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  • Getting the sums right

    first_img Previous Article Next Article Comments are closed. Getting the sums rightOn 1 Jun 2000 in Vexatious claims, Personnel Today Related posts:No related photos. Employment awards are on the up.  Buthow and why do tribunals arrive at the figures they do?  Mary Clarke delves into this mysteriousscience and gives some practical tips on how employers can minimise the damageAggrieved staff are winning more compensation than ever. Official figuresshow that while unfair dismissal compensation stayed roughly at the same levellast year, race and sex discrimination awards increased significantly. Trade unions reported their highest levels of compensation ever in the lastTUC trends survey, with record settlements of up to £500,000 in racediscrimination, breach of contract and wrongful dismissal cases. The highestsettlement previously recorded was £55,333. There are clearly a number of influences at work. First, there has been asignificant rise in tribunal claims: the TUC registered 5,157 new cases betweenOctober 1998 and October 1999 compared with 1,533 the previous year, suggestingunions are becoming increasingly confident about using tribunals to supporttheir members and increasingly successful in doing so. In June 1999, the Government reduced the qualifying period for claimingunfair dismissal rights from two years to one and in October increased themaximum compensation in unfair dismissal claims from £12,000 to £50,000. TheDTI predicts an increase of between 10,000 and 14,000 unfair dismissal cases ayear as a result of these changes alone. But what about the tribunals themselves? How do they arrive at the figuresthey award? Are they becoming more generous towards wronged employees? Manyemployers find the way they compensate for unfair dismissal and discriminationmysterious and perplexing. But while in many cases it may look more like an artthan a science, there is a method to calculating the amounts. Tribunals must exercise their discretion in awarding compensation”judiciously” and on just and equitable grounds. The awards aredesigned not to punish employers but to compensate staff. They can now awardcompensation of up to £56,900 in an unfair dismissal claim. In race, sex, ordisability discrimination claims or other specially protected claims such aswhistle blowing, compensation is uncapped. Although non-money awards are available, such as reinstatement, orre-engagement – where the tribunal orders the employer to take back theemployee either in a new or the same job – cash is usually the preferred awardfor applicants and the one most frequently given by the tribunals. Reinstatement was awarded in only 28 cases in 1998-9 – about 0.1 per centall unfair dismissal cases. Tribunals can also make a “declaration”about the rights of the parties. Unfair dismissal financial awards are divided into a basic award, calculatedlike a redundancy payment based on age and length of service (maximum £6,900),and a compensatory award. For dismissals made before 25 October 1999, the capon the compensatory award was £12,000 and after that date it rose to £50,000.The full impact of this hike in awards has not yet emerged because statisticsfor the past year are not yet available. It remains to be seen exactly how muchit will influence tribunals into increasing levels of compensation. Anecdotal evidence suggests the rise in the ceiling to £50,000 has alreadyaffected employee expectations – see “Raised expectations” on page 10– making it more difficult for employers to settle claims before any hearingtakes place, even though for lower-paid employees the increase is unlikely tohave any major impact. The case study shows how tribunals approach the award of compensation, byassessing losses from the date of dismissal to the date of hearing and thenprojecting future loss until the employee might be expected to return to workor achieve a similar sort of income. The employee must give credit for benefitsand other earnings in this calculation. The amount of future losses variesdepending on the type of work the employee did and its availability in theemployee’s area. It is useful to look at the statistics published for the year 1998-9, whichshow that hardly any claimants were awarded sums approaching the then maximumof £12,000. The median award was £2,388 and only 14.8 per cent of successfulclaimants received more than £9,000. These figures suggest that the effect ofthe rise in the ceiling to £50,000 will be limited. But the case study “The senior employee”, on page 12, shows thesort of claim that could be changed dramatically by the increased limit. It islikely to hit hardest where an employee is older and/or reasonably highly paidor has valuable pension rights. Employees who can demonstrate to a tribunalthat they may not work again are the ones most likely to benefit from theincrease. The £12,000 cap made the tribunal largely irrelevant for this sort ofapplicant, but now it is certainly worth their while to bring a claim. Giventhat it is extremely rare to have to pay anyone’s legal costs other than yourown in the tribunal, this venue will be much speedier and cheaper than thenormal courts. The “senior employee” case study shows the pitfalls of ignoringthe possibility of the senior employee bringing a claim. Although tribunalstake into account any voluntary or ex-gratia payments from the employer, theyare “top-sliced”, as the example demonstrates. This means employers would be wise not to pay any ex-gratia element unlessthey do so under a binding agreement that the employee will take no claim tothe tribunal after the payment has been made, reached via either a compromiseagreement under section 203 of the Employment Rights Act 1996, or a COT3agreement brokered by Acas. Tribunals have the power to award unlimited compensation in discriminationclaims (see “Punishing” the employer, above) and the figures for1998-99 show median awards for sex claims of £4,044 and race of £5,000 – farhigher than the awards for unfair dismissal. The tribunals have to try to putthe employee in the position he or she would have been in if the discriminationhad not occurred. Often this comes down to a question of probabilities: if a woman is sackedbecause she is pregnant the tribunal has to look at the likelihood that shewould have returned to work after the baby and award compensation on thatbasis. As well as compensating the victim of discrimination for actual loss ofincome, the tribunal can also compensate for injury to feelings. Following therecent case of Sherriff v Klyne Tugs, 1999, IRLR 481, it may also compensatefor personal injury resulting from the discrimination. The level