Employers beware of potential double whammy on compensatory payments for Unfair Dismissal

A recent Employment Appeal Tribunal (‘EAT’) decision provides a cautionary tale for employers on compensation awards but all is not lost. We examine Dafiaghor-Olomu v Community Integrated Care and outline key steps employers can take to protect themselves against inflated liability.

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 are deducted, leaving employers vulnerable to paying out more than the capped amount.

What is the background to the case?

Mrs Dafiaghor-Olomu, was found to have been unfairly dismissed by Community Integrated Care (‘CIC’).. She was awarded compensation of £46,153.55 by the Employment Tribunal (‘ET’), though they refused her order for re-engagement, and CIC subsequently paid the compensatory award. Mrs Dafiaghor-Olomu appealed this decision on the basis of the amount awarded and on reconsideration, the ET again refused the re-engagement order but considered the original compensatory award to be deficient. The total award was then increased to £128,961.59.

The issue of the statutory cap

The statutory cap on the compensation that can be awarded in unfair dismissal cases is subject to review each year, and currently sits at £93,878 or 52 weeks’ pay, whichever figure is lower. In this case, the cap was £74,200.

An issue that the EAT had to consider was when the statutory cap should apply to the compensation payment, before or after CIC made the payment of £46,153.55. This was an impactful issue, more so for CIC because if the statutory cap should apply after the earlier award was paid, no financial allowance would be made for their compliance with the original order of the ET.

What did the EAT decide?

To determine the stage that the cap should be applied, the EAT had to balance the obligation under the Employment Rights Act 1996 (‘ERA’), to award a sum which is ‘just and equitable’, with regard to the provisions on how the award should be calculated. After deliberating, the EAT decided that the cap should be applied after taking into account any previous payment made by CIC to Mrs Dafiaghor-Olomu. In their reasoning they cited Parliament’s intention that payments already made should be deducted from the total award before the statutory cap was applied and their strict interpretation of the wording in the ERA. The effect of this was that the employer had to pay £74,200 in addition to the £46,153.55 already paid.

If the EAT had decided that the statutory cap should have applied before paying the compensation awarded by the original ET judgement, CIC would have paid £74,200 instead of £120,353.55, as determined by the EAT. Not an inconsiderable difference, you will agree.

The Tribunal did express sympathy for the respondent’s position, noting that CIC had complied with what it had considered to be its duty when it made the initial payment and was now under a further obligation to pay the full amount of the statutory cap on top of this. Indeed, it is difficult to reconcile the ‘just and equitable’ requirement in this decision, insofar as it extends to an employer. This decision ultimately penalised a compliant employer and could undermine the function of a statutory cap if this approach continues.

What are the key takeaways for employers?

The EAT’s decision emphasises the caution with which employers should approach making compensatory payments before it is clear whether there will be a successful appeal. It may also produce adverse consequences where employers are discouraged from paying awards on time, as incurring the interest penalty for late payment may be a more attractive prospect than paying the amount immediately and risking a second award being made on appeal.

The decision also highlights the benefit of resolving issues through settlement agreements, even after a substantive hearing, as it avoids employers being at the mercy of unpredictable tribunal decisions and provides certainty as to exactly what they need to pay and the terms involved.

This is unlikely to be the end of the road for this case as the controversial decision could pave the way for a successful appeal. Watch this space!


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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