How compensation is awarded by Employment Tribunals.
We’re often asked by employers what the ‘worst case scenario’ is for a claim which has been bought against their business or organisation and it’s useful to think of this in terms of what an Employment Tribunal could potentially award in compensation.
For unfair dismissal claims, compensation is made up of the following key elements:
- Basic award: this is intended to compensate the employee for the fact that they have been unfairly dismissed and is calculated in the same way as a statutory redundancy payment, taking account of the employee’s age, length of service and weekly pay. For these purposes, a week’s pay is capped at a level which is reviewed each year. Currently the cap on a week’s pay is £571 and no more than 20 years employment can be taken into account meaning that the maximum basic award is currently £17,130. If an employee has received a statutory redundancy payment, they cannot also receive a basic award.
- Compensatory award: this is what is awarded to an employee to cover the money they have lost due to their dismissal – the award is designed to put the employee in the position they would have been in had they not been dismissed. A large part of this is the employee’s net loss of earnings, but can also include pension losses and expenses they’ve incurred in looking for a new job. Employees are expected to take reasonable steps to minimise their losses, for example by undertaking a reasonable search for an alternative job, by taking steps to set up their own business or by claiming relevant state or insurance benefits. The Tribunal will assess the period over which is would be reasonable to expect the employee to secure a new income and will limit the compensatory award to that period. The compensatory award is capped at the lesser of a year’s gross pay and a level which is (again) reviewed each year – currently this is £93,878.
- Loss of statutory rights: it is common for employees to claim a small sum (typically between £300 and £500) to compensate for the fact that they will no longer enjoy the protection from certain employment rights (for example the right not to be unfairly dismissed or the right to a statutory redundancy payment) having lost their job.
For wrongful dismissal claims (i.e. a claim that the employee didn’t receive the notice pay they were entitled to), compensation is the net value of salary and benefits which the employee would have received had they been paid for their notice.
For discrimination or whistleblowing claims, compensation calculations have additional factors:
- Uncapped compensatory award: successful claims for discrimination or whistleblowing are not subject to the cap on the compensatory award which applies to unfair dismissal claims. In some cases this can result in very large awards of compensation, particularly where there is a “career loss”, i.e. a potentially prosperous career has been cut short because of discrimination or where there are significant pension losses.
- Injury to feelings: employees are also awarded a sum to reflect the harm that they have been subjected to as a result of the discriminatory or detrimental treatment. The level of the injury to feelings award depends on the relative severity of the harm and claims are categorised into lower, middle, upper or exceptional bands of compensation. This concept was established in the case of Vento v Chief Constable of West Yorkshire and so the categories are often referred to as Vento The compensation ranges from £900 for lower band claims to over £49,300 for exceptional cases.
- Detriments: because discrimination and whistleblowing claims can be bought by employees who are still employed, those individuals can claim for losses that have been caused by the discriminatory or detrimental treatment, for example if they are overlooked for a promotion and pay rise or not awarded a bonus.
- Good faith: employees claiming that they were dismissed or that they suffered a detriment due to a whistleblowing disclosure need to show that they have acted in good faith. If not, compensation may be reduced by up to 25%.
Employment Tribunals are also able to consider the following:
- Employee fault: if the employee has contributed to the circumstances of their claim (for example if they were involved in misconduct but should not have been dismissed) then their compensation can be reduced by the appropriate amount.
- Impact of the employer’s failure to follow proper procedures: if an employer can show that, even though they didn’t follow a fair/proper procedure before dismissing an employee, had they followed a fair procedure the employee would have been dismissed anyway, compensation can also be reduced by an appropriate amount. Sometimes this means that an employee’s compensation is reduced to nothing or a very low amount.
- Failure to follow the ACAS Code of Practice: if an employee or an employer has failed to follow the ACAS Code of Practice on discipline and grievance procedures, compensation can be increased or decreased by up to 25%.
- Financial penalty for the employer: if an employer’s breach of a worker’s rights has aggravating factors (such as the employer deliberately or repeatedly breaching the law despite having HR resources in place), the employer can be ordered to pay a penalty of up to £20,000.
For a useful summary of the current Employment Tribunal rates and limits, download our rate card here or contact one of the team.