The Annual compensation limit increase for 2016 has been announced. There are two figures affected – the maximum weekly wage to be taken into account for statutory redundancy pay and basic award purposes and the maximum unfair dismissal compensation. It applies therefore to any redundancy pay or compensation awarded for dismissals (or detriments etc.) but only those that occur after 6 April 2016.
The new maximum amount of a week’s pay for the purposes of calculating a redundancy payment or for various awards including the basic or additional award of compensation for unfair dismissal increases to £479.00 per week (previously £475.00). This is based on gross wages.
The new maximum compensatory award for unfair dismissal increases to £78,962 (previously £78,335). Such an award is limited to either this limit or a year’s pay whichever is the smaller. This is explained further below.
The Employment Tribunal awards compensation for unfair dismissal in two ways. The first is called a basic award. This is worked out according to your length of service, age and gross weekly wage. There is a maximum weekly wage of £479.00 (from April 2016 – reviewed each year) and the maximum length of service taken into account is 20 years. A redundancy payment is worked out in almost the same way. You do not get both a redundancy payment and a basic award.
The second head of compensation in a Tribunal is called the compensatory award. Steen & Co Employment Solicitor’s standard explanation of whether someone will be awarded compensation in tribunal addresses three things. We say that the following three tests need to be met if compensation is to be awarded:
a) You have to win your unfair dismissal case.
b) The unfairness that resulted in your winning must have ‘made a difference’ – in other words if your dismissal was only technically unfair and for example you would have been dismissed anyway had the unfairness not happened then it can be said that the unfairness would not have made a difference to your losses. This is explained more fully later in this article.
c) You must suffer loss. This obvious point is worth making nonetheless as it is a valid point. We say that if you get a higher paid or equivalent job before you have suffered loss (for example within the period of time you have been paid for by getting a payment in lieu of notice) then no amount of unfairness is going to result in compensation.
Only if all three tests above are met does the question of compensation arise. An additional factor to take into account is legal costs – if you are going to use a lawyer to represent you then you have to factor in the costs. Legal costs are not recoverable in nearly all cases.
So, for example, if you have been paid for 3 months’ notice your losses resulting in an employment tribunal are only going to start after 3 months’ unemployment. If your employer is offering an ex gratia of say 2 months plus the notice pay then the consideration of whether to accept must not only take into account an assessment of the unfairness of the proposed dismissal but also whether you are going to get an equivalent or better job within 5 months.
Unfair dismissal compensation is set to a maximum of £78,962 (from April 6th 2016) or a year’s pay whichever is the smaller. The change to apply a cap of a year’s pay came into force in the summer of 2013. There are a limited number of exceptions where the maximum limit does not apply. Compensation is based on a calculation worked out in 4 ways but is overall that sum which the Tribunal considers just and equitable. In working out what to pay the Tribunal start with a calculation of actual losses. This takes into account pay and benefits and what you actually lost from the time of dismissal to the date the assessment is made.
A year’s pay needs further clarification. For dismissals from 29 July 2013, a new limit on the unfair dismissal compensatory award applied. It is now the lower of £78,962 (from April 6th 2016) (the current limit) or 52 times the ex-employee's "week's pay". A "week's pay" is calculated rigidly under provisions in the Employment Rights Act 1996. It is either remuneration payable under the contract for working normal hours in a week or, where the remuneration varies with the amount of work done, the average remuneration payable "under the contract of employment" over the 12 weeks prior to dismissal. There are a few issues with this. One is that "remuneration" does not normally include benefits in kind such as pension, car, health cover and so on. Secondly, if bonuses are discretionary, they may not be considered to be payable "under the contract of employment" and so may be excluded from the definition of a week’s pay. In addition, although the statutory definition of "week's pay" does allow annual contractual bonuses to be apportioned in a "just" manner in respect of the 12-week period it may well not be possible to quantify the bonus that would be payable for the period. In order to be included the pay needs to be capable of being calculated at the relevant date.
In addition, the law on which bonuses can and can’t be taken into account is complicated and in part depends on whether bonus or commission depends on the amount of work done. For some people commission does not depend on the amount of work, for example, they might work for a year or for a week on a deal but still get the same commission. Proper advice will need to be taken if and when necessary on this point. Other issues include the fact that some people will have sacrificed salary for employer pension contributions. Such sacrificed salary may well not be included within the definition of a "week's pay".
