What is a compensatory award?

A compensatory award is a specific type of compensation that an Employment Tribunal may award to an employee who has a successful claim. The amount awarded typically covers any financial losses suffered by the employee, including lost earnings and benefits.

‍What types of claim qualify for a compensatory award?

• Unfair dismissal
• Constructive unfair dismissal
• Discrimination based on a protected characteristic
• Whistleblowing detriment

This is not an exhaustive list, and a compensatory award could potentially apply in other cases where you’ve suffered or expect to suffer a financial loss directly related to the claim you’re making.

What is the compensatory award for?

The compensatory award is designed to compensate the employee for financial losses resulting from what happened.

Some examples of when a compensatory award would apply include:

• Nirmal was dismissed by his employer last year. He was out of work for three months but then got a new job with an equivalent salary. Nirmal wins his claim for unfair dismissal and is awarded a compensatory award covering his loss of earnings for the three month period.
• Amara has won a claim for constructive dismissal. She got a new job after six months but it pays less than her old one. Amara is awarded a compensatory award covering past and future loss of earnings.
• Theodora has won a claim for discrimination arising from disability after she was selected for redundancy because she was on long term sickness absence. At the time of her dismissal, Theodora had another three months of half pay left before her sick pay was due to run out. Theodora is awarded a compensatory award covering the remaining three months of half pay.

The judge aims to put the employee in the position they would have been in had they not been unfairly dismissed, constructively dismissed, discriminated against or subjected to a detriment for blowing the whistle. The judge aims for an award that is "just and equitable in all the circumstances". They will assess the evidence of losses presented by the claimant and consider any arguments from the employer for reducing the award.

How is this award calculated at the Employment Tribunal?

To calculate the compensatory award, the Tribunal uses a degree of judgment and discretion, based on the specific facts and circumstances of each case.

The compensatory award is made up of past losses and future losses. The figures taken into account to calculate this are based on your net income.

Past losses

The judge will assess:

• Loss of earnings from the date of dismissal to the date of the Tribunal hearing.
• Any pay increases or bonuses the employee would have received if still employed.
• Overtime pay, if it was regular and expected.
• The value of lost benefits such as: some text
  • pension contributions
  • health insurance
  • company car allowance
  • other perks of the job.
• Reasonable expenses incurred while seeking new employment can be claimed, including travel costs to interviews.

The total amount is calculated by multiplying the net weekly or monthly pay by the number of weeks or months since the employee was dismissed.

The judge will deduct:

• Any earnings from new employment obtained after dismissal.
• Income from temporary or part-time work.
• Any payments already received from the employer (e.g. notice pay).
• Certain state benefits received.
• Reductions for failure to make reasonable efforts to find new employment. If the tribunal finds the employee has not tried hard enough to mitigate their losses, they may reduce the award.
• Reductions for contributory fault or failure to follow procedures.

Future losses

The judge will assess:

• The claimant's likely future earnings had they remained employed.some text
  • The Tribunal typically aims to identify a reasonable cut-off date for future losses. Generally, this is no more than one to two years from the date of the hearing. In exceptional cases, the tribunal may consider longer periods or even "career-long" losses, particularly for claimants near retirement age.
  • Factors considered include: the likelihood of finding comparable employment and how long this is likely to take; the state of the job market in the claimant's field; the claimant's age and health and whether the claimant would have been dismissed anyway within a short period.
• Future pension losses are also factored in, though these can be complex to calculate. The tribunal uses specific guidance to assess pension loss.

The judge will deduct:

• Any expected earnings from new employment.
• Any ongoing difference in salary if the new job pays less.
• Reductions for failure to make reasonable efforts to find new employment. If the tribunal finds the employee has not tried hard enough to mitigate their losses, they may reduce the award.

Maximum compensatory award

The maximum compensatory award (made up of both past and future losses) for dismissals on or after 6 April 2024: the lower of £115,115 or 52 weeks' gross pay (for unfair and constructive dismissal). There is no cap for discrimination or whistleblowing claims.