The basic award for unfair dismissal is calculated according to a formula based on an employee’s age, length of service and weekly wage. The employee’s weekly pay is subject to a statutory limit, currently, £464 per week gross. Accordingly, an older, longer serving, higher paid employee will be awarded a higher basic award than a younger, shorter serving, lower paid employee dismissed in identical circumstances.
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, private medical insurance. A tribunal will normally assess the cash value of the benefit with reference to what it would cost the employee to obtain the benefit elsewhere.
At the outset, calculation of the compensatory award is very much a crystal ball exercise. It is unknown how long the employee will remain unemployed or whether any new job will be at a corresponding level of salary/benefits. The compensatory award is subject to a statutory cap, currently £76,574. Where the date of dismissal is after the 29th of July 2013, 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 largely not dependant upon the actual unfairness of the dismissal, that is, there is not a lower award for employees who are dismissed with a ‘softly softly’ approach and a higher award for those fired Alan Sugar style in an open plan office. 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.
Loss of statutory rights
Once dismissed, an employee will have to build up enough service with a new employer to qualify for certain statutory rights, for example, a redundancy payment or 2 years’ continuous employment for unfair dismissal protection. Tribunals will often award a nominal amount by way of compensation for this loss of statutory rights as part of the compensatory award, currently in the region of £300.
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. When deciding whether an employee has been unfairly dismissed for conduct or capability, a tribunal will consider whether the employer has followed a fair procedure. The compensatory award can be affected by up to 25% (an uplift or reduction) if either party unreasonably failed 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%. There is, however, an important distinction.
The basic award may be reduced where the employee’s conduct before the dismissal is such that it would be just and equitable to reduce the award. There is no need for the conduct to have contributed to the dismissal or for the employer even to have known about it at the time of dismissal. Where the dismissal was to any extent caused or contributed to by any action of the employee, then the compensatory award may be reduced by such proportion as it considers just and equitable.
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.