Employment Update July 2009: Unfair dismissal compensation

23 July 2009

Employment Group

Earnings from new job disregarded

In the recent case of Islam Channel v Ridley, it was accepted that the claimant had been unfairly dismissed. Initially, she obtained alternative employment at a higher rate of pay. However, by the date of the tribunal hearing, her rate of pay had been reduced to lower than her previous rate of pay.

The tribunal awarded her compensation for future loss of earnings based on the difference between her current rate of pay and that which she had been paid by Islam Channel. The employer appealed on the basis that the tribunal should have taken into account the 'overpayments' that she had been receiving between termination of her employment with them and the hearing date.

The EAT did not allow the appeal. There was no need for the tribunal to do so and/or they could take into account the increased future risk of unemployment (her pay had been reduced because of her new employer's financial problems) when deciding not to take into account those payments already received.

Points to note –

  • Compensation for unfair dismissal is limited to financial loss caused by the dismissal and the claimant has a duty to mitigate that loss by seeking a new post. However, the tribunal also has an obligation to award such amount as it considers ‘just and equitable’. EAT guidance states that it is only when the claimant has obtained permanent alternative employment paying the same or more than the pre-dismissal earnings that the loss attributable to the dismissal will cease. So, in this case, where the alternative employment was freelance and the claimant’s hours had been reduced from full-time to a three-day week, the tribunal could still exercise its own judgment and speculate as to the future when deciding how much compensation to award.

  • The right to compensation may survive a second dismissal. The crucial question is whether the claim is just. Where a claimant finds alternative employment but then loses it through no fault of their own, he or she may still recover compensation for loss of earnings for the period after the second dismissal from his or her original employer. Compensation will be assessed on the basis of their circumstances at the date of the hearing of their claim.


Loss caused by unfair dismissal must be compensated – but may be reduced for contributory fault

In Saunders v OCS, the claimant worked at Gatwick Airport which is owned and managed by BAA. He needed an ‘air side pass’ from BAA to be able to do his job. He was dismissed by his employers for misconduct following damage allegedly caused to a lift at the airport. As a result of seeing CCTV footage of the alleged incident, BAA withdrew his ‘air side pass’.

The tribunal hearing his claim decided that his dismissal had been unfair but that he could recover no compensation from his employers because it was BAA’s action in withdrawing his ‘air side pass’ which was the effective cause of his current financial loss.

The EAT disagreed. The claimant had been treated unfairly and misconduct had not been proved so, as against his employer, he was entitled to compensation for, at the very least, his contractual notice period. The claim was remitted for re-hearing.

Point to note –

  • The EAT says that the employment tribunal should consider what a reasonable employer should have done in terms of fair procedure and in terms of approaching BAA to see whether it would reconsider its position on the air-side pass. However, it has also allowed the employer to raise the issue of whether the employee caused or contributed to his dismissal, which is allowed by s 123(6) Employment Rights Act 1996 and may reduce the amount of any compensatory award.