Tribunal awards – calculating a week’s pay

In a recent case the Employment Appeals Tribunal ruled that a week’s pay should include employer pension contributions, rather than just basic pay, for calculation of compensation for claims under the Employment Rights Act 1996.

Let’s take a look at the facts.

Ms Drossou (D), who worked for the University of Sunderland, was dismissed on the grounds of an irretrievable breakdown in working relations, of which the University claimed D to be the main cause. Subsequently, D brought a claim of unfair dismissal that was eventually upheld by the Tribunal.

As a result, the EAT ordered compensation from the University, calculating a week’s pay by including the employer pension contributions. On the normal grounds that payments are not paid to the employee but into the pension fund, this decision went against the longstanding practice of excluding employer pension contributions from the calculations of a week’s pay.

The Tribunal felt that this deviation from standard practice was necessary, and said that the law under the Employment Rights Act 1996 (‘the ERA’) does not state that the amount payable by the employer has to be payable to the employee (i.e. it could be payable to a third party such as a pension provider). Additionally, the EAT stated that “remuneration” in the context of the ERA means a reward in return for services, and employer pension contributions are no less a reward for service than basic pay. The University was not satisfied with the ruling, but when it appealed to the EAT the Tribunal’s decision was upheld.

So, what does this mean for employers?

For the time being (at least until we see whether this decision is appealed) employers need to increase their calculations in accordance with the potential value of claims. Employers facing unfair dismissal claims need to be careful. If the claimant’s base salary is below £80,541 – the current statutory cap for unfair dismissal compensation – the calculation of a week’s pay becomes highly relevant. Where the employee earns less than the statutory cap on a week’s pay (currently £489), the basic award will also be increased – as well as all other awards based on the ERA definition such as the eight-weeks’ pay for a flexible working rules breach.

But, more importantly, the decision may impact protective awards. If employers fail to inform and consult under TUPE or, in a redundancy process, under the Trade Union and Labour Relations (Consolidation) Act 1992, then they could face large increases in the total compensation payable. The final amount will depend on the number of affected employees, the generosity of the pension provision and the size of protective award made up to the 13-week maximum. But if each employee has a 10% employer pension contribution and they all get an award of 13 weeks, then the total payable increases considerably.

For more information on this please contact Alison.

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