New compensatory awards

The Employment Act received Royal Assent on 8 July 2002. Consultation will
begin this winter on the all-important regulations which will be made to fill
out many important features. One of its key aspects is the introduction of statutory
disciplinary and grievance procedures, and the potential for automatic unfair
dismissals and uplifted compensation to be paid to applicants where these
procedures are either not used or not completed by employers. These changes
should come into force by late 2003.

Uplifted compensation

Automatic unfair dismissals will occur where a statutory procedure applies
but has not been completed, and the non-completion of the procedure is wholly
or mainly attributable to a failure of the employer. In such circumstances,
there will be a minimum compensatory award of four weeks pay, even if the
applicant has no loss. Where loss has occurred, the tribunal will be under an
obligation to uplift the compensation by at least 10 per cent unless
exceptional circumstances make this unjust or inequitable, and possibly
increase it by as much as 50 per cent if it is just and equitable to do so.
Commentators have been making it clear that some compensatory awards could be
much larger in the future.

Exactly how compensatory awards will be calculated in the future, however,
is the subject of much debate. The relevant provision in the new Act (Section
39) states that the adjustment shall be in the amount awarded under Section
118(1)(b) of the Employment Rights Act 1996, and should be applied immediately
before any reduction under Section 123(6) or (7).

Some commentators believe the compensatory award should be calculated in the
same way as now, and then uplifted regardless of the normal cap on
compensation. Others believe that due to the above wording, the uplift occurs
before the contributory fault is looked at, and, it follows, before the
statutory cap is applied. This latter approach would mean that the compensatory
award could never exceed the statutory cap – currently £52,600 – regardless of
the uplift. In a situation where an individual’s loss is, say, £50,000, the
tribunal would not even be able to uplift compensation by the mandatory 10 per
cent, due to the cap.

Clarification of this ambiguity is being sought from the DTI, and it is
hoped that the consultation will settle the matter for all concerned.
Nevertheless, regrettably, due to the ambiguous wording of Section 39 stated
above, it will still be possible for a tribunal to disagree in future litigation
with the view of the DTI.

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