Understanding the statutory cap on compensation for unfair dismissal

A recent tribunal decision serves as a warning to employers as to what might happen when an award is reconsidered, says Guy Guinan

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An employer facing a claim for unfair dismissal may have to pay substantial compensation. The amount will depend on the losses that flow from the dismissal taking into account what is just and equitable. However, a statutory cap will generally apply to limit the total amount that the employer might have to pay. The current cap is the lower of £93,878 and 52 weeks’ wages, the fixed amount being reviewed each year. 

The application of the statutory cap failed to be considered in the recent case of  Dafiaghor-Olomu v Community Integrated Care, where the employment tribunal had to consider what was the appropriate remedy for the claimant in relation to their dismissal for the second time. The key issue was at which point in the calculation was the statutory cap to be applied.

Mrs Dafiaghor-Olomu had been successful in her claim for unfair dismissal. However, the tribunal refused to order re-engagement as she had requested, but instead awarded compensation of £46,153.55. The employer paid the full sum of money as ordered. 

Dafiaghor-Olomu appealed the refusal of her application for re-engagement. The Employment Appeal Tribunal (EAT) decided that the tribunal should consider the issue again and remitted the case back for a second remedies hearing. 

At this hearing the employment tribunal again refused to order re-engagement but found that the original compensatory award was insufficient in light of new evidence.

A new award was made for the increased sum of £128,961.59. The employer was ordered to pay the maximum compensatory award, which was at the time £74,200. However, the employer had already paid £46,153.55 and appealed on the grounds the sum already paid should be deducted from the maximum compensation award of £74,200 rather than from the total sum awarded of £128,961.59.

The EAT, considering the case for a second time, accepted that the compensatory award should be ‘just and equitable’ – having regard to the circumstances and taking into account any payment made to the complainant in respect of the matter. 

If the statutory cap was applied first and the payment already made was deducted second, the outstanding compensation due to Dafiaghor-Olomu would be only £28,046.45.

It was held that the calculation of the compensatory award had to be calculated after ‘taking into account’ prior payments in accordance with the statutory provisions. The intention was that the employment tribunal should fix the sum it would, apart from the statutory cap, award by way of compensation and then apply the cap. The £46,153.55 paid reduced the £128,961.59 award to £82,808.04. It was only at this point that the statutory cap of £74,200 was applied. 

Key points

From a claimant’s perspective the decision will be welcomed on the basis that as much of the total compensation awarded as possible should be given as the statutory cap will still mean they have not fully recovered their losses.    

However, there was considerable sympathy for the employer in this case. In paying the award promptly after the initial hearing they complied with what they perceived to be their duty without realising that the award might later be increased and without credit being given for the sum paid. The employer had ended up having to pay £46,153.55 plus £74,200, instead of just £74,200.

The decision serves as a clear warning to employers as to what might happen where an employment tribunal has to reconsider the compensatory award. In particular employers should be cautious where the claimant has made an unsuccessful application to be re-engaged or where there has been disputed issues relating to the measure of loss that might lead to an appeal. 

Guy Guinan is an employment partner at Gateley Legal