Levels of compensation awarded for a claim of unfair dismissal

Compensation for unfair dismissal

Compensation for an unfair dismissal claim is made up of two different components:

  • Basic award
  • Compensatory award

Basic Award

A basic award is calculated along the same ground as a redundancy payment. For example this will be based on age and length of service.

Compensatory Award

A compensatory award is based on the actual financial loss that can be attributed to the employer who the claim of unfair dismissal is brought against.

What is the maximum amount that I can be provided for a compensatory award?

There has been a change to the maximum compensatory award available for unfair dismissal. This was brought into place in 2010.

What is the new change to the compensatory limit?

The maximum compensatory award for unfair dismissal has now been reduced to £65,300 from £66,200.

What factors may cause variations in the compensatory award?

The compensatory award may vary but in all cases will be based upon the loss that an individual can prove they have suffered due to the fact that they were dismissed by their employer.

What will this loss be?

This loss will be the difference between what an individual would have earned and any new income which that individual has earned or received after the dismissal.

What factors will be included in the calculation of what an individual may have earned?

The following factors will be included in the calculation of what an individual may have earned:

  • Overtime
  • Bonuses
  • Pension and other benefits

When will the loss be calculated up to?

The loss will be calculated up to the date of the hearing of the case for unfair dismissal. In most cases there will also be an allowance for a period of future loss.

When will the allowance for future loss become available?

The allowance for future loss will come available if the individual has not found another job which pays roughly the same wage as the job in which they were unfairly dismissed from.

If an individual has been unfairly dismissed will they be expected to find other work?

The tribunal hearing the case will expect an individual to do everything that they can do to mitigate the loss experience by gaining other work.

Are there any other factors which may reduce the loss?

The tribunal will also take into consideration and social security benefits that an individual may receive when out of work or any other income which they have received.

What factors may affect the amount of compensation which I will be awarded?

The following factors may be taken into account when establishing the amount of compensation to be provided in a case of unfair dismissal:

  • Loss of pension rights
  • Intervening act
  • Starting a new business
  • Difficult job market

Loss of pension rights

If an individual was a member of the pension scheme at their previous job and they now find themselves in an inferior scheme – or no scheme at all – the individual may be able to claim for this as part of their compensatory award.

Intervening Acts

If an individual making a claim for compensation for unfair dismissal has obtained a new job in the intervening time but gives it up voluntarily or is dismissed or made redundant then any losses that individual incurs after the losing the new job will no longer be the fault of the ex-employer.

However, this will not apply when the new job is a temporary job.

Starting a new business

If an individual starts a new business then their ex-employer may argue that they have failed to mitigate their loss due to the fact that the individual has no looked for another job.

However, if that individual is able to show that no other opportunities were available to them and if they are able to show that they have drawn up a business plan which shows that their business idea is a potentially viable and profitable one then they may be able to be compensated for an initial period.

Difficult job market

If an individual is still unemployed or is earning less than they used to by the time their case is heard, the tribunal will normally estimate the individuals future loss at between six months and a year.

If an individual wishes to gain compensation for a period longer than this then they will be required to show that they are very unlikely to get a job at all or one at the same level of pay.