What is Constructive Dismissal Compensation?

By Deborah Manktelow
20 May 2022

Constructive dismissal compensation, sometimes referred to as “unfair dismissal compensation”, is the monetary amount awarded to an employee who believes that their employer has fundamentally breached their employment contract.

As an employer, if you do something that breaches the terms of an employment contract, 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
  • 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?

Text – Would having to pay out a maximum of £93,878 in constructive dismissal claim compensation be a drain on your business's financial resources?

It’s the question on the mind of the employee, so it should certainly be under consideration from your UK business. How much compensation do you get for 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?

Text – In short, yes. The maximum amount that employees can receive for a basic award payment is £17,130.

It is also worth noting that from 6th April 2022 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 £571.

Does constructive dismissal have a maximum limit for compensation?

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

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

Types of losses include:

  • Previous wage loss.
  • Future wage loss.
  • Loss of
  • loss.

Wage losses take into account 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 £93,878. Any employee who earns more than this in one year, for example, £94,000, will not be able to win more than this cap. The compensatory award is in addition to the basic award, not instead of.

Considering the awards, legal fees, travel expenses, and other costs, you could easily end up paying over £120,000.

How Can I Avoid Paying Out Constructive Dismissal Compensation?

Text - It is simply a case of keeping on top of things. As an employer, all you can do is minimise the risk of a claim occurring. Be aware of all the terms of your employees' contracts and if necessary, reach out for a free contract review. Make sure 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 a rough idea of what you have to pay out. However, we advise that you speak to an expert at Croner for assistance including guidance and tribunal representation.

Call 01455 858 132 today and find out how you can make your employment contracts watertight.

About the Author

Headshot of Deborah Mantkelow

Deborah Manktelow is a CIPD Qualified HR professional with over 7 years’ experience in generalist HR management working within the Construction Industry.

Working for a National provider of Insulation provided Deborah with the opportunity to strategically support Operations across the UK, supporting HR functions and the wider business.

Deborah is Croner’s Advice Manager, taking responsibility for overseeing the provision of advice to all Croner clients, bringing together our Corporate, Simplify and Association service provisions.

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