An Extra-ordinary Decision Resulting in an Employer Paying in Excess of the Statutory Cap for a ‘Vanilla’ Unfair Dismissal

The decision in the case of Dafiaghor-Olomu -v- Community Integrated Care [2022] EAT 84, has created a conundrum for employers which seems difficult to avoid.

Background

Mrs Dafiaghor-Olomu brought a successful unfair dismissal claim against her employer Community Integrated Care (‘CIC’). She was awarded approximately £46,000 in compensation but the Tribunal refused to order her re-engagement. CIC made the payment of the £46,000 to Mrs Dafiaghor-Olomu in accordance with the terms of the order.

So far, so good.

However, Mrs Dafiaghor-Olomu appealed the decision of the Tribunal to the EAT for failure to award re-engagement and that appeal was successful meaning that the case was remitted back to the Employment Tribunal to consider again the question of remedy. At that second remedy hearing, the Tribunal once again refused to order re-engagement but, based on new evidence, the Tribunal concluded that the first compensatory award of £46,000 was insufficient and re-calculated the amount. The Tribunal’s re-calculated figure for compensation was just over £128,000.

The maximum sum that could be awarded for unfair dismissal at the relevant time was £74,200 or 52 weeks’ pay whichever was the lower. In Mrs Dafiaghor-Olomu’s case the £74,200 was the lower figure which would have meant, if that amount had been awarded in the first place, that the award of £128,000 in compensation would have been reduced to £74,200 and that would have been the amount that the employer would have paid in compensation.

However, a dispute arose as to when the statutory cap of £74,200 should be applied. The employer argued that the correct analysis would be that (i) the compensation awarded was £128,000, (ii) that the statutory cap of £74,200 should then be applied and (iii) that the sum they had already paid of £46,000 should be deducted, meaning that a balance of £28,200 would be payable. Mrs Dafiaghor-Olomu argued that the correct approach was to deduct the £46,000 already paid from the award of £128,000 (resulting in a sum of £82,000) and to then apply the statutory cap meaning the amount of £74,200 would be payable.

Section 124 (5) of the Employment Rights Act 1996 (“ERA”) states that the statutory cap should be applied against the amount the Tribunal would, except for this section, award after taking into account:

1. any payment made by CIC to Mrs Dafiaghor-Olomu in respect of that matter; and
2. any reduction in the amount of the award required by any enactment or rule of law.

The EAT concluded that ‘Parliament’s intention was that the ET should calculate the employee’s total compensation (in this case £128,000) and then subtract from it any prior payments of the sort covered by paragraphs (a) and (b)’ above. The phrase ‘after taking into account’ meant that the £46,000 figure had to be deducted before the imposition of the statutory cap, meaning CIC paid £46,000 plus a further £74,200 notwithstanding that this resulted in a total payment to Mrs Dafiaghor-Olomu of around £120,000, rather than the statutory cap amount of £74,200.

Implications of the decision

The fact that Mrs Dafiaghor-Olomu received two Tribunal determinations of compensation meant that she was awarded more than the statutory cap on compensatory awards for unfair dismissal.

The EAT acknowledged that not applying the cap first to the £128,000 award and then giving credit to CIC for the payment of £46,000 meant that CIC had, effectively, been penalised for complying with the Tribunal’s first order.

It remains to be seen whether CIC will appeal the decision of the EAT, but employers should be alive to the possible consequences of a successful appeal as set out above.

In circumstances where there is a potential risk that the Tribunal’s award could be appealed and/or reviewed there is a risk that employers will be reluctant to pay compensation promptly and will wait until the time limit for any appeal has passed (42 days from the date the decision was sent to the parties). If an appeal is not lodged, they are likely to make the compensation payment then. If an appeal is lodged, they may then be tempted to wait further until the appeal is heard and the outcome known; if remitted back to the Tribunal on remedy, they may then wait further until the outcome of that second remedy hearing is known.

In Mrs Dafiaghor-Olomu’s case, the first remedy hearing was heard in January 2016 when the £46,000 compensation was awarded; the second remedy hearing was heard in August 2018. In the circumstances, there was a period of approximately 18 months between the two hearings. If Employers do not pay a compensatory award, not only is that a breach of a Tribunal order but it will result in a requirement to pay interest at the rate of 8% per annum from the day after the date of the decision. In this case, that would have resulted in an interest payment of approximately £5,520 which is substantially less than the differential the employer was required to pay given the prompt payment of the original award of £46,000.

However, if an Employer fails to make payment of a compensatory award, the employee may seek to enforce the award pursuant to part 2A, sections 37A – 37Q of the Employment Tribunals Act 1996 (ETA), which provides that after the time limit for any appeal of the decision has expired, the employee can commence enforcement action by submitting an employment tribunal penalty enforcement form to the team within BEIS. In response, the ET Penalties Team will verify the claim and issue a ‘warning notice’ to the employer, demanding that the award be paid by the employer before a specific date, no less than 28 days from the date of the notice. If the employer fails to pay the relevant sum in full before the specified date, the ET Penalties Team can issue a penalty notice, specifying a ‘fine’ for failure to pay of 50% of the unpaid relevant sum, subject to a minimum of £100 and a maximum of £5,000, payable to the Secretary of State no less than 28 days from the date of the notice. An unpaid fine will accrue interest if it is not paid within the period specified on the penalty notice. If the employer pays the penalty and the unpaid relevant sum in full within 14 days of the penalty notice, the sum of any penalty will be reduced by 50%.

A parallel scheme runs alongside the employment tribunal penalty scheme, whereby employers who fail to pay Tribunal awards of £200 or more can be named publicly in a BEIS press release on the gov.uk website. An unpaid employee simply ticks a box on the employment tribunal penalty enforcement form indicating their consent. The warning notice will advise the employer that if it does not pay the award, it will not only risk a penalty, but also face a public naming for failure to pay. If the award remains unpaid after 28 days, a naming notification letter will be sent to the employer with the penalty notice, advising they will be named publicly, if they do not submit valid representations within 14 days, which are then accepted. Valid representations include proof that the relevant sum has been paid in full.

If you have any queries about this matter, please contact Linky Trott or any member of the Employment team.

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