What is unfair dismissal? Will I really have to pay the maximum financial compensation?
What is unfair dismissal? Will I really have to pay the maximum financial compensation?

What is unfair dismissal? Will I really have to pay the maximum financial compensation?

As an employer, dismissing an employee is one of the most difficult things that you may have to do. No matter what the circumstances are, it’s essential to ensure that whoever you’re dismissing is treated with dignity and that you avoid receiving a claim for unfair dismissal. There are policies and procedures that must be followed to dismiss someone fairly, as well as other legal considerations. The process of a dismissal is going to change depending on what kind of dismissal you’re dealing with. This guide will assist you by covering the following (please note the rates stated are correct for 2016/17, check the current statutory rates for the most up to date rates):

  1. The definition of unfair dismissal
  2. Can any employee claim unfair dismissal?
  3. What is the difference between a basic and compensatory award?
  4. Will I really have to pay a total of £93,332 if the employee wins an unfair dismissal claim?
  5. Next steps

The definition of unfair dismissal

  • Unfair dismissal is a term in employment law to describe an act of employment termination without good reason, or contrary to UK’s employment legislation.
  • In certain situations, an employee can take legal action against an employer if they feel that they have been dismissed without good reason. In summary, there are 5 potentially fair reasons for dismissal:
  • a reason related to an employee’s conduct
  • a reason related to an employee’s capability or qualifications for the job
  • because of a redundancy
  • because a statutory duty or restriction prohibited the employment being continued

some other substantial reason of a kind which justifies the dismissal, i.e. the non-renewal of the fixed-term contract of an employee recruited as maternity leave cover

Can any employee claim unfair dismissal?

To submit a claim to a tribunal, an employee must have a minimum of two year’s continuous service with the Company.

However, if an employee is claiming automatic unfair dismissal, then no qualifying period applies. An employee can submit a claim for automatic unfair dismissal for any of the following:

  • pregnancy, including all reasons relating to maternity
  • family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
  • acting as an employee representative
  • acting as a trade union representative
  • acting as an occupational pension scheme trustee
  • joining or not joining a trade union
  • being a part-time or fixed-term employee
  • discrimination, including protection against discrimination on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation (in Northern Ireland, this also includes political beliefs)
  • pay and working hours, including the Working Time Regulations, annual leave and the national minimum wage
  • whistle blowing
  • compulsory retirement (unless this can be objectively justified)

What is the difference between a basic and compensatory award?

In the event that an employment tribunal agrees that an employee has been unfairly dismissed a basic award is mandatory. The employee may also be awarded a compensatory award.

The employee could be awarded with financial compensation of up to a maximum £93,332. This is made up of a basic award of £14,370 and a compensatory award of up to £78,962. These maximum awards are reviewed on an annual basis.

If an employee wins an unfair dismissal claim which relates to automatic unfair dismissal, there is no cap on the amount of financial compensation incurred by a company.

Any award made by the tribunal to a successful Claimant is calculated on the basis of the Claimant’s losses up to the date of the hearing and potentially, beyond.

Basic Award

The basic award is calculated in a similar way to a redundancy payment. The calculation involves multiplying the relevant factors of length of continuous service, age and a week’s pay as at the effective date of termination:

  • One and a half week’s pay for each year of employment after the age of 41;
  • One week’s pay for each year of employment between the ages of 22 and 40;
  • Half a week’s pay for each year of employment under the age of 22.
  • A cap of 20 years is placed on the period of continuous service and one week’s pay is capped at £479

Compensatory Award

The Tribunal must consider whether or not it is appropriate to make an award of compensation. The objective of such an award is to compensate fully but not to award a bonus.
Unlike the basic award, calculation of the compensatory award does not rely on any prescribed formula. The different heads of loss which the Tribunal must consider when calculating a compensatory award are:

  • Immediate loss of wages;
  • Manner of dismissal;
  • Future loss of wages;
  • Loss of employment rights;
  • Loss of pension rights.

In assessing the Claimant’s losses arising from the unfair dismissal as a matter of practice, the Tribunal will consider past and future loss. It can include expenses reasonably incurred by the employee and will also include a sum for loss of statutory rights. The award is subject to a maximum amount, which is reviewed each year. The employee is under a duty to minimise their losses, so should be ready to demonstrate their attempts to find alternative employment.

Will I really have to pay a total of £93,332 if the employee wins an unfair dismissal claim?

A company can put the following cases forward to try and reduce any award made to the claimant and should be taken into account by the tribunal:

  • Sums already paid to the employee on or following dismissal such as a redundancy payment, notice payment or an ex gratia payment to a Tribunal;
  • Any state benefits the employee has received;
  • A “Polkey deduction”. This term is based on a case called Polkey vs Dayton Services. The compensatory award for this case was reduced to reflect that the employee would have been dismissed in any event and that the company’s procedural errors made no difference to the outcome;
  • Contributory fault, whereby the compensatory award should be reduced because the employee’s conduct contributed to the dismissal;
  • The employee failed to mitigate their loss;
  • The employee failed to comply with the ACAS code

Next steps

In the event that you are going to dismiss an employee, please consider the following prior to taking any action:

  • Ask yourself whether you are acting reasonably given the event or circumstances leading to a potential dismissal.
  • Consider whether the reason you may dismiss an employee falls under one of the 5 fair reasons for dismissal.
  • Ensure that you have been reasonable in your actions and not discriminated against a particular group.
  • Document all steps you have taken in acting reasonably, considering business rationale, being objective and following any procedures.
  • Follow the ACAS procedures as a minimum as well as your internal procedures when dealing with a disciplinary or grievance.
  • Seek advice from one of our CIPD qualified HR Manager’s for expert advice on preventing an employment claim landing on your desk.

Need Help?

Take a look at our handy infographic and video animation for further details on the do’s and don’ts when dismissing an employee here. Having the peace of mind to know that someone is there to advise and guide you through dealing with dismissals can save you time and reduce any risks. PlusHR offer practical, legally compliant HR advice to support you with HR issues. We can be “hands on” and deal with the issues on your behalf or be there behind the scenes to advise and guide. Learn more and sign up for a free trial here.

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