Compensation Awards Explained

When an employment tribunal finds in favour of a claimant, one of its principal functions is to award compensation to redress the losses suffered. Compensation awards are central to most successful claims - from unfair dismissal and constructive dismissal to discrimination and other statutory rights breaches. This article explains the different types of compensation available, how they are calculated, statutory caps and limits, relevant procedures such as schedules of loss, and common questions about compensation in tribunal proceedings. All information is based on current authoritative sources.

What Compensation Means in Tribunal Cases

Compensation in an employment tribunal is money awarded to a claimant to compensate for losses and harms caused by the respondent's unlawful conduct. The objective is to put the claimant into the position they would have been in had the unlawful act not occurred. Compensation does not aim to punish the employer; it focuses on actual financial loss and, where applicable, non‑financial loss such as injury to feelings.

Key Types of Compensation Awards

1. Basic and Compensatory Awards (Unfair and Constructive Dismissal)

In unfair or constructive dismissal claims, compensation normally has two main elements:

Basic Award
The basic award compensates for loss of job security and is calculated in a formulaic way similar to statutory redundancy pay. It is based on:

• length of continuous service (up to 20 years),
• the claimant's age in service years, and
• gross weekly pay (capped at a statutory maximum per week, e.g. £719 from 6 April 2025).

The statutory calculation applies multipliers such as:

• 0.5 week's pay for each year under 22;
• 1 week's pay for each year aged 22–40;
• 1.5 weeks' pay for each year over 41.

Compensatory Award
The compensatory award is intended to cover the claimant's actual financial losses resulting from dismissal, such as:

• lost earnings, including pay, bonuses and statutory rights;
• pension losses;
• future loss until reasonably mitigated.

The compensatory award is calculated on a just and equitable basis, taking into account mitigation, contributory fault and statutory caps (see below).

2. Compensation for Discrimination and Other Claims

For discrimination claims under the Equality Act 2010 (such as sex, race, disability and age discrimination), compensation can include:

Injury to Feelings and Psychiatric Injury
Tribunals may award compensation for non‑pecuniary loss - commonly known as injury to feelings. These awards recognise the emotional impact of discrimination. They are often set using Vento bands, which range from lower to upper levels depending on severity, with exceptional cases potentially exceeding prescribed top bands.

Financial Loss
As with dismissal claims, tribunals award money for financial loss such as lost earnings, pension loss and other out‑of‑pocket expenses.

Unlike unfair dismissal, discrimination compensation for injury to feelings and financial loss is not subject to an overall statutory cap.

Statutory Limits and Caps

Weekly Pay and Award Caps

In statutory dismissal compensation:

• The weekly pay cap (used in basic and other statutory awards) is a fixed amount set annually; from 6 April 2025 this is £719 per week.
• The maximum compensatory award for unfair dismissal is the lower of one year's gross pay or the statutory cap (for 2025/26 up to £118,223).

These limits do not apply in cases of dismissal for whistleblowing, health and safety advocacy or discrimination, where compensation can be uncapped.

Increases and Periodic Changes

Compensation limits are reviewed annually. For example, from 6 April 2024 to 5 April 2025, the weekly pay cap was £700, and the compensatory award limit was around £105,707; from 6 April 2025, both caps increased, reflecting inflation and statutory updates.

Enhancements and Reductions

ACAS Code Uplift

If an employer's failure to follow the Acas Code of Practice on disciplinary and grievance procedures is unreasonable, the tribunal may increase the compensatory award by up to 25 %. This uplift applies to compensatory awards, not the basic award.

Mitigation and Contributory Fault

Tribunals expect claimants to mitigate loss (for example, by seeking new employment). Failure to mitigate can reduce the compensatory award. Similarly, if a claimant is partly to blame for their dismissal (contributory fault), compensation may be reduced.

Tax and Other Deductions

• Some compensation may be taxable if it exceeds £30,000; tribunals can order respondents to gross up awards to account for tax liability so claimants receive the intended net sum.
• State benefits received after dismissal may be deducted from tribunal compensation for lost earnings where legislation specifies adjustment.

Procedure: Schedules of Loss

Claimants typically prepare a schedule of loss setting out detailed figures for financial losses and how compensation is calculated. Tribunals rely on this document at remedy hearings to assess awards.

Practical Examples

Unfair dismissal: An employee aged 45 with ten years' service and weekly gross pay of £719 may receive a basic award of up to £21,570 plus a compensatory award reflecting lost earnings up to one year or the statutory cap, adjusted for mitigation.

Discrimination: A claimant succeeding in a sex discrimination claim may receive financial loss compensation and an award for injury to feelings, potentially in the upper Vento band (£25,200–£42,000 or more depending on severity).

Common Questions About Compensation

Can I claim for stress or upset in unfair dismissal?
Tribunals do not award compensation for distress or upset in unfair dismissal alone; such awards are reserved for discrimination or related claims where injury to feelings is recognised.

Is compensation capped in discrimination cases?
No. Compensation for discrimination, including injury to feelings and personal injury, is generally uncapped, allowing awards to reflect the true impact of discrimination.

What if my employer refuses reinstatement?
Where reinstatement or re‑engagement orders are practical, tribunals consider them before compensation; if refused, compensation may be increased.

Key Takeaways

Compensation awards in employment tribunals address the financial and, where appropriate, non‑financial harm suffered by claimants. In unfair and constructive dismissal cases, compensation typically includes a statutory basic award and a compensatory award; in discrimination claims, awards can include injury to feelings as well as loss of earnings. Statutory caps apply to some categories, while others remain uncapped. Tribunals also consider mitigation, contributory fault and procedural compliance when assessing awards. Preparing a clear schedule of loss and understanding limits and enhancements such as ACAS uplifts are essential to presenting compensation claims effectively.