Wrongful dismissal and damages

By Tolley in association with Andy Williams at Charles Russell Speechlys LLP
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The following Employment Tax guidance note by Tolley in association with Andy Williams at Charles Russell Speechlys LLP provides comprehensive and up to date tax information covering:

  • Wrongful dismissal and damages
  • Discount for accelerated receipt
  • Interest
  • Liquidated damages clauses and penalties
  • Valuing benefits in kind

Case references in this guidance note are all subscription sensitive.

Claimants who bring successful wrongful dismissal claims to an Employment Tribunal or court, where these result in an award of compensation, may receive payment in respect of certain sums either before or after the date on which they would have received those sums had they remained employed.

Where asum is received before the date on which it would have been received if the individual had remained employed, adiscount for accelerated receipt may be appropriate, which is discussed below. Where asum is received after that date, the claimant will be entitled to interest.

Discount for accelerated receipt

Accelerated receipt is the counterpart to interest. Interest compensates aparty who did not receive money when it was due, because late payment deprived that party of the opportunity to invest it and earn interest on it.

Accelerated receipt involves discounting acompensation payment where money is received earlier than it would have been in the normal course (eg had it been received as ordinary monthly or weekly instalments of salary).

For example, consider amonthly-paid employee on atwo-year fixed-term contract who is wrongfully dismissed one year after employment commences.

Even if the employer accepts their liability to pay compensation, and agrees that no deduction should be made for mitigation, it would still not be appropriate to pay awhole year’s worth of compensation in alump sum because this would give the employee the benefit of the money earlier than he would have received it had he stayed and earned the money under the contract.

To calculate the appropriate damages sum, astraightforward discount for accelerated receipt could be applied by:

  • dividing the compensation into 12 parts

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