Compensation for unfair dismissal should be "grossed up" before statutory cap is applied

Hardie Grant London Ltd v J Aspden [2011] (UKEAT/0242/11/0311)

This was an appeal to the EAT against a Tribunal’s decision to  make a compensatory award for unfair dismissal  of a sum approximately £20,000 above the applicable statutory cap. The Tribunal determined the figure on the basis that, after tax had been deducted from the award, the amount in the Claimant’s hands would be equal to the statutory cap.

The EAT stated quite emphatically that it was wrong to make a compensatory award in excess of the statutory cap and it reduced the award made accordingly. The EAT confirmed that the correct approach (in an unfair dismissal claim where the cap on the compensatory award applies) is to impose the statutory cap after the amount awarded has been “grossed up” for tax purposes. This ensures that the sum received by the Claimant does not exceed the statutory cap in any circumstances.

Implications

The statutory cap on compensatory awards for unfair dismissal currently stands at £68,400 (increasing to £72,300 from 1 February 2012). An employee who is awarded a compensatory award for unfair dismissal will normally have to account to HM Revenue & Customs for tax in respect of some or all of it. This judgment provides welcome clarification that an employee should not receive an award of more than the maximum compensatory award, even where the award of an excess is only made to reflect the fact that some or all of the award will go to HMRC rather than the Claimant.

For employers who may be calculating the potential cost of an unfair dismissal claim, this provides a greater degree of certainty as to the maximum financial award that might be made.

For further information on this article please contact Adam Williams adam.williams@dmhstallard.com or T: 020 7822 1587

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