A recent Employment Appeal Tribunal (EAT) decision on an unfair dismissal claim provides a warning to employers on compensation awards, following the case of Dafiaghor-Olomu v Community Integrated Care.
In summary, the EAT held that the statutory cap on compensatory payments for unfair dismissal should be applied after any previous payments made by the employer to the employee, leaving employers vulnerable to paying out more than the capped amount. Let’s look at the detail.
Mrs Dafiaghor-Olomu was found to have been unfairly dismissed by Community Integrated Care (CIC) and was awarded compensation of £46,153.55 by the Employment Tribunal (ET). The ET refused to order re-engagement of the claimant and Mrs Dafiaghor-Olomu’s previous employer, CIC, subsequently paid the compensatory award. Mrs Dafiaghor-Olomu appealed this decision. Upon reconsideration, the ET once more refused the re-engagement order but considered the original compensatory award to be insufficient. The total award was therefore increased to £128,961.59.
Breaking down the employment appeal tribunal decision
The statutory cap on compensation which can be awarded in unfair dismissal cases is subject to review each year and is currently set at £93,878 or 52 weeks’ pay, whichever figure is lower. In this case, the cap was £74,200. The EAT had to consider whether the statutory cap should apply to the compensation payment, either before or after the employer, CIC, made the payment of £46,153.55.
To establish whether the cap should apply before or after the payment, the EAT had to balance the obligation under the Employment Rights Act 1996 (ERA), to award a sum which is ‘just and equitable’ with an eye on how the award should be calculated. It was decided that the cap should be applied after previous payments made by CIC to the claimant. In their reasoning, the appeal tribunal referred to parliament’s intention that payments already made to a claimant should be discounted from the total award before applying the statutory cap. This resulted in the employer having to pay £74,200 in addition to the £46,153.55 already paid. This outcome has the potential to feel unjust, appearing to undermine the very concept of having a statutory cap.
Key points for employers
The EAT’s decision highlights the caution with which employers should approach making compensatory payments before it is clear whether there will be a successful appeal. It might well discourage employers from paying awards on time, as incurring the interest penalty for late payment may be a more attractive prospect than paying the amount on time and risk a second award being made to the employee on appeal.
The decision also highlights the benefit of resolving issues through settlement agreements, even after a substantive hearing, rather than the risk and uncertainty of attending a remedy hearing, avoiding both an unpredictable tribunal decision on remedy and providing certainty on the amount and how it is to be paid.