Wake-up call – How to defend your business against unfair dismissal claims

04 May 2012
Wake-up call – How to defend your business against unfair dismissal claims

Tribunals can be costly affairs, but how much will it cost if it all goes wrong, and what can an employer do to prevent it? Nicola McMahon explains

If an employee is unfairly dismissed, they may bring a claim against their employer seeking financial compensation for the way that they have been treated.

Recently, a scientist was awarded £30,000 in compensation by an employment tribunal for a constructive unfair dismissal claim after he resigned as a result of being bullied at work.

An employee may claim that they have been unfairly dismissed, either where their employer has actively dismissed them or if they resign in response to their employer's fundamental breach of the employment contract, which is commonly known as a constructive dismissal.

Compensation in unfair dismissal claims is split into two elements - a basic award and a compensatory award.

Basic award
The basic award is calculated according to a set formula:

â- A week's pay for each year of service between the ages of 22 and 40;
â- Half a week's pay for each year of service up to the age of 21.

For the purposes of the calculation, a maximum of 20 years' service is taken into account and a week's pay is capped at £430, resulting in a maximum basic award of £12,900.

But an employer can request a reduction in the award if the ex-employee has unreasonably refused an offer of reinstatement on the same terms and conditions, if their negligence led to their dismissal, and if they received statutory redundancy pay.

Compensatory award
There is no prescribed formula for the compensatory award, but this is based on the employment tribunal's view of the level of the claimant's financial loss. The compensatory award is capped at £72,300.

When setting the level of the compensatory award, employment tribunals usually consider standard heads of loss, including the following:
â- The employee's loss of salary and any loss of bonus or commission that the employee would have received from the date of dismissal to the date of the hearing;
â- The employee's future loss of earnings for such period as the tribunal thinks it will take the employee to secure a new job at an equivalent rate of pay;
â- The value of any promotion or salary increase that would have been applied during the period;
â- The value of lost benefits, for example, company car, medical insurance and life insurance during the period;
â- The value of pension contributions for the period and pension losses attributable to the dismissal;
â- Expenses incurred by the employee searching for a new job;

Both basic and compensatory awards of compensation for unfair dismissal can also be increased or decreased by up to 25% if either the employer or the employee unreasonable failed to follow the ACAS Code of Practice on Discipline and Grievances.

When defending claims it is useful for the employer to know what the employee is claiming and, therefore, if the tribunal does not order the individual to provide a detailed schedule of loss during the proceedings, this should be requested. In addition, the employee should be asked to provide evidence of the steps that they have taken to try and find alternative employment.

Once armed with this information, the employer can then prepare a counter-schedule seeking to rebut the employee's claimed losses and reduce the amount of any award.

It should be remembered that an employment tribunal can also make an order that an unfairly dismissed employee is reinstated to their role. An employer who does not want the employee back at work would then have to produce reasonable evidence as to why the tribunal should not grant such a remedy, and if a tribunal orders reinstatement or re-engagement and the employer refuses to take the employee back, the tribunal can make an additional financial award to the employee.

An unfairly dismissed employee could claim up to £85,200 in compensation, therefore the best approach is to avoid claims in the first place. It should also be borne in mind that where an employee may have other claims in addition to unfair dismissal, for example, discrimination, whistle-blowing or breach of contract, higher levels of compensation may be awarded.

Nicola McMahon is a solicitor at Charles Russell LLP

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