by Kate Russell

Compensation for unfair dismissal

The costs of unfair dismissal are high. Applications for unfair dismissal form about half of the applications made to tribunal every year, and employees win approximately 40 per cent of these cases.


This is where an employment tribunal places an employee back in his old job and pays compensation for the loss of wages for the time out of the job.


The employee returns to a similar job with the employer.

It is very rare for either reinstatement or re-engagement to be ordered by an employment tribunal.


This is split into the Basic Award and the Compensatory Award. When awarding compensation for unfair dismissal, the tribunal will have to take into account whether the applicant tried to resolve the dispute by using the employer’s appeal procedures before making an application to the tribunal.

  • Basic Award

This is calculated on the same basis as statutory redundancy – by taking the employee’s age, years of service and average weekly pay calculated at the current statutory rate to arrive at a figure.

  • Compensatory Award

Damages here are designed to compensate a party and put him in the same position he would be in if the contract had been properly carried out. The award is intended to compensate the employee for financial loss relating to the dismissal, including expenses and loss of benefits.

This normally includes the correct amount of money for the correct notice period. It can also include any wages/salary that have not been paid.

The upper limit for the compensatory award element of unfair dismissal compensation is index linked and reviewed annually. Increases take effect on 6th April each year. The compensatory award is now capped at 52 weeks' pay or the upper limit of the current award, whichever is the lowest.

For current levels see Statutory rates.

In reaching a compensatory award, the tribunal will consider the following six factors.

1. Loss of wages

This is from the date of dismissal until the tribunal hearing, net of tax and national insurance contributions. If notice was given to the employee, the time will run from the end of the notice period until the hearing. If the employee claims benefit during this time, this will be taken into account and taken off the final amount.

2. Future loss of wages

The tribunal will estimate how long the employee will remain out of work in the future. This is based on their age and experience and the market demand for their type of skills. An employee who already has a new job will not receive this award.

However, if the new job pays less than the old one, the tribunal will award a figure for the time it takes for the employee’s pay to rise to the previous figure earned in the previous job. There is obviously a lot of guesswork involved here.

3. Loss of benefits

These include health care, work car and so on.

4. How dismissed

The calculation of compensation takes into account a dismissal which is carried out in such a way as to make it harder for the employee to find a new job. The tribunal does not include hurt feelings as part of the calculation.

5. Loss of employment protection

The employee will start off again from zero in any new job and will have to work for one year with his new employer to regain unfair dismissal protection. The tribunal will also award compensation for the loss of notice period gained under the previous job.

6. Loss of pension rights

The tribunal will usually follow certain guidelines to work out this figure.


Deductions may be taken from the basic and compensatory awards for several reasons.

Basic award deductions

The tribunal will reduce the Basic Award in the following circumstances:

  • If the employee unreasonably refuses an offer to be reinstated
  • The employee is partly to blame for his own dismissal
  • Conduct before the employee was dismissed (this does not have to be linked with the actual dismissal and can still be taken into account if it is discovered after the dismissal)
  • Redundancy payments already paid to the employee where the dismissal was due to redundancy
  • Ex-gratia payments expressly or impliedly connected to the basic award.

Compensatory award deductions

The tribunal will make the following deductions from the Compensatory Award:

  • Redundancy payments under the employee’s contract
  • Payments made by the employer to the employee due to the dismissal
  • Deductions will also be made where the employee shares some blame for their dismissal
  • Deductions where the employee has not made an effort to find a new job or has refused suitable job offers – obviously the tribunal wants to avoid the situation where an ex-employee sits back and waits for the maximum compensation to come rolling in
  • Where the dismissal was actually fair, but the way it was carried out was unfair, the award will be reduced.
  • If the employee was given written notice that an appeal procedure was available, but chose not to appeal – the compensation can be reduced by up to two weeks in these circumstances, but can be increased by up to two weeks if the employer prevented the employee using the appeals procedure.

Any Income Support or Jobseeker’s Allowance received by the employee while not working will be recouped by the DWP who will serve a notice on the employer. The employer then only pays the employee the compensation minus the recoupment figure.

Additional award

If the tribunal asks the employer to re-engage or reinstate the employee and the employer refuses, the tribunal will make these awards against the employer on top of the Basic and Compensatory Awards. The award will be between 26 and 52 weeks’ pay up to the current statutory weekly maximum.

If the employer refuses to take the employee back, the tribunal can also award over these figures if the employee has in fact lost a lot more than this.