Wrongful dismissal and damages

Produced by Tolley in association with Andy Williams at Charles Russell Speechlys LLP
Wrongful dismissal and damages

The following Employment Tax guidance note Produced 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
  • Penalty clauses
  • Liquidated damages clauses
  • Valuing benefits in kind
  • Insurance
  • Cars / travel benefits
  • Share options

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 a sum is received before the date on which it would have been received if the individual had remained employed, a discount for accelerated receipt may be appropriate, which is discussed below. Where a sum 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 a party 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 a compensation 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 a monthly-paid employee on a two-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 a whole year’s worth of compensation in a lump 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, a straightforward discount for accelerated receipt could be applied by:

  1. dividing the compensation into 12 parts

  2. deducting from each part an amount representing the interest it could earn if invested between the actual date of payment and the date it was due to be paid as monthly salary under the contract (ie one month’s interest is deducted from the first part, two months’ from the second, etc)

The calculation could

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