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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.