Unfair dismissal: statutory cap on compensation
29 June 2022
The Employment Appeal Tribunal (EAT) has considered how to apply the statutory cap when awarding compensation for unfair dismissal.
Dafiaghor-Olomu v Community Integrated Care  EAT 84
The claimant in this case won her claim of unfair dismissal against her employer, and sought compensation and an order for re-engagement. She was awarded compensation of just over £46,000 by the tribunal (which was paid in full by the employer), but it refused to order re-engagement.
The claimant appealed against the outcome of the remedies hearing, and her award of compensation was increased at a second remedies hearing to almost £129,000. She then submitted two applications for this to be reconsidered, both of which were rejected, and then appealed once again to the EAT in respect of the remedy she had been awarded.
One of the issues for the EAT to consider was whether the statutory cap for the purposes of the compensation award (£74,200) should be applied before or after the amount already paid to the claimant in compensation.
The EAT decided that the statutory cap should be applied only after the deduction for the earlier payment made to the employee.
This meant that the £46,000 already paid by the employer was deducted from the total compensation of £129,000, leaving a sum of around £83,000. After applying the statutory cap, the claimant was entitled to receive a further £74,200, meaning that she received over £120,000 compensation in total. If the statutory cap had been applied to the total figure first, and then the deduction for the amount already paid to the claimant, she would only be entitled to receive a further £28,000.
The EAT, whilst expressing sympathy to the employer, considered that the wording of the applicable statutory provision meant that it had no choice but to apply the cap only after taking account of any prior payment made by the employer. This included the original payment of compensation, meaning that the employer was effectively penalised for having complied with the tribunal’s order.
Consequences of this decision
As a result of the EAT’s decision, the claimant has received compensation of over £120,000 rather than the capped amount of £74,200, which is (as the EAT recognised) a very unfair outcome for the employer.
It will arguably act as a disincentive for employers to promptly comply with a tribunal’s order to pay compensation, particularly if there is a prospect of the remedies decision being appealed. However, a failure to pay compensation within 14 days means that an employer may have to pay interest and financial penalties, unless it can obtain a stay of enforcement proceedings.
We hope that this decision will be further appealed to clarify the position for employers.
For more information on this article, or for any questions raised please contact our Employment Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2022.