Unfair Dismissal Compensation

Understanding how unfair dismissal compensation is calculated helps you assess the value of your potential claim.

Two Types of Award

Basic Award

Calculated like statutory redundancy pay:

• Based on age, service, and weekly pay
• Formula-driven
• Capped amounts apply

Compensatory Award

Based on actual losses:

• Financial losses from dismissal
• Past and future
• Subject to statutory cap

Basic Award Calculation

The Formula

• 0.5 week's pay for each year of service aged under 22
• 1 week's pay for each year aged 22-40
• 1.5 weeks' pay for each year aged 41+

Limits

Factor	Limit
Maximum years counted	20
Weekly pay cap	£700 (2024-25)
Maximum basic award	£21,000

Example Calculation

Employee aged 45, 12 years' service, earning £800/week:

• Years aged 22-40: 7 years × 1 week × £700 = £4,900
• Years aged 41+: 5 years × 1.5 weeks × £700 = £5,250
• Total basic award: £10,150

(Actual pay is £800 but capped at £700)

Compensatory Award

What It Covers

Loss Type	Examples
Immediate loss of earnings	Salary from dismissal to hearing
Future loss of earnings	Projected lost income
Loss of benefits	Pension, car, healthcare
Loss of statutory rights	Need to rebuild 2 years' service
Expenses	Job search costs

The Cap

Compensatory award is limited to the lower of:

• £115,115 (2024-25), OR
• 52 weeks' gross pay

No Cap For

• Some automatically unfair dismissals (whistleblowing, H&S)
• Discrimination claims

Calculating Losses

Immediate Loss of Earnings

From dismissal to tribunal:

• Net weekly pay × weeks without work
• Minus any earnings in new job
• Minus any benefits received

Future Loss of Earnings

From tribunal onwards:

• Estimated weeks to find equivalent job
• Or difference if new job pays less
• Tribunal estimates based on circumstances

Loss of Benefits

Value of lost benefits:

Benefit	How Valued
Pension	Employer contributions
Company car	BIK value or cash equivalent
Healthcare	Premium cost
Life insurance	Premium cost
Other	Reasonable valuation

Loss of Statutory Rights

Nominal sum for:

• Having to rebuild unfair dismissal rights
• Typically £500-700

Reductions to Compensation

Contributory Fault

If your conduct contributed to dismissal:

• Tribunal assesses percentage
• Both awards reduced by that percentage
• Can be up to 100%

Examples:

• Admitted misconduct but sanction too harsh = partial reduction
• Deliberate serious misconduct = substantial reduction

Failure to Mitigate

You must take reasonable steps to find work:

• Apply for suitable jobs
• Accept reasonable offers
• Don't turn down opportunities without good reason

If you fail to mitigate:

• Compensation reduced
• Reflects what you should have earned

Polkey Reduction

Named after Polkey v AE Dayton Services:

If fair procedure would have made no difference:

• Tribunal considers what would have happened
• May reduce compensation
• Sometimes to zero (if dismissal inevitable)

Example:

• Unfair process, but employer would have discovered misconduct anyway = significant reduction

ACAS Uplift

If employer unreasonably failed to follow ACAS Code:

• Tribunal can increase compensation by up to 25%
• Applies to basic and compensatory awards

Order of Calculation

Step by Step

1. Calculate basic award
2. Calculate compensatory award (losses)
3. Apply Polkey reduction (if any)
4. Apply contributory fault reduction
5. Apply ACAS uplift (if applicable)
6. Apply statutory cap
7. Deduct any payments made (e.g., ex gratia)

Example

Employee unfairly dismissed:

Step	Amount
Basic award	£8,000
Compensatory award (losses)	£30,000
Polkey reduction (20%)	-£6,000
Subtotal	£24,000
Contributory fault (25%)	-£6,000
Subtotal	£18,000
ACAS uplift (15%)	+£2,700
Total compensatory	£20,700
Basic + compensatory	£28,700

Recoupment

What It Is

If you received benefits (Jobseeker's Allowance, etc.):

• State may recoup from employer
• Reduces what you receive directly
• Employer pays state, not you twice

How It Works

• DWP notifies tribunal
• Employer pays recoupable amount to state
• You receive the balance

Other Remedies

Reinstatement

Tribunal orders employer to give you old job back:

• Same job, same terms
• Back pay awarded
• Rare in practice

Re-engagement

Tribunal orders employer to re-employ you:

• Different but comparable job
• Terms as tribunal specifies
• Also rare

Why Compensation Is Usual

Reinstatement and re-engagement:

• Require employer cooperation
• Often impractical
• Relationship usually damaged
• Compensation more common

Practical Considerations

Evidence Needed

Prepare evidence of:

• Your earnings (payslips, P60)
• Benefits received (letter from employer)
• Job search efforts (applications, rejections)
• New employment (if any)
• Ongoing losses

Schedule of Loss

Prepare a document showing:

• Past losses (itemised)
• Future losses (with explanation)
• Benefit losses
• Other heads of loss

Realistic Assessment

Consider:

• Likelihood of success
• Potential reductions
• Costs of proceeding
• Settlement value

Settlement Considerations

Assessing Settlement Offers

Compare offer against:

• Best case compensation
• Risk-adjusted value
• Costs and stress of proceeding
• Time to resolution

Negotiation

Use compensation calculation to:

• Value your claim
• Negotiate settlement
• Assess whether offer is reasonable