Does a respondent’s ability to pay change the amount a tribunal will award for unfair dismissal?

No. It does not.

There has never been much doubt about this. Any uncertainty has been put to rest by the EAT in Tao Herbs & Acupuncture Ltd v Jin.

Judge McMullen Q.C. said:

19. The third ground advanced in this application relates to section 123. It is contended that the award to the Claimant was not just and equitable because it was substantial. I reject this as a proposition of law. In the calculation of loss for unfair dismissal the prime consideration is the loss suffered by the Claimant attributable to the action of the employer. The vehicle for the submission today is that if this award has to be paid, the business will go into liquidation.

20. That is not the correct approach to the assessment of an award for unfair dismissal, which does not pay attention to the ability of the employer to pay. There are places in the employment protection canon where ability to pay is a feature (see for example the costs regime). But in the assessment of damages for a statutory tort, the possibility that the employer will be in difficulty paying an award is not a relevant consideration.

This does not add significantly to our legal understanding, but it is a clear and concise statement of principle. It might be useful, therefore, in convincing a stubborn respondent that this is not a line worth taking.

One word of caution: while ability to pay will not change the tribunal’s decision there is, unfortunately, a gap between obtaining a tribunal decision and getting the money. This needs to be considered when making decisions about litigation.

4 Replies to “Does a respondent’s ability to pay change the amount a tribunal will award for unfair dismissal?”

  1. May I here plug Daniel Barnett? His Employment Law bulletins from introduce subscribers to interesting recent cases, and his commentaries are always interesting.

    However what he says about this case is, “There is a powerful case for saying that one relevant circumstance is the impact a substantial award would have on the jobs of other members of the workforce. But for now, the law is clear. An employer’s inability to pay is not relevant.”

    There is a risk that tribunals may come to let this view creep in, especially as the compensation is what is “just and equitable” rather than simply what will compensate for loss.

    His comment also shows the high principle driving those who work for deep-pocketed employers, who some see as working to prevent employees enforcing their rights.

    1. I’m happy to second the recommendation. Daniel’s bulletins are indispensable.

      I can see Daniel’s argument on the case, but I disagree with him about the likely future direction on the law. I don’t think that the tribunals will have any appetite for extending their approach to compensation beyond the principle that they should compensate the claimant for their financial loss.

      The compensatory principle has a long tradition behind it in English law. It is the basis of most remedy calculations in most claims, not just in the tribunal.

      Also, once you move beyond it, it’s hard to know where you stop. If the future prospects of other employees is a relevant factor, then why not the emotional harm suffered by the employee? Or the extent to which the dismissal was malicious? Or whether a punitive award might encourage better practice in the future, either at the Respondent’s company or more generally?

      If the tribunal’s began to consider all, or even some, of this litigation would get much more complicated, harder to predict and significantly longer.

  2. Well, I can’t read those comments without thanking both of you for the kind reference to my bulletins (and mentioning that I read Naomi and Michael’s blog avariciously – I think it’s the most interesting and well-informed practical tribunal guide out there). It’s a real problem – but how can it be fair that employers are pushed into insolvency, with all the consequences for other employees, because of (eg) harassment from one employee against another. I agree with Michael that taking into account an employer’s ability to pay might open the floodgates to other arguments on compensation, but is that a bad thing if it ultimately leads to (in the words of the statute) a ‘just and equitable’ award for the employee?

  3. …I’m tempted to say that they this is the sort of dreadful outcome that an employer should consider before denying / tolerating / ignoring conduct such as harassment and bullying. It isn’t a matter of fairness, but of planning.

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