Breaking Down Unfair Dismissal Compensation: What You Need to Know
Unfair dismissal compensation (also known as the award) is important to understand. An unfair dismissal can be a devastating experience for any employee. Not only does it leave them without a job, but it can also leave them feeling undervalued and unsupported. Fortunately, we have provisions in the UK to protect employees from unfair dismissal, and understanding the compensation that can be awarded is important. These laws provide for compensation to be paid to employees who have been unfairly dismissed from their jobs. However, the process of claiming compensation can be complex and confusing. In this article, we’ll be breaking down unfair dismissal compensation and explaining everything you need to know. From understanding what constitutes unfair dismissal to calculating the amount of compensation you may be entitled to, we’ll be covering it all. So, if you’ve been unfairly dismissed from your job or want to learn more about your rights as an employee, stay tuned.
Eligibility – Unfair Dismissal Compensation Award
To be eligible for unfair dismissal compensation, employees must meet certain criteria. In the UK, employees must have been continuously employed for at least two years.
Employees who have been dismissed for discriminatory reasons, such as race, age, gender, or disability, may be eligible for compensation even if they haven’t been employed for the minimum amount of time. Additionally, if an employee has been dismissed for whistleblowing or for asserting their legal rights, they may also be eligible for compensation.
If you have been dismissed with less than 2-years of service, we have more information for you HERE.
Understanding Unfair Dismissal
Unfair dismissal occurs when an employer terminates an employee’s contract without good reason or without following the correct procedure. These are known as the “potentially fair reasons” for dismissal.
There are five potentially fair reasons for dismissal under section 98 of ERA 1996: capability or qualifications, conduct, redundancy, breach of a statutory duty or restriction and “some other substantial reason” (SOSR).
Even if an employer can show that is had one of the potentially fair reasons to dismiss, they must still have acted reasonably when dismissing the employee. There are broad considerations here, which is usually divided into two parts, (1) was there a fair process and (2) was the decision to dismiss within the range of reasonable responses.
Unfair Dismissal Compensation/Award – Types
The Unfair Dismissal Compensation/Award (also known as remedies) will vary.
The Employment Rights Act 1996 (ERA 1996) sets out the following possible remedies where a tribunal has found that an employee has been unfairly dismissed:
- An order for reinstatement or re-engagement (sections 112 to 116, ERA 1996).
- A basic award (sections 119 to 122 and 126, ERA 1996).
- A compensatory award (sections 123, 124, 124A and 126, ERA 1996).
- An additional award (section 117, ERA 1996).
Basic Award
The basic award is a statutory award calculated in accordance with section 119 of the ERA 1996, the figure is the same as a statutory redundancy payment. The calculation involves multiplying the relevant factors of length of continuous service, age, and a week’s pay. You can usually calculate this figure using an “online redundancy calculator.”
Compensatory Award
After the basic award, the tribunal will then consider the “compensatory award” (section 118, ERA 1996). The purpose is to compensate, but not to award a bonus.
The compensatory award is subject to a statutory cap or limit (section 124, ERA 1996). The cap does not apply in certain situations, for example, if there has been a successful claim of automatic unfair dismissal or discrimination.
The cap is formulated using the date of the dismissal (EDT), not the date the tribunal makes the decision to award compensation. The maximum compensatory award is the lowest of either the statutory cap or 52 weeks of gross pay. For April 2023/24, the cap is currently £105,707 (an internet search will reveal the current cap).
For example, if the relevant 52 weeks gross pay is £30,000, this will be the cap, but if it is £200,000, then it will be £105,707.
The compensatory award is made up of the loss of salary and benefits from the “effective date of termination” which is when the employment came to an end. Loss of earnings are calculated using the “net” figure, which is the amount earned after tax. You can also claim for losses from benefits (car allowance, health insurance, pension loss). If a new job is obtained, but at a lower salary, then you can claim the difference (again using the net figures).
The value of the claim is therefore very dependent on the employee’s actual losses when the employment ends. For example, if an individual goes straight into a new job on an equal or greater salary, then the losses are likely to be limited to the basic award.
The Duty To Mitigate Your Losses
It is a key principle that any Claimant will be expected to mitigate any losses suffered. This is a key point when considering unfair dismissal compensation/award.
This means Claimants are expected to take reasonable steps to mitigate their loss, for example by looking for a new job (if they are out of work). A Tribunal will not make an award to cover losses that could reasonably have been avoided.
The most common example is that an unfairly dismissed employee is expected to search for work and will not recover loss of earnings beyond the date the Tribunal concludes the Claimant ought to have found work at a similar rate of pay. A better way of phrasing this is as “alternative income,” because a dismissed employee could (for example) replace their previous income by becoming self-employed. Further, credit is given for all earnings, including state benefits.
Polkey Reduction
A Polkey reduction is when an aspect of the process followed in the dismissal is unfair, but the end result would have been the same (the person still would have been dismissed), so the compensatory award is reduced to reflect the fact that a fair dismissal would have been fair anyway. For example, if the Tribunal concludes that the process followed was defective to the point that the claim for unfair dismissal succeeded, but that even if a fair process was followed, a dismissal was still likely, then a Pokey reduction will be applied.
The Polkey reduction is usually expressed as a percentage (up to 100% in some cases) or as a cap on future loss.
Contributory Conduct
Often referred to as “contributory fault,” this is when the Tribunal can reduce the basic award and/or the compensatory award when it identifies conduct showing the Claimant was “culpable or blameworthy.” This is when the Claimant’s conduct was such that they were at least partially to blame (or it contributed) to the dismissal.
Reinstatement and Re-Engagement Orders
If a claim of unfair dismissal succeeds, the Tribunal can order reinstatement or re-engagement.
Reinstatement requires the employer to treat the Claimant as if they were never dismissed, so they are given their old job back with no loss of pay.
Re-engagement is when the Claimant is to be employed again (with no loss of continuous employment) but in a different position. In practice, these orders are very rare and even if made, if an employer refuses, then the Tribunal cannot enforce the order, it can only make an order for an additional award, which is for additional compensation (between 26 and 52 weeks pay, using a capped weekly rate).
Tips For Claimants
- Make attempts to mitigate your losses as early as possible and keep good records.
- Understand what you can claim and get a full picture of your losses.
- When you know your net losses (factoring in all benefits) get a figure for your monthly, weekly, and daily losses. This makes it easier to calculate your losses overall.
- Equally, make sure you keep records of all earnings (including benefits) since being dismissed, so these can be factored into the calculations.