It was the Best of Times, it was the Worst of Times:
Calculating Compensation in a Recession - April 09
The question of compensation is rarely straightforward in the best of times; in a recession, it is very difficult. Knowledge and experience of the likely response of the Employment Tribunal is essential when advising in this area of employment law. Bristol Employment Tribunal has for a number of years hosted a User Committee which we attended this week. We welcomed the opportunity to hear the Regional Employment Judge for the South West Region on the subject of their Employment Tribunals Service.
In particular, we were able to discuss and understand the factors that the Employment Tribunal may take into account when considering future losses, in calculating compensation and the possible effect of the recession on Tribunal awards.
Nationally, employment tribunal claims (excluding equal pay and multiple claims) have risen in the past year from 54,000 to 63,000. The Tribunals Service expects an increase, possibly related to the recession, of between 20% and 33% in the next 12 months. It is not rocket science to conclude that Claimants are likely to face greater difficulty in finding a job if they are made redundant or dismissed for some other reason and as such, may have an attitude of “nothing to lose” in pursuing a claim at the Tribunal if they believe they have been treated unfairly.
One year ago when asked as to what the average award for future loss in a straightforward unfair dismissal claim might be, we might have advised at between 6 and 12 months net earnings as a ballpark figure. This has now changed significantly. The steady impact of the recession and rising unemployment are having an effect and it is open to a Claimant to seek future losses in the region of 3 to 4 years net earnings (subject to the statutory maximum of £66,200).
However, the Employment Tribunal has to make an award that is just and equitable in all the circumstances of the case. Although a Claimant may have losses which may (or may not) last for 4 years, the viability of the previous employer is relevant. It is difficult to argue that an individual is entitled to several years’ loss of earnings if the business may only be viable in the current climate for the next 12 months.
The question of business viability is likely to include a closer look at their finances by the tribunal; the age of the Claimant will remain relevant and the tribunal may be more likely to consider whether reinstatement of a dismissed employee is possible.
On a separate note, the Chancellor, Alastair Darling, has announced that the maximum of a week's pay for statutory redundancy payment purposes will increase from £350 to £380. Accordingly, the maximum statutory redundancy payment will rise from £10,500 to £11,400. However, the Chancellor was silent on when this change will come into effect.
If you would like further advice on this issue, please contact a member of the Rickerbys employment team.
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