What are Damages and what is Compensation?

Damages and compensation are effectively the same thing and are the payment of money in recognition of losses you have suffered as a result of unlawful behaviour by your employer.

Damages, or compensation, can take many forms and is given many different labels. It can be confusing even to lawyers and much of the argument at tribunals and in courts is to do with the assessment of compensation.

The purpose of this page is to set out the various forms of compensation that can e claimed at an employment tribunal or set out in a settlement agreement and provide you with a description so that you understand what the various labels mean and how they relate to your case.

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Termination Payment

A termination payment is a sum of money that is paid to you in a settlement agreement to compensate you for losing your job. A termination payment may be calculated in many different ways and the amount paid by your employer depends upon the value of any claim you may have, your salary, how many years’ service you have, and the circumstances of your termination. Often, we will be able to negotiate your termination payment.

A termination payment may be paid free of tax up to the value of £30,000.

Notice Pay or Payment in Lieu of Notice

Notice pay is a sum of money due to you either under your contract of employment or, if your contract of employment is silent as to notice pay, under the Employment Rights Act 1996. If your employer terminates your contract for any reason other than for gross misconduct, it will have to either allow you to work your notice, or make a payment in lieu of notice which is equivalent to the amount of money you would have earned had you worked your notice. The benefit to you in receiving a payment in lieu of notice is that you get paid for your notice period, but don’t have to work to receive the pay!

Your notice pay is calculated by reference to your contract, or calculated at the following statutory rate if there is no notice provisions in your contract, or the length of notice in your contract of employment is less than the statutory calculation:

At least one week’s notice if employed between one month and 2 years
One week’s notice for each year if employed between 2 and 12 years
12 weeks’ notice if employed for 12 years or more

Loss of Earnings

Loss of earnings is a payment made by your employer, either under a settlement agreement or ordered by an employment tribunal, to compensate you for the losses in your salary you have suffered as a result of your employer’s unlawful treatment of you, usually because of an unfair dismissal or discriminatory treatment.

The calculation of a loss of earnings payment is complicated, but put very basically, your employer must pay you a sum equivalent to your old salary up to the point you have obtained a new job. If your new job pays less than your old job then your employer must pay the difference in your salary up until the point at which you can reasonably expect to be earning the same as you did previously.

You have a duty to mitigate a loss of earnings claim by attempting to find another job and in unfair dismissal claims a loss of earnings claim is capped at one year of your previous salary, or a maximum of £89,493 if your previous salary was more than £89,493.

Injury to Feelings

An injury to feelings award is made in discrimination and protected disclosure/whistleblowing claims where the effect of your employer’s treatment of you has caused you to suffer hurt. This can take the form of nominal damages of a £1,000 or so in less serious cases, up to £45,000 or higher in cases of exceptional seriousness.

The way in which an employment tribunal assesses damages for injury to feelings is using the Vento bands, which are broadly:

  1. Lower band of £900 to £9,100 for less serious cases.
  2. Middle band of £9,100 to £27,400 for cases which do not merit an award in the upper band.
  3. Upper band of £27,400 to £45,600 for the most serious cases.

Injury to Heath

An award for injury to health is technically a form of damages awarded under injury to feelings, but is itself separate and in addition to an award for injury to feelings. It is made by an employment tribunal in cases of discrimination and protected disclosure/whistleblowing where you have suffered a medically recognised injury as a result of your employer’s treatment of you. Almost always, the injury you will have suffered will be a psychiatric injury, or the exacerbation of an existing psychiatric injury.

Awards for injury to health are made in the same way as the Vento bands, but can technically run to hundreds of thousands of pounds if the sums are agreed via settlement agreement due to the tax treatment of such awards.

Redundancy Pay

Redundancy pay is a payment made by your employer when you are dismissed as redundant.

There are two forms of redundancy pay: statutory redundancy pay and company redundancy pay.

Statutory redundancy pay is the minimum payment an employer must make to an employee in the event of redundancy, and is calculated as follows:

  • Half a week’s pay for each full year you were under 22
  • One week’s pay for each full year you were 22 or older, but under 41
  • One and half week’s pay for each full year you were 41 or older

Length of service is capped at 20 years

Your weekly pay is the average you earned per week over the 12 weeks before the day you got your redundancy notice.

Company redundancy pay incorporates statutory redundancy pay but is then enhanced based on the company’s own formula. Usually, this will take the form of being made a payment of 2 weeks to one month’s gross salary for every full year served.

Redundancy pay may be paid tax free up to the value of £30,000.

Career Loss Damages

Career loss damages are awarded by an employment tribunal in rare and specific circumstances whereby an employee has suffered such a high degree of discrimination or victimisation for having raised protected disclosures that they will be unable to work in their profession, or at all, for the rest of their working life.

In order to be awarded career loss damages, an employee has to demonstrate such a level of losses on the evidence. This evidence will usually demonstrate that the employee has suffered a significant disability as a result of the employer’s treatment. Furthermore, the employee may have to establish that they are rendered unemployable by the effects of their employer’s treatment or the fact they have brought proceedings. Evidence from experts from the employee’s industry that they will be unemployable is usually called in support.

Career loss damages are rarely awarded, and as such it is vital to instruct solicitors experienced in this area as damages will run to hundreds of thousands and even millions of pounds.

Other awards

Pension Loss

Pension loss is the losses experienced by an employee to their pension scheme as a result of having their employment terminated by their employer. In unfair dismissal cases, pension loss is usually fairly low and calculated at around one year’s losses, subject to mitigation. Large pension loss awards are often made in career loss cases, or when dealing with employees who are part of a public sector pension scheme who are removed from that scheme when they leave employment. In the case of police officers and firefighters, pension loss is often a highly valuable aspect of discrimination and whistleblowing claims.

Basic Award

A basic award is an award made to an employee by an employment tribunal subsequent to a finding of unfair dismissal being made. A basic award is calculated in the same way as a redundancy payment.

Compensatory Award

A compensatory award is an award made to an employee by an employment tribunal subsequent to a finding of unfair dismissal being made, or a finding of a discriminatory dismissal. A compensatory award is usually made up of loss of earnings, plus other financial losses the employee can prove resulted from the loss of their employment.

Loss of Statutory Rights

An award for loss of an employee’s statutory rights is an award made to an employee by an employment tribunal subsequent to a finding of unfair dismissal being made, or a finding of a discriminatory dismissal. The award is made because the employee has been dismissed and as such lost protection from unfair dismissal and other statutory rights. The award is usually around £500, but may be larger in certain cases.

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