Redress or penalty: compensation or punishment

by John Morris

A Shift in Emphasis for the Employment Tribunals

The standard approach to compensation for employment tribunal claims has traditionally been to ensure that the employee is placed in the same position as he/she would have been had the breach of his/her employment rights not occurred.  The regime of the Employment Tribunals has been compensatory rather than punitive - employers have been liable to paying compensation for loss of earnings / injury to feelings etc, but they have not been made subject to a punitive penalty for their own failings.

Increasingly, however, there has been a shift in that focus and, especially since October 2004 when the Employment Act 2002 came substantially into force, all employers are now at risk of being penalised for any wrong-doing:  that is in addition to having to compensate the employees who have suffered as a result.

Written contract or statement of terms

If, in any Employment Tribunal proceedings, the Tribunal identifies that the employer has failed to provide a written statement of terms, the Tribunal must usually order the employer to pay to the employee, in the form of a penalty, either two weeks' pay or four weeks' pay.

Written reasons for dismissal

All employees are entitled to be provided by their employer with a written statement giving the reasons for any dismissal.  The majority of employees must ask for such a statement but employees who are dismissed while pregnant or during periods of maternity or adoption leave are entitled to a statement without having to request it.
Employers who fail to provide a true and adequate statement can be penalised in the sum of two weeks' pay.

Right to an itemised pay statement

All employees have a right to be given by their employers, at or before the time at which any payment of wages is made, a written pay statement giving specified details such as gross pay, deductions and net pay.  If the employer fails to comply with this obligation and a Tribunal decides that deductions have been made from the pay of the employee without those deductions having been notified to the employee (either by way of an individual pay statement or a statement of fixed deductions) the Tribunal can order the employer to pay the employee a sum equal to the total of the un-notified deductions made during the period of thirteen weeks immediately preceding the employee's complaint to the Tribunal. 

Unfair dismissal - Basic Award

Since October 2004, if the unfair dismissal is one in respect of which the employer has failed to follow the statutory Procedure the Employment Tribunal is usually obliged to penalise the employer by awarding a minimum basic award in favour of the employee equivalent to four weeks' pay.

Unfair dismissal - Compensatory Award

Any failure to follow the statutory Procedure in respect of the dismissal will also impact on this compensatory award as, in such circumstances, Employment Tribunals must usually penalise the employer for its failure to follow the statutory Procedure by increasing the compensatory award by 10% and may increase that award by up to 50%.

Monetary claims

Employees have numerous rights in respect of monetary sums:  for example, a right to a redundancy payment, a full week's pay, pay in lieu of holiday on termination of employment, reimbursement of expenses, etc.  Each of these claims will be for a quantified sum reflecting, quite simply, what the employee should have been but has not been paid.

The statutory Dismissal and Disciplinary Procedure referred to above now has a bearing on these precise monetary claims as does the parallel statutory Grievance Procedure.  If the employee successfully presents a claim for any of these monetary sums and the employer has failed to comply with whichever of the statutory Procedures is relevant, the Tribunal is usually obliged to increase the sum awarded by 10% and may increase the sum awarded by 50%. 

The punitive nature of this award will be obvious: the employee might have brought a claim for a fixed sum of £500 but because of employer's failure to follow one or other of the Procedures he is awarded £750.

Transfer of an undertaking

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (commonly known as "TUPE") came into force on 1 April this year. Those Regulations impose a number of obligations upon employers including as follows.

First, the outgoing employer (known as "the transferor") has a duty to provide to the employer to whom the workforce is to transfer ("the transferee"), detailed information about each transferring employee: for example, the transferring employee's name, age and particulars of employment together with certain details of discipline, grievances or litigation.  If the transferor fails to comply with its obligation to provide this information, or provides inadequate or inaccurate information, the Employment Tribunal may make an award in favour of the transferee of not less than £500 per employee.

A second obligation arising from the TUPE Regulations is imposed on both the transferor and the transferee.  Each has to provide information to and, usually, consult with trade union or other representatives of those of its employees who might be affected by the transfer.  A parallel duty is that the transferee has to provide information to the transferor for onward transmission to representatives of the transferor's affected employees.

Employees who fail to comply with this second obligation are liable to have a penalty imposed by an Employment Tribunal of thirteen weeks' pay for each employee in any category of affected employee. 

The award in favour of a category of employee (for example all drivers, all shop floor workers, all security guards, etc) is another unusual feature of this area of the law. In most cases, Tribunals only make awards in favour of individuals who have brought claims:  in this situation, however, an award is made to all employees in a particular category of the employer's workforce whether or not they have themselves presented a complaint to a Tribunal.

That this is a punitive award has recently been reinforced in the Judgments of the Courts who have made it clear that Employment Tribunals, when calculating any such award, must take, as a starting point, the maximum penalty of thirteen weeks' pay and only reduce the award from that maximum if there appear to be good reasons for doing so.

Multiple redundancies

A duty to provide information and consult with employee representatives similar to that in the TUPE situation described above, arises if an employer is proposing to dismiss, as redundant, twenty or more employees at one establishment within a period of ninety days or less. 

A failure to comply with this obligation will render the employer liable to a punitive award of ninety days' pay for each employee.  Once again, the Courts have made it clear that Employment Tribunals must award the maximum penalty of ninety days' pay unless there are good reasons for reducing that award.

John Morris is Burnetts' Senior Partner, Head of the firm's Employment Law team and one of the UK's leading employment law experts. For further advice on employment tribunals call 01228 552222.

Dec 2006