Compensatory awards to increase as employer pension contributions count towards the calculation of a week’s pay

The Employment Appeal Tribunal has ruled that employer pension contributions count towards the calculation of a week’s pay when working out the maximum compensatory award for unfair dismissal.  

Facts

In University of Sunderland v Drossou, Ms Drossou won an unfair dismissal claim against her employer. The cap on the compensatory award for unfair dismissal is set at the lower of 52 weeks’ pay and £80,541. Ms Drossou argued that employer pension contributions should be taken into account when calculating the maximum compensatory award of 52 weeks’ pay.  The employment tribunal agreed.  It declined to follow a 1989 employment tribunal decision which had ruled that pension contributions should not be taken into account as they are not received directly by the employee but paid into the pension fund.  

The University appealed.   

Decision

The Employment Appeal Tribunal dismissed the appeal.  It agreed with the ET decision and its reasons. 

Implications

As a result, unfair dismissal compensatory awards are likely to be higher than previously.  The impact will be particularly stark for employers who participate in pension schemes with high contribution rates. 

Likewise, other payments calculated by reference to a week’s pay under the Employment Rights Act 1996 will be affected.  These include redundancy and TUPE protective awards and arguably payments in lieu of accrued but untaken holiday on termination of employment.