reflect the longer service requirement for unfair dismissal since April 2012.

• costs associated with seeking new work (e.g. travel costs to interviews: keep all evidence, including receipts); and

• future net lost wages: the length of period claimed should reflect how hard this particular claimant is likely to find the search for alternative work, taking account of individual characteristics such as age and any disability, and general features such as poor economic conditions.

If the claimant has not found alternative work quickly, the largest part of the compensation claim is likely to be for actual and projected net lost earnings.

Loss of pension rights amounts to more than just the money the employer would have paid into the pension fund. It is the amount of pension an individual would have been entitled to, had it not been for the unfair dismissal (Clancy v Cannock Chase Technical College [2001] IRLR 331). If the employee was in a final salary scheme, this is likely to be very significant.

A claimant can only recover losses that result from the employer’s actions. For example, a hospital consultant was not entitled to recover earnings from private work he took on externally, because these were not earnings he was entitled to under his contract with the NHS Trust. This remains the position even if the dismissed employee can show that the extra earnings were dependent on the existence of the lost job (Schlesinger v Swindon & Marlborough NHS Trust EAT/0072/04).

If an employee is too sick to work at the time of the dismissal, and the sickness was not caused by the dismissal itself, future lost earnings will normally be limited to any sick pay they would have earned had they not been unfairly dismissed (Burlo v Langley [2007] IRLR 145).

However, if a tribunal is satisfied that a claimant is unfit for work as a result of the unfair dismissal itself (for example, depression as a result of a dismissal decision), it may award the net lost earnings that would have been earned if the claimant had not been unfairly dismissed (Devine v Designer Flowers [1993] IRLR 517). Careful medical evidence is needed in this kind of case, to show that the inability to work is as a result of the dismissal decision and did not pre-date the dismissal. Note that the position is different in the case of resignation and constructive dismissal, as the following case illustrates:

These cases show how unfair dismissal law is particularly complex where issues of dismissal due to long-term sickness are concerned. It is vital to get early legal and medical advice, to make sure any claim is brought in time and in the right court, and with the right medical evidence.

It is never possible to claim for injury to feelings or compensation for personal (psychiatric) injury in unfair dismissal cases (Dunnachie v Kingston upon Hull City Council ([2004] IRLR 727)).