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If an employee wins an unfair dismissal claim, the employment tribunal can award compensation that they consider to be ‘just and equitable’ bearing in mind the employee’s losses. In most cases, there is a statutory limit on the amount of compensation that can be awarded, currently £93,878 or 52 weeks’ pay, whichever is the lower. Section 124(5) Employment Rights Act 1996 says that the statutory cap should be applied after taking account of any payment made by the employer to the employee in respect of the claim. In Dafiaghor-Olomu v Community Integrated Care, the EAT has looked at how the statutory cap works in practice, with surprising consequences.

The employee won her unfair dismissal claim. At a first remedies hearing she was awarded around £46,000, which the employer paid. The employee appealed and her compensation was increased to almost £130,000. The question was whether the statutory cap – then £74,200 – should be applied before or after the amount already paid was deducted from the second award. If the cap was applied first, then her award of £130,000 would reduce to £74,200 – less the £46,000 already paid, the employee would be owed around £28,000. If then cap were applied second – by deducting the £46,000 from the £130,000 and then applying the cap – she would be owed a further £74,200 on top of the sum already received. Whilst expressing sympathy for the employer, the EAT said the wording of section 124(5) meant that the cap had to be applied second. 

This judgment seems very unfair. Instead of paying £74,200, the employer had to pay the initial award of around £46,000 and then another £74,200 on top, simply because of the wording of section 124(5). Had there been no appeal, and a single award of compensation, the employee would not have received this kind of double-recovery. To avoid being hit by this compensatory double-whammy, employers who are faced with an appeal on compensation should request a stay of any enforcement proceedings pending the appeal decision. This is a rare case where complying with a tribunal order would place the employer at a disadvantage. This decision may yet be appealed.

Find out how we can help.  Our partner, Jon Dunkley, heads the Wollens specialist Employment Department.  Contact him today for an informal chat, without obligation on 01271 342268 or via email at jon.dunkley@wollens.co.uk.