This guide is maintained as a current resource for July 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Detailed guide to compensation for unfair redundancy in England and Wales. Learn how employment tribunals calculate awards including basic and compensatory components, statutory caps (£21,570 and £118,223 from April 2025), mitigation and offsets, and how procedural and automatic unfairness can affect outcomes.
When an employee in England and Wales is dismissed by reason of redundancy, and believes that the dismissal was unfair - for example because the employer did not follow a fair procedure, applied biased selection criteria, failed to consult, or the redundancy was a disguise for another motive - the employee may pursue a claim in an employment tribunal. If the tribunal finds in the employee's favour, it can award compensation to address the financial consequences of unfair redundancy. This article explains the kinds of compensation that can be awarded, how they are calculated, factors that affect awards, relevant limits and practical considerations for claimants.
Legal Basis for Compensation in Unfair Redundancy Claims
Unfair redundancy claims are a subset of unfair dismissal claims under the Employment Rights Act 1996. To succeed, a claimant usually must show that the redundancy was not a genuine redundancy or that the employer failed to act reasonably in all the circumstances (for example, by not consulting or applying objective selection criteria) when dismissing the employee. Employment tribunals assess whether the dismissal falls outside the range of reasonable responses expected of a fair employer.
If the tribunal decides that a dismissal was unfair, the usual remedy is compensation rather than reinstatement or re‑engagement, although in rare cases the tribunal may consider those orders.
What Compensation Can Be Awarded
Compensation in unfair redundancy cases typically consists of two main elements:
- Basic Award – A statutory sum designed to compensate for the loss of job security.
- Compensatory Award – A sum intended to put the claimant in the position they would have been in had the unfair dismissal not occurred.
These are distinct from statutory redundancy pay, which an employee may be entitled to separately if correctly made redundant, and are only payable when the tribunal determines that the dismissal was unfair.
Basic Award
The basic award is calculated using a formula similar to the statutory redundancy payment formula and is based on the claimant's:
- Length of service, up to a statutory maximum of 20 years;
- Age at the date of dismissal; and
- Gross weekly pay, subject to a statutory cap.
For each full year of service:
- Half a week's pay for each year under the age of 22;
- One week's pay for each year aged 22 to 40; and
- One and a half weeks' pay for each year aged 41 or over.
From 6 April 2025, the statutory cap on a week's pay - used for this calculation - is £719, meaning the maximum basic award is £21,570 (20 years × 1.5 × £719).
The basic award may be reduced if the claimant contributed to their dismissal through misconduct, although this is relatively uncommon in redundancy situations.
Compensatory Award
The compensatory award is intended to reimburse the claimant for actual financial loss resulting from the unfair dismissal. It covers past and future losses that directly result from losing the job. Typical components include:
- Loss of earnings (from the date of dismissal to the hearing);
- Future loss of earnings, if the claimant remains out of work or earns less in a new job than previously;
- Loss of benefits such as pension contributions, bonuses or private healthcare; and
- Expenses incurred as a result of the dismissal (for example, job‑seeking costs).
Tribunals will deduct from the compensatory award any earnings the claimant has received after dismissal, statutory or contractual payments received on termination (for example pay in lieu of notice), and any unearned benefits. Claimants are also required to mitigate their losses by actively seeking new employment; if they fail to do so, the award may be reduced.
Limits on Compensatory Awards
As of 6 April 2025, the compensatory award is subject to a statutory cap of £118,223 or one year's gross pay, whichever is lower. This cap applies to most unfair dismissal claims, including those arising from unfair redundancy.
There are exceptions: where dismissal is automatically unfair (for example, arising from discrimination, whistleblowing or health and safety complaints), the cap may not apply, and tribunals can award uncapped compensation for loss.
Additional Awards and Adjustments
In rare cases, tribunals may make additional awards or adjustments:
- Extra awards for failure to reinstate or re‑engage: If the tribunal orders reinstatement or re‑engagement and the employer fails to comply, the tribunal may make a further award of between 26 and 52 weeks' pay.
- Increased awards for procedural failures: A tribunal may increase the compensatory award by up to 10–25% where the employer failed to follow the ACAS Code of Practice on disciplinary and grievance procedures. This uplift typically does not apply to redundancy or sickness dismissals, but may apply to related procedural breaches.
Tribunals do not award damages for injury to feelings in unfair dismissal claims unless there is a separate claim for discrimination or detriment.
Case‑Specific Considerations
Redundancy Payment Offset
Where an employee has already received statutory redundancy pay, this amount will usually be offset against the basic award but is separate from the compensatory award unless the tribunal finds that the reason for dismissal was not genuinely redundancy.
Polkey Deductions
If the tribunal finds that a dismissal was procedurally unfair but might still have happened even if proper procedures had been followed, it may reduce the compensatory award under the Polkey principle by a percentage reflecting the likelihood of dismissal regardless of procedural defects.
Practical Process and Evidence
To secure compensation, a claimant must:
- Establish that the redundancy dismissal was unfair on substantive or procedural grounds.
- Show clear evidence of loss, including payslips, contract terms, job search records and future earnings projections.
- Respect tribunal time limits and complete ACAS Early Conciliation before lodging a claim.
- Prepare a Schedule of Loss detailing claimed financial losses and supporting documents.
Tribunals assess compensation on evidence presented and may question assumptions about future earnings and mitigation efforts. Documentation that clearly links losses to the dismissal strengthens a claim.
Key Takeaways
In unfair redundancy claims, employment tribunals award compensation to reflect the financial losses arising from the employer's breach of fair procedure or misuse of redundancy. Compensation typically includes a basic award, calculated via a statutory formula based on age, service and earnings, and a compensatory award for actual financial losses such as lost earnings and benefits. From April 2025, the basic award cap is £21,570 and the compensatory award cap is £118,223 or one year's gross pay, subject to exceptions for automatically unfair dismissals. Tribunals may adjust awards for procedural failures or failure to mitigate loss. Gathering clear evidence, understanding statutory limits and preparing detailed schedules of loss are essential steps for anyone pursuing compensation for unfair redundancy.
