Compensation for Unfair Dismissal – Part 1 – Basic Award

You may be surprised to hear that there are strict limits on the amount and type of compensation that an Employment Tribunal can award if you are successful with a claim for unfair dismissal. The amount and type of compensation is set out in law within the Employment Rights Act 1996.

Regardless of how badly the Employer has behaved and treated you, if your claim is for unfair dismissal only, then your compensation will be strictly governed and the Employment Tribunal will be restricted as to the amounts that they can award you.

This is in contrast to claims for discrimination where you can receive a payment for injury to your feelings and the amount of compensation will not be subject to a cap.

At the time of publishing this article there are government proposals to further restrict the amount of compensation. We will of course cover the changes when they have been confirmed but for now if you have a claim for unfair dismissal the compensation is limited to:

1)    Basic Award

2)    Compensatory Award

3)    Additional Award

1) Basic Award

The Basic Award is calculated in accordance with what the law prescribes in a similar way to a redundancy payment. It is strictly applied using the formula:

Length of service x a multiplier for age x a week’s pay

The Basic Award therefore has nothing to do with the way that you have been treated or your loss of earnings, and is purely calculated on the basis of this formula.

Length of service

This is the number of full years that you have been employed at the date that your employment is terminated.

For Example if your employment terminates after you have been employed for 2 years and 11 months the multiplier will be 2.

The length of service is capped at 20 years which means that if you have been employed for 25 years at the date you are dismissed your multiplier will be 20.

Age

The multiplier for age is as follows:

½ for each year of employment under the age of 22

1 for each year of employment between the ages of 22 and 40

1.5 for each year of employment after the age of 41

Week’s pay

A week’s pay is the gross amount of pay that you received at the date your employment ended. This means that any future pay increases will not be taken into account.

It does not normally include bonuses and overtime, but may include commission if it forms part of your normal pay.

A week’s pay is also capped and the cap is set by government and usually increases each year. The current cap on one week’s pay is £450 (as from 1^st February 2013).

Examples

1. A has been employed by B for 3 years 2 months on the date that they are dismissed. They are aged 30 and are paid £400 per week. The calculation for the basic award would be:

3 x 1 x 400 = £1,200

1. C has been employed by D for 25 years 11 months on the date that they are dismissed. They are aged 50 and are paid £600 per week. The calculation for the basic award would be:

20 x 24.5 x 450 = £13,500

1. E has been employed by F for 2 years 1 month on the date that they are dismissed. They are aged 21 and are paid £200 per week. The calculation for the basic award would be:

2 x 0.5 x 200 = £200

Because of the restrictions on the multipliers for length of service and a week’s pay the maximum amount of Basic Award that can be awarded is 20 x 1.5 x 450 = £13,500

Basic Award – Minimum Payments

There are certain types of cases where the law says that the basic award compensation should be a minimum of £5,500 (this amount also varies each year).

What this means is that regardless of your length of service, age or week’s pay if you successfully argue that the reason for your dismissal is one of those listed below, the Employment Tribunal must award you a minimum of £5,500. The maximum of £13,500 continues to apply.

The following reasons attract the legal minimum:

• Carrying out Health & Safety Activities
• Being a trustee of an occupational pension
• Being a representative in relation to collective consultation
• Carrying out trade union activities
• Being a Health & Safety Representative
• Being a representative in relation to working time regulations

Reductions to your Basic Award

Even if you are successful in your claim for unfair dismissal and the Employment Tribunal agree to award you compensation there are some circumstances where the Basic Award can be reduced.

Refusal to return to work for the Employer

If the Employment Tribunal order that the Employer re-instate you and/or the Employer makes an offer of reinstatement and you unreasonably refuse, the Employment Tribunal can reduce your Basic Award compensation.

The Employment Tribunal will look at all the circumstances involved including, the terms of the offer, the way that you were treated in the dismissal and your reasons for refusing.

If the Employment Tribunal are satisfied that you behaved unreasonably they can reduce the Basic Award by an amount that they consider reasonable.

If you are at fault in your dismissal

In this case the Employment Tribunal can reduce the basic award compensation by up to 100%.

The Employment Tribunal will look at your behaviour before dismissal and if they consider that you contributed to your dismissal, even if it were unfair of the Employer to dismiss you they will make a reduction in your compensation. They can also take into account your conduct even if it was not known by the Employer prior to your dismissal.

For example you are dismissed unfairly by the Employer but subsequently it comes to light that you have been running your own business in competition with the Employer whilst you were employed. The Employment Tribunal have decided that it was unfair to dismiss you, however because of your own conduct they can reduce the Basic Award compensation by up to 100%.

Redundancy payments

If you have received a payment from the Employer for redundancy and you are successful with a claim for unfair dismissal then the Basic Award will be reduced to reflect the fact that you have received the redundancy payment, which should be the equivalent of the Basic Award.

In the next article we will cover the compensatory award for unfair dismissal.