The second calculation by the Tribunal would be an estimate of your future losses. This would take into account your job search activities and their view as to your chances of obtaining employment in the future or if you have already found alternative employment, the difference in wages and benefits between the old and the new job.
In considering compensation for loss of future earnings, it is well recognised that there has to be an element of informed guesswork as to loss of future of earnings. In fact, they should generally be addressed only up to the point where there is a more than 50% chance that the employee would have gained a job at an equivalent salary level. This wording comes from the case of Daly v Northumberland Tyne & Wear NHS Foundation Trust UKEAT/0306/14/LA which contains useful guidance on how tribunals should deal with future loss. That case in fact contains reference to another case which describes the exercise of working out what future loss should be as “to a considerable extent an exercise in speculation based on its assessment of the Claimant, his attitude and abilities and the local job market” This means that as a claimant you should prepare evidence such as listing the lack of jobs available in the local area for someone of your experience and training. For example, you might be able to say ‘only 3 jobs have been advertised in the local paper in the last X months and I have applied for all of them’ etc.
If you are reading this as an employer fighting an unfair dismissal (or discrimination) claim then you should obtain detailed evidence of the jobs that the individual should have applied for. This may involve getting a witness statement from a local recruitment consultant and/or cutting out adverts from the local paper or an appropriate recruitment website for say a 6-month period. In that way your company can cross examine the individual and ask ‘did you apply for this job ... or this one .. or this one etc’ and then be able to say to the Tribunal ‘ there are 20 jobs (say) that he could have applied for and did not and had he done so he would have found a job within X months and so compensation must be limited to that period.
The third area is expense incurred in seeking alternative employment such as stamps, CV printing and such like. Tribunals will allow a little leeway towards such a claim without evidence but it is much better to have a detailed schedule of costs and expected costs along with evidence of expenditure.
The fourth matter is the loss of the statutory right not to be unfairly dismissed. The loss of the right to claim for unfair dismissal must be worth something. The Tribunal would assess this loss at around £250 - £350. However, it may be that this amount will be increased given the fairly recent increase in the qualifying period for unfair dismissal to 2 years (from 1).
The Tribunal then look at whether there is contributory fault and whether an individual’s conduct means that a reduction should be applied and whether any procedural failing lead to the unfair dismissal finding. If it did, i.e., that the dismissal was only ‘technically unfair’ the Tribunal consider whether had the procedural failing not happened you could have been fairly dismissed. This is the second of the three tests set out at the start of this article.
This procedural reduction point suggests that there is no need for an ‘all or nothing’ decision. If the Employment Tribunal thinks there is a doubt whether or not the employee would have been dismissed fairly, the doubt can be reflected by reducing the normal amount of compensation by a percentage representing the chance that the employee would still have lost his employment fairly. We can illustrate this point with a trivial example - if for example I am caught at midnight stealing money from the office safe having broken into the office and am dismissed on the spot I may well have been unfairly dismissed because for example I was not given the chance of a disciplinary hearing. In those circumstances, however, the tribunal will not be minded to award compensation beyond perhaps a week or two’s pay to reflect the time a disciplinary hearing would have taken to organise.
In all three cases (i.e. fault, conduct and ‘mere’ procedural unfairness) the tribunal could make a percentage reduction from the total figure. So, for example, they could find that you are 50% to blame for your own dismissal. Thus, this means that the compensation and possibly the basic award would be reduced by 50%. The tribunal could also decide, for example, that although the dismissal was unfair there was a 100% chance that you would have been dismissed anyway. At that point, the Tribunal would reduce the resulting figure to the maximum if appropriate.
The Tribunal will also consider whether you have taken reasonable steps to reduce your loss. This is called mitigating your loss. All ex-employees in this situation must try to reduce their losses. In the absence of such steps, it is open to the Tribunal to reduce the compensation payable to an amount that it feels the employee would have suffered had he or she mitigated his or her losses. In other words, ‘although you have been unemployed for 6 months we think that had you bothered to look for work you would have found a job within a month; so that is all that we will give you’. The information above about showing evidence of job search activities and possible vacancies relates to this ‘mitigation’ point.
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