How is Unfair and Wrongful Dismissal Compensated?

Question

how is compensation for unfair and wrongful dismissal calculated?

Answer

Unfair Dismissal

Section 118 of the Employment Rights Act 1996 sets out that compensation for unfair dismissal is calculated on two levels:

• a basic award; and
• a compensatory award.

On a simplistic basis, this is calculated as follows:

The Basic Award

The basic award is calculated in accordance with s.119 of the Act by determining the years of continuous employment, ending with the effective date of termination and multiplying this by the appropriate amount. Section 119(2) and (3) set out the appropriate amount guidelines as follows:

• (a) One and a half weeks’ pay for a year of employment in which the employee was not below the age of forty-one,
• (b) One week’s pay for a year of employment (not within paragraph (a)) in which he was not below the age of twenty-two, and
• (c) Half a week’s pay for a year of employment not within paragraph (a) or (b)
• (3) Where twenty years of employment have been reckoned under subsection (1), no account shall be taken under that subsection of any year of employment earlier than those twenty years.

The Compensatory Award

This calculation has a less formulaic approach and s.123 of the Act states this is calculated on a case by case basis on what is considered to be just and equitable in the circumstances .

Wrongful Dismissal

The compensation for wrongful dismissal is calculated in accordance with the notice period of the contract. It represents the amount that would have been payable had notice been given . This is accordingly usually much lower than the compensation awarded for unfair dismissal.

References

The Employment Rights Act 1996

Astra Emir ‘Selwyn’s Law of Employment’ (17th Edition, OUP, 2012) page 434