ofcompensation for injury to feelings will depend on the nature of thediscrimination – how long it lasted and how the employee reacted to it. But thecost of injury to feelings is rising as tribunals increasingly take on boardmedical evidence on conditions such as post-traumatic stress disorder. The closest tribunals get to “punishing” the employer throughdamages is to award “aggravated” damages. In case study 3, £10,000 ofsuch damages were awarded because of the company’s attitude to the complaint.If advisers are aggressive or unreasonable in their conduct of the case for therespondent company, this can also lead to an award of aggravated damages. Acas has a statutory duty to conciliate in employment claims and performs auseful and free form of alternative dispute resolution. It is always advisableto maintain a dialogue with Acas from the outset of any claim – views onsettlement can change in the course of a tribunal claim and Acas can be avaluable source of information. Legal regulation of employment relationships is tight and employees areincreasingly familiar with their rights. Free or inexpensive sources of adviceand representation are now readily available: statistics suggest that employeesrepresented by their unions achieve significantly higher awards than those whogo it alone and that employers are more likely to lose if they have noprofessional representation. Employers would therefore be advised to avoid atall costs unequal representation where the employee has union or legal backingand the employer has none. Mary Clarke is a partner in the HR group of DLA Raised expectationsMr S delivered parcels for a small transport company. He was dismissedwithout notice for gross misconduct following an investigation into suspectedtheft.He bought a claim for unfair dismissal, claiming the investigation wasinadequate and that the company had not followed its own procedures. Initially, he said he wanted to go to the tribunal to clear his name but asthe hearing date drew closer his confidence in winning rose and the moneybecame more important – the maximum £50,000 would be a useful sum.Mr S is aged 24 and earns £15,500 gross per year. He has no other benefits.The tribunal decided there had been significant procedural shortcomings indealing with the dismissal and that it was unfair. But Mr S was shocked whenhis compensation was assessed at £2,290. He is young and mobile and had no difficulty getting another job; he hadstarted work with a larger company within six weeks of his dismissal, earning£15,600 gross. His compensation was therefore calculated as follows:Basic Award                                                                            3x1x230= £690Loss of earnings from dismissal to date of securing new job       £1,400Loss of statutory rights                                                              £200Total                                                                                        £2,290(Figures are all gross for simplicity)The senior employee and “punishing” the employerThe senior employee: Mrs A, 56, worked as a senior marketingexecutive until she was dismissed. She earned £60,000 a year, had a company car worth £10,000 a year, privatehealth insurance and a pension to which the company contributed £6,000 a year. The employer’s reason for dismissing Mrs A was that she no longer fitted thecompany’s youthful and dynamic profile. She was entitled to six months’ noticeand the company paid her in lieu of notice with all benefits. She received a cheque for £50,000 made up as:Salary               £30,000Car                  £5,000Private health    £1,000Pension            £3,000Ex-gratia          £11,000Total                £50,000Mrs A applied to the tribunal. Her employer argued that her claim wasvexatious because she had already had a payment worth the maximum award. Notso, the tribunal said. It calculated she would suffer four years’ lost incomeand benefits equal to £312,000 until her retiring age of 60. The tribunal decided there was a 25 per cent chance she would not havestayed with the company for four years so her gross loss was cut by that amountto £234,000. She had received £50,000 already which reduced the loss to£184,000. The tribunal therefore gave her the maximum £50,000.”Punishing” the employer: Mrs C, 40, had worked in an electronicsfactory for 16 years. She earned £12,000 a year. She was sexually and racially abused by a manager for the last three yearsof her employment and as a result suffered from a depressive illness whichprevented her from working. She is currently undergoing treatment for severemental illness. She applied to the tribunal claiming constructive dismissal anddiscrimination and was awarded £123,680 plus interest at 8 per cent, including£20,000 for injury to feelings.Before resigning, Mrs C had complained about her treatment to other managerswho advised her if she didn’t like it she “might as well go”. Thiswas despite the company having an equal opportunities policy. The tribunalawarded £10,000 aggravated damages because of the cavalier way the companyconducted the case and its refusal to acknowledge any problem. Mrs C’s hurtfeelings award reflected the gravity of the company’s treatment of her.Her losses were calculated thus:Basic award     £3,680Loss of earnings from date of termination to hearing       £21,000Future loss of earnings  £54,000Hurt feelings     £20,000Loss of pension rights   £15,000Aggravated damages    £10,000Total    £123,680Keeping claims to a minimum– Train staff in policies and procedures, especially equal opportunities– Think twice before dismissing, especially the older, higher paid and/ormore long-serving employee– Consider early settlement to avoid hearing costs and publicity– Never give termination payments without a compromise agreement or AcasCOT3 form– Keep in touch with Acas– Remember that tribunals can award aggravated damages – Avoid compensation hearings in the tribunal – do your best to settlebeforehand– In claims which involve personal injury check the drafting of yourcompromise agreements– Use voluntary severance agreements to eliminate tribunal risks– Use experienced advisers, especially where high awards are at stake inrace, sex or disability discrimination claimsHighest awardsHighest awards in union-backed cases 1998-99Category                                 Union  Award  Race discrimination                   IPMS   £500,000Breach of contract                    MSF    £500,000Wrongful dismissal                    FDA    £300,000Sex discrimination                     FBU     £70,000 Redundancy/discrimination        MU           £30,000 Unfair dismissal EIS      £8,500 Source: TUC Focus on Employment Tribunalslast_img read more