Most unfair dismissal claims are subject to a maximum amount. A few rare types of unfair dismissal claim are not however, subject to such a claim. An example of one of these rare types is unfair dismissal by reason of whistleblowing.
This article explains how Employment Tribunals work out what to award successful employees for unfair dismissal compensation. There are two awards - the basic award and the compensatory award. The basic award is a fixed amount calculated in the same way as a statutory redundancy payment. This article covers the compensatory award.
Compensation for unfair dismissal is based on a calculation worked out in a number of stages but overall is that sum which the employment tribunal considers 'just and equitable'. In this context we might consider that those words mean 'what the Tribunal considers fair'. Employment tribunals also order 'basic awards' to be paid. These are calculated in a similar way to statutory redundancy payments. The compensatory award is subject to an overall maximum which at present is £65,300 (from 1st February 2010). As we said at the outset there are a limited number of exceptions where the maximum limit does not apply. The first stage in the calculation of the compensatory award is to work out 'actual losses'. This takes into account pay and benefits and what the employee actually lost from the time of dismissal to the date the assessment is made.
The second calculation by the employment tribunal is an estimate of future losses. This would take into account what the employee has done to find a job and whether the employee has actually found a job. Based on the evidence shown by the employee the tribunal will form a view of the chances of the employee obtaining employment in the future or if he or she has already found alternative employment, it will work out the difference in wages between the old and the new job. The third step is to include expenses incurred in seeking alternative employment such as stamps, CV printing and such like. The fourth claim is an award for the loss of the statutory right not to be unfairly dismissed. The loss of the rights associated with having more than a year's service must be worth something. The employment tribunal would assess this loss at around £300 to £350.
Tribunals will normally order an employee bringing an employment tribunal claim, called the Claimant, to produce a statement of loss and send it to the company along with evidence supporting this loss. This statement of loss should take into account the four steps mentioned above.
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. Thus, if the dismissal was only ‘technically unfair’ the employment tribunal would consider whether had the procedural failing not happened the employee could have been fairly dismissed at that time or within a short time thereafter. If the tribunal decide that the employee would have been dismissed fairly anyway within a short period of time it will award compensation based on that short period of time.
This procedural reduction point means 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. So for example, the employment tribunal might decide that had an appeal been given there would have been a 25% chance of the employee retaining his or her job and thus award 25% of the compensation it has worked out in accordance with the four steps above.
In all three cases, the tribunal could make a percentage reduction from the total figure. So, for example, it could find that the employee is 50% to blame for his or her own dismissal. Thus, this means that the compensation and possibly the basic award would be reduced by 50%. At that point, the Tribunal would reduce the resulting figure to the maximum if appropriate.
The employment tribunal will also consider whether the employee has taken reasonable steps to reduce his or her loss. This is called mitigation. It is an absolute duty on all employees to act in such a way as 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’.
Another reduction the Tribunal will do is consider whether the employee would have been dismissed fairly anyway. Thus, for example, if there is a really strong case that suggests that regardless of any procedure followed the employee would have been dismissed anyway, the Employment Tribunal would take this into account. In one case this firm dealt with a year or two ago a branch manager of a recruitment business was dismissed by reason of redundancy. As there was no procedure followed in dismissing her, the dismissal was clearly unfair and we told the tribunal this. However, on behalf of the recruitment business we explained to the Tribunal just how important it was to dismiss the employee at that time. We showed the tribunal graphs of branch turnover, expected turnover, break even turnover and expected profit turnover. The tribunal found that the commercial reasons for dismissing at that time were so strong that it only awarded the employee a week's pay as compensation. This week reflected the tribunal's view on the length of time it would have taken to dismiss the employee fairly had a fair procedure been followed.
There is one important exception that applies to calculation of loss where the employee has obtained a new job in what would have been the notice period. In cases of actual dismissal, but not constructive dismissal, a case called Norton Tool v Tewson in 1972 provides a rule that where an employee is not given notice but should have been he or she can claim the notice money back even if he or she has got another job during the period of what would have been the notice period. The reason for this rule is that if it didn't apply it encourage employers not to pay notice on termination as they could end up paying less if the employee then got a job during the notice period. Another way of looking at this rule is to realise that the rule encourages the good employment practice of actually paying notice money when it was due. Without the rule bad behaviour could be rewarded and good behaviour punished. You should also consider an item in our news section about 'the Norton tool principle' in cases of constructive dismissal.
In respect of the duty to look for alternative employee it is important for the employee to be able to provide evidence of what steps he or she has taken to mitigate his or her losses. These will mainly be activities concerned with finding alternative employment but can in appropriate circumstances include training courses and setting up a business. This firm can provide clients with a sample record form for the employee to record his or her activities.
Thus in summary unfair dismissal compensation is usually subject to a maximum amount, takes into account actual and estimated future losses and comes with a strong requirement for the tribunal to consider whether the employee would have been dismissed anyway.