Legal Article - Employment Law

Unfair Dismissal Compensation

The basic award is based on the amount of a week’s pay to a maximum of £400 per week (from 01/02/11), age and length of service. It is very similar to (although not exactly the same as) a redundancy payment. If an employee has already been paid a redundancy payment then this will offset the basic award.

The calculation involves knowing what a week’s pay is. This is the gross payment to which an employee is entitled each week. If the pay in unvaried, then the matter is simple - for weekly paid staff, it is a week’s pay, for monthly paid staff, it is a month’s pay multiplied by three and divided by 13.

If payment does vary from week to week or month to month because, say, of bonus or contractual overtime, then it is necessary to find an average over the preceding 12 weeks worked.

Pay is the amount of remuneration which is payable to the employee under the contract and may include bonus, overtime, attendance allowance, etc. It does not include benefits such as company cars.

The basic award is subject to a maximum figure and is calculated as follows:
 
• 1 ˝ week’s pay for each complete year when the employee was 42 years of age or more

• 1 week’s pay for each complete year when the employee was 22-41

• ˝ week’s pay for each complete year when the employee was below the age of 22 (unlike redundancy there is no minimum age limit).

The maximum number of years that can be taken into account is 20. As the maximum week’s pay is £400 (from 01/02/11), this gives a maximum basic award of 1˝ x £400 x 20 = £12,000

If the dismissal is by reason of one of automatic unfair dismissal the basic award is subject to a minimum of £4,700 (from 01/02/11).
Compensation Award for Unfair Dismissal

Compensatory award is based on the benefit that one has lost by being dismissed. It can therefore be made up of a number of things such as:

• Take-home pay
• Value of fringe benefits
• Pension loss
• Expenses incurred
• Loss of statutory rights (usually £200).

It is subject to a total maximum of £68,400 (from 01/02/11). The losses are calculated from the date of the dismissal to the tribunal hearing and an estimate of future losses is made for the time it is likely to take to find a new job with a similar salary.

Reduction of Award

An employee is obliged to mitigate his loss and, if it can be established that they have not done so, it is possible to argue that a compensatory award should not be made at all or not past a date when they might reasonably have mitigated.

Both basic and compensatory awards may also be reduced in the following circumstances:

• The employee caused or contributed to his dismissal
• The employee unreasonably refused an offer of re-instatement.

Ex-gratia payments may be off-set against compensatory awards, depending on the circumstances of the payment (e.g. if the employer makes an ex-gratia payment of £15,000 and the tribunal estimates the total loss to be £80,000, the £15,000 will be deducted and the statutory maximum of £68,400 (from 01/02/11) will be awarded).

Payment in lieu of notice is not to be offset against compensatory award.

If an employee has been in receipt of unemployment benefit and the Tribunal assesses compensation, the Department of Trade and Industry will recoup, or take out of the award, the amount of unemployment benefit that has been paid. If parties settle themselves, recoupment is avoided.

In an unfair redundancy dismissal, the tribunal will estimate the probability of the employee being made redundant if a proper procedure had been followed and reduce the award accordingly.

Additional Award

If an employer fails to fully comply with an order for reinstatement or re-engagement then the Tribunal may make an additional award as follows

• In all cases except trade union ones, 26-52 weeks pay to a maximum £34,800 (£400x52) as from 01/02/11.

Published: 03 Jun 2011

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