An employee who has completed two years’ service has the right not to be unfairly dismissed. The dismissal of an employee will be unfair unless:
- You can show the reason (or principal reason) for the dismissal was one of the 5 potentially fair reasons: Conduct, Capability, Redundancy, breach of a statutory obligation and ‘some other substantial reason’; and
- You have acted reasonably in all circumstances (taking in to account your business’s size and administrative resources) in treating that reason as a sufficient reason for dismissal.
In the event one of your employees make a claim of unfair dismissal to an Employment Tribunal and is successful, an Employment Tribunal has the power to make you pay compensation, comprising of a basic award and compensatory award.
The basic award for unfair dismissal is calculated according to a formula based on an employee’s age, length of service and weekly wage. In certain circumstances, there is a minimum basic award.
Financial compensation is the principal remedy awarded in the Employment Tribunal. The compensatory award is calculated on the basis of net loss of earnings together with any other sums/benefits the employee reasonably expected to receive had they remained in employment, e.g. bonus, commission, pension contributions. An Employment Tribunal will normally assess the value of the benefit with reference to what it would cost the employee to obtain the benefit elsewhere.
The compensatory award is subject to a statutory cap. The maximum compensatory award is now the lower of the current statutory cap or 52 weeks’ gross pay.
Contrary to popular belief, the compensatory award is not dependent on the actual unfairness of the dismissal. The overriding intention is to put the employee back in the position they would have been financially, had they not been unfairly dismissed. Accordingly, a higher paid employee who is out of work for longer is likely to be awarded a higher compensatory award than a lower paid employee who quickly finds another job, but who is dismissed in identical circumstances.
ACAS Code of practice
The ACAS code of practice on disciplinary and grievance procedures applies to disciplinary matters (including dismissals) concerned with misconduct or capability only. It is always advisable that you adhere to the ACAS Code. When deciding whether an employee has been unfairly dismissed for conduct or capability, an Employment Tribunal will consider whether the employer has followed a fair procedure. The compensation awarded to an employee can be increased by up to 25% if you unreasonably fail to follow the Code.
In certain cases, the compensatory award can be reduced to reflect the likelihood that, despite an employer’s failure to take certain procedural steps as part of a fair dismissal process, it would not have made a difference to the decision to dismiss the employee. The reduction may be expressed as a percentage reduction (up to 100% in some cases) or as a cap on loss.
Contributory fault (or contributory conduct)
A reduction for contributory fault can affect the basic award and/or the compensatory award. The reduction can be anything up to 100%.
An employee is required to mitigate their loss and explain and demonstrate to the tribunal what actions they have taken by way of mitigation. This includes looking for another job and applying for available state benefits. The employee cannot simply assume that an employer will be ordered to pay compensation for their full losses.