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Compensatory Awards in Unfair Dismissal Claims

on Thursday, 23 June 2022.

When calculating compensatory awards for unfair dismissal claims, any sums already paid by the employer to the employee will be deducted from the overall award before the statutory cap is applied.

In the case of Dafiaghor-Olomu v Community Integrated Care, Mrs Dafiaghor-Olomu succeeded in her unfair dismissal claim against her former employer, CIC. CIC paid the £46,000 compensation awarded at the first remedies hearing, but the award was increased to £129,000 following a successful appeal. The amount CIC had already paid was deducted from the overall award before the statutory cap was applied. This meant CIC effectively did not get credit for its earlier payment.

How Is Compensation Calculated in Unfair Dismissal Claims?

In an ordinary unfair dismissal claim, compensation is comprised of a basic award and a compensatory award. The basic award is calculated according to a statutory formula similarly to a statutory redundancy payment. It is currently capped at £17,130.

The compensatory award is an additional award that the Tribunal considers just and equitable in all the circumstances. The compensatory award is not calculated based on a prescribed formula, but is capped at the lower of 52 weeks' pay, or the statutory cap, which is currently £93,878 (and was £74,200 at the time of Mrs Dafiaghor-Olomu's claim). Section 124(5) Employment Rights Act 1996 (EAR 1996) provides that the cap applies after taking into account:

    • any payment made by the respondent to the complainant in respect of the mater
    • any reduction in the amount of the award required by any enactment or rule of law

What Payments Were Made in Mrs Dafiaghor-Olomu's Claim?

The Tribunal initially awarded Mrs Dafiaghor-Olomu compensation of £46,000, which CIC paid in full. Mrs Dafiaghor-Olomu appealed against the fact the Tribunal had not ordered her re-engagement. The Tribunal again refused to order re-engagement, but it did increase the compensation to £129,000 in light of further evidence that was by that time available. Mrs Dafiaghor-Olomu sought reconsideration of the remedies judgment and appealed to the EAT when this was unsuccessful.

What Did the EAT Determine?

The EAT had to consider what amount of compensation was due to Mrs Dafiaghor-Olomu after the second remedies hearing, bearing in mind she had already received £46,000 from CIC.

Deducting £46,000 from the increased compensation of £129,000 and then applying the statutory cap, left an outstanding payment of £74,2000 due to Mrs Dafiaghor-Olomu. However, if the statutory cap was applied first, and the £46,000 then deducted, the outstanding sum due to Mrs Dafiaghor-Olomu would be £28,000. The EAT held that in light of the wording of section 124(5) ERA 1996, the statutory cap should be applied after the earlier payment was deducted from the total compensation sum, so Mrs Dafiaghor-Olomu would have been paid £46,000 plus a further £74,200 after the compensatory award was increased.

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What Can Employers Learn from This Decision?

The EAT recognised this is a harsh outcome for CIC. It is not yet known whether CIC will appeal. However, the case acts as a useful reminder of the order of adjustments on the compensatory award. The appropriate process for a Tribunal to follow in order to calculate the compensatory award is to establish the claimant's losses, and then make the necessary adjustments. The statutory cap is applied after all other adjustments have been made. Employers should be mindful of the order of adjustments when making payments to employees, and should tie payments up under settlement agreements wherever possible.

For assistance with unfair dismissal claims, please contact Rory Jutton in our Employment team on 0117 314 5286 or complete the form below.

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