What is Constructive Dismissal Compensation?

Constructive dismissal compensation, sometimes referred to as “unfair dismissal compensation”, is the monetary amount awarded to an employee who is found by an employment tribunal to have been under the employ of an organisation that breached their employment contract. 
 
As an employer, if you act in a way that constitutes a contract breach, the employee may be able to resign and make a claim against you via an employment tribunal. This is referred to as a constructive dismissal claim. 
 
Some examples of a serious breach of employment contract include: 

• Any form of discrimination

• Bullying and/or harassment

• Regularly reneging on payment terms without good reason

• Failing to deal with a grievance raised by an employee

• Changing working patterns or workplace location without agreement

How much compensation could an employee win for constructive dismissal?

Would having to pay out a maximum of £118,223 or the lower of one years gross salary in constructive dismissal claim compensation be a drain on your business's financial resources? This should certainly be under consideration as a UK business. How much compensation can an unfairly dismissed employee claim through constructive dismissal? Well, the basic award employees are eligible for is as follows: 

• One and a half weeks’ pay for each year of employment after age 41

• One week’s pay for each year of employment between ages 22 and 40

• Half a week’s pay for each year of employment under the age of 22
  

Is there a limit on constructive dismissal compensation?

In short, yes. The maximum amount that employees can receive for a basic award payment is £21,570 as of April 2025. 

It is also worth noting that the weekly pay figure used to work out the redundancy payment will normally be your employee’s standard weekly gross pay at the time they were dismissed. This is up to the maximum limit of £719. 

Does constructive dismissal have a maximum limit for compensation?

Once the tribunal decides on how much of a basic award you must pay the employee, they will turn to the compensatory award. 

This component of constructive dismissal compensation awards ex-employees based on the losses they incur because of their employer's actions, which includes: 

• Previous wage loss

• Future wage loss

• Loss of pension contributions

Wage losses consider things such as company car, health insurance, and other employee benefits. If the worker receives commission or bonuses, they can also claim for this, even if the payments have been discretionary. 

Future losses are always speculative, so there is some room for debate, but other losses are not, and together, these losses add up to a significant figure. The most a person can win is one year's salary. 

The statutory cap, and therefore the maximum compensation limit for constructive dismissal, is £118,223 or the lower of one years gross salary. Considering the awards, legal fees, travel expenses, and other costs, you could easily end up paying over £200,000. 

How can I avoid paying out constructive dismissal compensation?

It is simply a case of keeping on top of things. As an employer, you need to do as much as you can to minimise the risk of a claim occurring. Be aware of all the terms of your employees' contracts and if necessary, reach out to Croner for a free contract review. Ensure you regularly update policies and procedures to stay in line with legislation. 

Avoid actions that could disgruntle any employees to the point where they feel like their only option is to leave the business. 

An employment tribunal retains the power to adjust the basic award and the compensatory award. This is often the case if your ex-employee is found to have contributed to the situation because of their conduct or where you, as the employer, can prove you have followed the correct procedure. 

Talk to an Expert at Croner

There are constructive dismissal compensation calculators that can give you an estimate of what you must pay out. However, we advise that you speak to an expert at Croner for guidance and, if required, tribunal representation. 

Call 0808 501 6651 today and find out how you can make your employment contracts watertight.