Compensation for Unfair Dismissal: What Are You Entitled to Claim?

Unfair dismissal is one of the most common claims brought before the Employment Tribunal in the United Kingdom. If your dismissal was not for a fair reason, or your employer failed to follow a fair process, you may be entitled to compensation. Understanding how that compensation is calculated can help you assess the potential value of your claim.

What Is Unfair Dismissal?

Under the Employment Rights Act 1996, an employee with at least two years’ continuous service has the right not to be unfairly dismissed. A dismissal may be deemed unfair if:

• There was no valid reason for dismissal (e.g., misconduct, redundancy, capability, statutory ban, or some other substantial reason);

• The employer failed to follow a fair procedure;

• The dismissal was automatically unfair, such as in cases involving pregnancy, whistleblowing, or asserting statutory rights (no qualifying service needed).

If the Tribunal finds the dismissal unfair, compensation is usually awarded in the form of a basic award and a compensatory award.

The Basic Award

The basic award is calculated in the same way as statutory redundancy pay. It is based on:

• Length of service (up to 20 years),

• Age during each year of service, and

• Weekly gross pay (capped at £700 as of April 2024).

You receive:

• 1.5 weeks’ pay for each full year of service aged 41 or over

• 1 week’s pay for each year aged 22 to 40

• 0.5 week’s pay for each year under 22

The maximum basic award is £21,000 (for 20 years at the maximum weekly cap and age-related multiplier).

The Compensatory Award

The compensatory award is intended to cover financial losses arising directly from the unfair dismissal, such as:

• Loss of earnings (including future loss)

• Loss of pension or bonuses

• Loss of statutory rights

• Expenses incurred seeking new employment

The compensatory award is capped at the lower of one year’s gross pay or £105,707 (as of April 2024), unless the dismissal was for whistleblowing or health and safety reasons, in which case no cap applies.

Examples of Compensation Calculation

Example 1: Lower Range Case (2 years’ service)

• Age: 30

• Weekly pay: £500

• Length of service: 2 years

• Time out of work: 3 months

Basic award:

1 week x £500 x 2 years = £1,000

Compensatory award:

£500 x 13 weeks = £6,500

Total award: £7,500

Example 2: Mid-Range Case (10 years’ service, older worker)

• Age: 50

• Weekly pay: £700 (max cap)

• Length of service: 10 years

• Time out of work: 6 months

Basic award:

10 years at 1.5 weeks = 15 x £700 = £10,500

Compensatory award:

£700 x 26 weeks = £18,200

Total award: £28,700

Example 3: High-End Case (20 years’ service, older worker, high pay)

• Age: 58

• Weekly pay: £1,000 (capped at £700)

• Length of service: 20 years

• Time out of work: 12 months

Basic award:

20 years at 1.5 weeks = 30 x £700 = £21,000 (maximum)

Compensatory award:

Capped at one year’s pay = £700 x 52 = £36,400

Total award: £57,400

Reductions and Adjustments

The Tribunal may reduce your compensation if:

• You failed to mitigate your losses by not seeking alternative work;

• You contributed to your dismissal through misconduct;

• You would have been fairly dismissed anyway after a short period (e.g., in redundancy cases).

Final Notes

• Compensation is tax-free for the first £30,000 in most cases.

• You may also recover loss of statutory rights, expenses, and future losses.

• Interest may be added to certain elements of the award.

What Should You Do Next?

If you believe you’ve been unfairly dismissed, act quickly:

1. Submit an Acas Early Conciliation notification within 3 months minus one day of your dismissal: https://ec.acas.org.uk

2. Lodge your ET1 claim if conciliation is unsuccessful: https://www.gov.uk/employment-tribunals

3. Seek advice from an employment lawyer to maximise your chances of success and ensure proper calculation of your entitlements.