Unfair dismissal compensation

To bring an unfair dismissal compensation claim, an employee must have worked for the employer for two or more years. There are a few exceptions, e.g. if the claim relates to automatic unfair dismissal, discrimination or whistleblowing.

How is unfair dismissal compensation calculated?

There is a set formula for awarding unfair dismissal compensation, although the actual amount awarded will vary from case to case.

Compensation normally consists of two elements: the basic award and the compensatory award.

How is the basic award calculated?

A fixed formula is applied which multiplies the employee’s age, years of service and average weekly pay.

At the time of writing (June 2021) the weekly pay figure is limited to a maximum of £544 per week, and years of service is limited to a maximum number of years (namely 20). The weekly pay figure changes annually, at the start of April.

The multiplier used in calculations is dependent on the claimant’s age:

Half a week’s pay for each year of service, below the age of 22
One week’s pay for each year of service, over the age of 22
One-and-a-half weeks’ pay for each year of service, over the age of 41

Basic award deductions

The tribunal can make deductions in some circumstances:

If the employee unreasonably refuses an offer to be reinstated.
If the employee contributed in some way to the dismissal.
If a redundancy payment has already been paid to the employee, where the dismissal was due to redundancy.

How is the compensatory award calculated?

The compensation element of the award reflects the money an employee has lost due to their dismissal.

The award calculation begins by multiplying the employee’s net weekly salary, including all benefits, by the number of weeks they have been out of work.

An employee may also be entitled to compensation for loss of future earnings and loss of their employment rights.

Sums obtained through alternative employment or received as state benefits will be taken into account.

If the employee has not found another job, they will need to work out how long it could take and provide evidence of what efforts have been made to secure a new job.

Other award considerations

The compensation award may also include an amount to reflect the fact that it will take two years in a new job to get the right to claim unfair dismissal (loss of employment rights). There is no set figure for this, but awards are generally in the region of £250 to £500.

The employee has a responsibility to mitigate any loss by looking for other jobs. A tribunal may reduce the award if they find that the employee did not make a reasonable effort to do so.

At the time of writing (June 2021) the compensatory award is capped at £89,493 or 52 weeks’ gross salary – whichever is lower. The figure rises annually in April, in line with economic inflation.

Unlimited awards

There are a few circumstances in which the compensation can be unlimited:

If an employee is dismissed for raising a health and safety concern
If an employee is dismissed for making a protected disclosure (whistleblowing)
If an employee’s dismissal is a result of discrimination, namely on the grounds of sex, age, race, disability, etc.

Time limits on unfair dismissal claims

Strict time limits generally apply when bringing a claim for unfair dismissal.

A claim must be lodged before the end of a three-month period. This begins with the effective date of termination. If an employee submits a claim after this deadline, they can apply to the Tribunal who may, in their discretion, extend the time limit where it was not reasonably practicable for the employee to present their claim in time and they presented their claim within a reasonable period.

The date of dismissal

The date of dismissal will be relevant to the maximum awardable amount. For example, for dismissals after 6th April 2021 the limit is £89,493. For claimants dismissed on or after 6th April 2020 and before 6th April 2021, the compensation cap is £88,519. These caps change annually.

Need help with an unfair dismissal claim?

Whether you are an employee seeking to submit an unfair dismissal claim, or an employer who would like to discuss an unfair dismissal claim brought against them, our team of experienced employment law solicitors possess the knowledge and expertise to provide you with accurate and professional legal advice. Get in touch today for an initial consultation.

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