Annual update for statutory redundancy payments and compensation limits in tribunals

From April 6th 2018 the employment tribunal compensation limit has increased from £80,541 to £83,682. The corresponding increase in a week’s page is from £489 to £541.

In fact, unfair dismissal compensation is set to a maximum of £83,682 (from 2018) or a year’s pay whichever is the smaller. The change to apply a cap of a year’s pay came into force in the summer of 2013. There are a limited number of exceptions where the maximum limit does not apply. Compensation is based on a calculation worked out in 4 ways but is overall that sum which the Tribunal considers just and equitable. In working out what to pay the Tribunal start with a calculation of actual losses. This takes into account pay and benefits and what you actually lost from the time of dismissal to the date the assessment is made.

A year’s pay needs further clarification. For dismissals from 29 July 2013, a new limit on the unfair dismissal compensatory award applied. It is now the lower of the maximum set out above (the current limit) or 52 times the ex-employee’s “week’s pay”. A “week’s pay” is calculated rigidly under provisions in the Employment Rights Act 1996. It is either remuneration payable under the contract for working normal hours in a week or, where the remuneration varies with the amount of work done, the average remuneration payable “under the contract of employment” over the 12 weeks prior to dismissal. There are a few issues with this. One is that “remuneration” does not normally include benefits in kind such as pension, car, health cover and so on. Secondly, if bonuses are discretionary, they may not be considered to be payable “under the contract of employment” and so may be excluded from the definition of a week’s pay. In addition, although the statutory definition of “week’s pay” does allow annual contractual bonuses to be apportioned in a “just” manner in respect of the 12-week period it may well not be possible to quantify the bonus that would be payable for the period. Case law has required that, in order to be included, the pay needs to be capable of being computed at the relevant date. In addition, the law on which bonuses can and can’t be taken into account is complicated and in part depends on whether bonus or commission depends on the amount of work done. For some people commission does not depend on the amount of work, for example, they might work for a year or for a week on a deal but still get the same commission. Proper advice will need to be taken if and when necessary on this point. Other issues include the fact that some people will have sacrificed salary for employer pension contributions. Such sacrificed salary may well not be included within the definition of a “week’s pay”.

Unfairly dismissed employees also are entitled to a basic award which is calculated almost exactly as a redundancy payment is. Employees do not get a basic award if they have already had a redundancy payment.

A good question to ask if you are considering an unfair dismissal claim is ‘in what circumstances might I be awarded compensation in an employment tribunal having been dismissed’. In my view, there are three things that need to happen for you to be awarded compensation:

1. you have to win your unfair dismissal claim;
2. the thing(s) that caused your dismissal to be unfair have to have made a difference to the eventual outcome; and
3. you have to suffer loss.

These three things are really important. They are not well understood by people bringing employment tribunals or even some solicitors.

The first of the three tests above is ‘you have to win your unfair dismissal claim’ – this is the most obvious one. If you lose you don’t get anything – it’s that simple. The second test, however, is a killer for many ex-employees. It works like this: many dismissals are unfair but only technically unfair. For example, if I am caught ‘red-handed’ stealing from my employer and sacked on the spot, my dismissal is going to be unfair because there was no disciplinary meeting. However, the most that can be said about the unfairness of the dismissal is that it wouldn’t have made much difference to the eventual outcome as I deserved to be dismissed. As such, I might only get 2 weeks or so wages for the length of time it would have taken to organise a disciplinary meeting. In a redundancy situation, this test is best approached by looking at whether your job has genuinely gone, whether there are any alternative jobs and whether you can think of something that the company could have done that would have made a difference. In a redundancy dismissal case, an example is that of a manager who is in a unique role which has genuinely disappeared. In the absence of any alternative roles and providing that there was at least some consultation, it is difficult to see how he or she would be awarded any compensation even if the dismissal was unfair. For those of an inquiring mind, the case that this point relates to is Polkey v A E Dayton Services Limited [1987] IRLR 503 HL and the reduction in compensation is called a Polkey reduction.

The third test above relates to how compensation is awarded in a tribunal. The rule is simple: you have to suffer loss to be awarded compensation. This means that even the most unfair dismissal in the world won’t result in any compensation if the employee has got a new job at the same rate or higher before he or she suffered any loss. For example, if I was unfairly dismissed with three months’ pay in lieu of notice and two weeks’ holiday pay then I will not suffer any loss for 3½ months. If I get another job at the same rate in that time, then no compensation would be awarded. Of course, things are rarely that straightforward and if, for example, the new job involved more travel expenses or fewer benefits then I might be able to claim something. This point about compensation is worth taking into account when considering when and if you should try and settle your case. The rough rule of thumb to work with is if you think you are going to be unemployed for a short time then try and settle quickly for whatever you can get before your ex-employer finds out you have another job. On the other hand, if you think you are going to be unemployed then, after taking into account you may run out of money quickly, try and hang on and delay matters as, if and when you get to tribunal, your losses are going to be greater. Of course, you have to bear in mind the tribunal time limits.