EIM12960 | Termination payments and benefits: payments made under the Employment Rights Act 1996 (ERA): unfair dismissal

A common cause of complaint to Employment Tribunals under ERA is that of unfair dismissal. This means dismissal contrary to the provisions of ERA.

If a complaint is proved a Tribunal has first to decide whether the employer should be required to reinstate or re-engage the employee. If reinstatement or re-engagement is ordered under Section 113 ERA, the Tribunal order will specify the date of reinstatement (Section 114) or re-engagement (Section 115).

The Tribunal will also specify the amount payable by the employer to compensate for any benefit (including arrears of pay) that the employee would have had if he or she had continued as an employee for the period from the date of dismissal until the date of reinstatement or re- engagement. This sum is compensation for unfair dismissal and so is taxable only under Section 401 ITEPA 2003 so the employer should operate PAYE where the aggregate payments within that Section exceed £30,000 (see EIM13530). If, exceptionally, there is as a matter of fact continuous employment between the dates of dismissal and reinstatement or re-engagement ordered by the Tribunal, any payment for that period is taxable under Section 62 ITEPA 2003 (see EIM00600).This may happen where an employee is dismissed and immediately re-employed to allow a provision to be left out of the contract, and the date of reinstatement or re-engagementis later than the re-employment date.

If the Tribunal does not order the employee to be reinstated or re-engaged then it will order the employer to pay compensation for the unfair dismissal under Section 112(4) ERA. It may also order compensation, under Section 117 ERA, where the employer fails to comply with an earlier decision that the employee be reinstated or re-engaged. These awards of compensation are for loss of the employment and liability will arise only under Section 401 ITEPA 2003 (see EIM13000).

When making a complaint of unfair dismissal, an employee may also claim that the employer failed to provide him or her with a written statement of the reasons for dismissal. If this claim is upheld, the Tribunal may award compensation under Section 93(2)(b) ERA. This compensation is taxable only under Section 401 ITEPA 2003.

For details concerning wrongful dismissal, see EIM12970.