When considering the potential dismissal of an employee, UK employers understandably want to know what their maximum financial exposure could be if things go wrong. There is, however, often no simple answer to this question. When dismissing an employee there are, from a legal perspective, many variables at play making it difficult to provide a definitive figure. This update highlights some specific aspects of the awards which employment tribunals can make which are easily overlooked in terms of expenses, costs and the additional financial penalties for breaches of employment rights with “aggravating features”.

Potential claims

There are three main types of claim which employees can make as a result of their dismissal:

  • Wrongful dismissal - employers will be liable for contractual damages for wrongful dismissal if the employee is dismissed in breach of contract. This claim will be for the value of the net loss to the employee of salary and benefits during the applicable notice period, subject to the duty to mitigate loss.  
  • Unfair dismissal - subject to limited exceptions, where an employee with at least two years’ continuous service is found to have been unfairly dismissed, and leaving aside the risk that the employer is ordered to reinstate or re-engage the employee, the employer will face liability for the “basic award” (which is payable if the employee has not received a statutory redundancy payment and which is calculated on the same basis by reference to the employee’s age, length of service and weekly pay) and the “compensatory award” which is – subject to certain exceptions where dismissal is due to whistleblowing or health and safety issues – capped at the lower of £76,574 and 52 weeks’ gross pay.  
  • Unlawful discrimination - an employee may be able to recover additional compensation if the employee’s dismissal also constitutes unlawful discrimination on grounds of one of the “protected characteristics” set out in the Equality Act 2010. Again, there is no cap on the compensation which can be recovered and, in addition, depending on the circumstances compensation can be awarded for injury to feelings and, in extreme cases, “aggravated” and “exemplary” damages.  

Assessing maximum exposure

Discrimination and whistleblowing claims in particular can lead to very substantial compensation awards and complex arguments about the extent of those awards. Even if there is no whistleblowing or discrimination element, it is not the case that the employer can safely assume that its maximum exposure on a dismissal is the total wrongful and unfair dismissal liability. The employer cannot assume that its maximum exposure is “notice plus maximum unfair”. There are various other potential liabilities which could inflate the overall bill.

Payment of tribunal fees and expenses

In relation to the expenses which the claimant incurs in bringing a claim, the employment tribunal has a discretion to order the employer to reimburse the employee for the fees which the individual has paid in bringing the claim where the employee has paid a tribunal fee and his/her claim is successful (whether in whole or in part). Save where the employee is eligible for “remission” from the requirement to pay tribunal fees, which is based on the individual’s personal financial circumstances, the fee for issuing an individual unfair dismissal or discrimination claim is currently £250 and the hearing fee for such a claim is currently £950. Orders for the reimbursement of tribunal fees are now common where an employee successfully brings a claim against his/her employer and has incurred the tribunal fees in doing so and this needs to be factored into the assessment of overall potential liability.

Costs awards against the employer

Adverse costs awards can be made against respondent employers in the same way as they can against claimant employees in the limited circumstances provided for by the tribunal rules.

Where the employer has acted vexatiously, abusively, disruptively or otherwise unreasonably in either bringing the proceedings or the way that the proceedings have been conducted, or where the employer’s defence to the claim had no reasonable prospect of success, the tribunal can order the employer to:

  • pay some or all of the employee’s legal costs incurred in bringing claims against the employer in the employment tribunal; or  
  • make a payment in respect of the time the employee spent working on a case if he/she was not legally represented (known as a “preparation time” order); and  
  • pay the expenses incurred by another party or witness attending a hearing to give evidence.  

Costs awards against employers (and indeed employees) may be rare but when defence of a case is difficult to justify the risk of the successful employee making a costs application should not be ruled out.

Financial penalties for breaches of employment rights with “aggravating features”

In respect of claims brought against an employer on or after 6 April 2014 employment tribunals may impose a financial penalty on employers against whom a successful claim is brought where there has a breach of the individual’s statutory rights which has one or more “aggravating features”. This power is separate from and should not be confused with the concept of aggravated damages in relation to discrimination claims.

The amount of the penalty is subject to a minimum of £100 and a maximum of £5,000, although it is halved if paid within 21 days. The penalty is paid to the Government, rather than the employee, and may be ordered by the tribunal even where it has not made a financial award against the employer in respect of the claim itself. That said, where a financial award has been made in respect of the employee's claim, the penalty must be 50% of the award (subject to the minimum and maximum limits described above). In deciding whether to order a penalty and in determining the amount of a penalty, the tribunal must also have regard to the ability of the employer to pay the penalty. As yet there is no case law guidance as to how this power will be operated in practice by tribunals.

“Section 38” claims

Section 38 of the Employment Act 2002 provides for an additional award to be made to an employee who brings a successful claim in the employment tribunal if the employer has not issued the employee with the requisite written particulars of employment required to be provided under section 1 of the Employment Rights Act 1996. This is the statement summarising key terms of employment that must be given to the employee within one month of commencement of employment setting out the applicable particulars relating to matters such as remuneration, job title, place of employment, disciplinary and grievance procedures, pension schemes and various other specified terms of employment.

The penalty for failure to provide the required particulars, when a successful employment claim is made, is an award of 2 or 4 weeks’ pay. This claim cannot be brought separately – the award is only made where another employment claim is successful but can further inflate the amount which the employee can recover.

Conclusions

In light of the various types of claim that employees may bring, and the different bases upon which compensation and costs may be awarded, it is not always easy to assign a specific maximum monetary figure to an employer’s potential liability for the dismissal of an employee. However, awareness of the principles underpinning awards of compensation and of the additional items in respect of which awards may be made will at least give employers a better sense of the potential exposure arising from the dismissal of an employee and how best to make a commercial decision as to how to proceed.