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In other articles (see blog), we have set out the importance of making an early assessment as to the risks involved in pursuing or defending an employment tribunal claim. A decent lawyer should be able to provide an estimate of costs, but it is advisable to factor in the potential value of any claim.

Here we set out how in an ordinary claim for unfair dismissal (ie no discrimination, no whistleblowing or other special claim), the Tribunal will broadly approach the matter of compensation.

An award of compensation for unfair dismissal generally consists of:

  • a basic award and
  • a compensatory award.

The basic award is calculated broadly in the same way as a statutory redundancy payment.

The compensatory award is, as the name suggests, intended to compensate the employee for financial losses suffered as a result of the unfair dismissal. It is not intended as a punishment for the employer. The main element of the compensatory award is usually loss of earnings:

  • from the date of dismissal to the tribunal hearing and
  • possibly, future loss of earnings.

Calculations are generally made on the basis of net salary.

The compensatory award may also include a sum in respect of:

  • any expenses reasonably incurred by the employee looking for alternative work (e.g. travel costs) and/or
  • the value of any lost benefits. Lost benefits may include:
    • a company car,
    • private health insurance,
    • life assurance and/or
    • pension benefits
  • Loss of statutory rights (usually no more than £300).

A dismissed employee is under an obligation to mitigate their loss (ie try and find a new job). In reality the duty to mitigate is a relatively easy burden to discharge. In order to show that they have acted reasonably in trying to mitigate loss, a claimant needs to keep a record of:

  • websites, newspapers etc they have used to look for job;
  • agencies they have applied to; and
  • applications made and the outcomes of those applications.

It is also advisable to have available for the tribunal’s consideration a c.v. and evidence of any relevant qualifications.

An employer, when presented with a claim by a former employee, would be well advised to do periodic searches online and in newspapers etc (at least every month) to see what suitable alternative vacancies are available for the employee, so they can argue, if necessary, that the employee has failed to mitigate their losses. Savvy employers might even send dismissed employees copies of vacancies for suitable jobs with other organisations!

Where the Tribunal considers that an employee has failed to mitigate their loss, it should decide when the employee would have obtained work and what the rate of pay would have been in the new job had they tried. That should then be factored into the calculation of loss.

Where the tribunal is satisfied that the reason for dismissal is potentially fair, but the procedure followed by the employer was unfair, it can adjust the compensation:

  • If the tribunal concludes that the procedural unfairness would have made no difference to the eventual outcome (i.e. the employee would have still lost their job), the reduction can be 100% of compensation
  • In other cases, the tribunal will assess the chance that the employee would have been dismissed fairly in any event, and then reduce the losses by applying a percentage reduction.
  • It is open to the tribunal to conclude that fair dismissal would have occurred at another time. Eg the employee is genuinely redundant, but the employer failed to follow a fair redundancy procedure. The tribunal may conclude that if the employer had followed a fair procedure, a fair dismissal for redundancy would have taken place four weeks later. Compensation would be limited to the losses for that four week period.

If an ACAS Code of Practice is relevant to an issue in the claim, the tribunal is entitled to take that Code into account. An unreasonable failure to follow the Code of Practice may affect the level of any compensation awarded.

Where the tribunal concludes that the dismissal was caused or contributed to by the employee, the compensatory award will be reduced by such proportion as is just and equitable. This is usually assessed as a percentage reduction. The reduction may be as high as 100% in some circumstances but this is rare.

Some state benefits claimed by the employee are also subject to recoupment.

Finally the compensatory award in an 'ordinary' unfair dismissal claim is capped at £74,200.

Winning a tribunal case is of course the first hurdle a claimant needs to get over, the second is persuading a tribunal as to the appropriate level of compensation. Employers need to approach the issue of compensation from a realistic but critical perspective.

Sarah Rushton

Tel: 0207 539 4147


Standout firm known for its personal insolvency work for clients including private companies, individuals and governmental institutions. Frequently acts for insolvency practitioners, assisting with the realisation of assets, both in the UK and abroad.

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